United States v. Frank

8 F.4th 320

UNITED STATES of America, Plaintiff – Appellee,

v.Jon Lawrence FRANK, Defendant – Appellant.

No. 20-6706

United States Court of Appeals, Fourth Circuit.

Argued: March 12, 2021

Decided: August 10, 2021

ARGUED: Cadence Alexandra Mertz, OFFICE OF THE FEDERAL PUBLIC DEFENDER, Alexandria, Virginia, for Appellant. Laura Michelle Grimes, OFFICE OF THE UNITED STATES ATTORNEY, Norfolk, Virginia, for Appellee. ON BRIEF: Geremy C. Kamens, Federal Public Defender, OFFICE OF THE FEDERAL PUBLIC DEFENDER, Alexandria, Virginia; Andrew L. Kline, CLEARY GOTTLIEB STEEN & HAMILTON LLP, Washington, D.C., for Appellant. G. Zachary Terwilliger, United States Attorney, Daniel T. Young, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee.

Before NIEMEYER, KEENAN, and HARRIS, Circuit Judges.

Vacated and remanded by published opinion. Judge Harris wrote the opinion, in which Judge Niemeyer and Judge Keenan joined.

PAMELA HARRIS, Circuit Judge:

This appeal requires us to decide whether and to what extent retirement benefits protected by the anti-alienation provision of the Employee Retirement Income Security Act of 1974 ("ERISA") are subject to criminal restitution orders under the Mandatory Victims Restitution Act of 1996 ("MVRA"). The MVRA provides expressly that restitution orders may be enforced against "all property or rights to property" and "[n]otwithstanding any other Federal law." See 18 U.S.C. § 3613(a). Largely for that reason, we agree with the district court that the MVRA permits the seizure of defendant Jon Lawrence Frank's 401(k) retirement account, notwithstanding ERISA's protections, in order to compensate the victim of his crime.

At the same time, we clarify that when the government enforces a restitution order under the MVRA, it stands in the shoes of the defendant himself, acquiring whatever rights to 401(k) retirement funds he possesses – no less, but also no more. That means, here, that the government's access to the funds in Frank's 401(k) account may be limited by terms set out in Frank's plan documents or by early withdrawal penalties to which Frank would be subject. The district court did not consider those questions. Accordingly, we remand so that the district court may decide in the first instance what present property right Frank has in his 401(k) account and, by extension, what funds from that account the government may garnish pursuant to the court's restitution order.

Finally, we reject Frank's argument that the garnishment restrictions of the Consumer Credit Protection Act provide an additional limitation on the government's right to access his 401(k) funds. A lump-sum distribution from a 401(k) account does not qualify as "earnings" protected by that statute, see 15 U.S.C. § 1673(a), and so the district court need not account for those garnishment restrictions on remand.

I.

From 2007 to 2017, Jon Lawrence Frank embezzled over $19 million from his former employer, NCI Information Systems, Inc. ("NCI"), making unauthorized payments of company funds to his personal bank accounts. In June 2017, after his scheme was uncovered, Frank pleaded guilty to one count of wire fraud under 18 U.S.C. § 1343. The district court sentenced Frank to 78-months’ imprisonment and three years’ supervised release. As relevant here, the court also ordered Frank to "pay restitution in the total amount of $19,440,331." J.A. 35. To date, the government has recovered from Frank and remitted to NCI over $7 million.

This appeal arises out of the government's effort to garnish Frank's 401(k) retirement account under the Mandatory Victims Restitution Act of 1996 ("MVRA"), Pub. L. No. 104-132, 110 Stat. 1227– 41, to further satisfy the criminal restitution order against him. In September 2019, the government filed an Application for Writ of Continuing Garnishment, see 18 U.S.C. § 3664(m)(1)(A)(i), naming Charles Schwab & Co., Inc. ("Schwab") as the garnishee and seeking access to Frank's 401(k) account. While employed at NCI, Frank was covered by the company's Schwab-administered retirement plan, and Schwab currently holds approximately $479,504 in a 401(k) account in Frank's name. The terms of Frank's defined contribution plan provide that Frank, once no longer employed by NCI, can request that his 401(k) assets be "distributed in a lump sum," J.A. 87, except that 20% of that benefit payment will be withheld and remitted to the Internal Revenue Service as a credit against Frank's tax liability. Participants who take distributions before they reach retirement age – here, 59 and a half years – "may also have to pay an additional 10% tax." J.A. 91. The parties agree that Frank's plan is covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 – 1461.

Frank moved to quash the writ. His primary argument was that the government could not garnish his retirement account at all because the account was governed by ERISA's anti-alienation provision, which protects retirement plans against claims by third parties. See 29 U.S.C. § 1056(d)(1) (providing that qualified plans "may not be assigned or alienated"). And even if the government could access the account, Frank argued, it would be subject to the same withdrawal limits as Frank himself, precluding a lump-sum withdrawal of the full amount. Moreover, Frank contended, the wage garnishment restriction of the Consumer Credit Protection Act of 1968 ("CCPA"), Pub. L. No. 90-321, 82 Stat. 146, would limit the government to taking 25 percent of the funds in the account.

The government's application was referred to a magistrate judge, who rejected Frank's core contention that ERISA bars the government's seizure of his 401(k) account. The key question, the magistrate judge explained, was "whether the MVRA's directive mandating victim restitution trumps ERISA's robust protection of retirement funds." J.A. 165. And the answer, he concluded after a careful analysis of the MVRA, was that it does: "[A]ll standard principles of statutory construction support the conclusion that [the] MVRA authorizes the enforcement of restitution orders against retirement plan benefits, the anti-alienation provision of ERISA notwithstanding." J.A. 171 (quoting United States v. Novak , 476 F.3d 1041, 1053 (9th Cir. 2007) (en banc)). In addition, the magistrate judge noted, reading the MVRA to "override" ERISA's anti-alienation provision was consistent with the view of every court of appeals and district court to have considered the issue. J.A. 170.

The magistrate judge then turned to the question of exactly how much the government could take from Frank's account. The parties agreed, the magistrate judge explained, that the government acquires whatever "present right" the account-holder himself possesses in property garnished under the MVRA, J.A. 177 – which means that "[i]f a defendant's right to receive a lump-sum distribution of his retirement funds is subject to a condition, the government would not have any more access than the defendant," J.A. 177 (alteration in original) (quoting United States v. Sayyed , 862 F.3d 615, 619–20 (7th Cir. 2017) ). So here, because Frank, no longer working for NCI, was entitled to a lump-sum pay-out of his 401(k) account, so too was the government; that Frank might "prefer [not] to exercise" his right to an immediate distribution, given penalties and tax implications, was beside the point. J.A. 177–78 (quoting Sayyed , 862 F.3d at 619 ). But because the government could do no more than step into Frank's shoes when seizing his property, its disbursement from his 401(k) account would be subject to "any tax withholdings by Schwab under the terms of the plan." J.A. 179. The CCPA, on the other hand, would not limit the government's recovery, because that statute's garnishment cap at 25 percent of "earnings" does not apply to single, lump-sum withdrawals from retirement accounts. See J.A. 178–79 (citing 15 U.S.C. § 1673(a) ).

With one exception, the district court "adopt[ed] the findings of fact and conclusions of law" in the magistrate judge's report. United States v. Frank , No. 1:17-cr-114 (LMB/MSN), 2020 WL 2205066, at *3 (E.D. Va. May 6, 2020). The court first agreed with the magistrate judge's threshold and critical conclusion: "that the MVRA demonstrates Congress's clear intent to override ERISA's anti-alienation provision," allowing for seizure of Frank's 401(k) account to enforce a criminal restitution order. Id. at *2. The court also agreed that the government, "stepping into defendant's shoes, can require a lump-sum liquidation of defendant's 401(k) account." Id. And finally, like the magistrate judge, the district court concluded that the CCPA's wage garnishment cap does not apply to single, lump-sum distributions from retirement accounts. See id.

Unlike the magistrate judge, however, see J.A. 179, the district court did not specify that the government's recovery from Frank's 401(k) would be limited by "tax withholdings by Schwab under the terms of the plan." Instead, the court held that "the government has the right to force the immediate liquidation of Frank's entire 401(k) account" – and then, that as a "matter of equity," the government should remit ten percent of the account to Frank to "offset any additional tax penalty incurred."

Frank , 2020 WL 2205066, at *2 (emphasis added); see id. at *3. Accordingly, the district court ordered Schwab to turn over 90 percent of Frank's account to the government, J.A. 221–22, regardless of the amount that would be withheld from any benefit distribution to Frank under the terms of the plan.

Frank filed a timely notice of appeal from the district court's order.

II.

On appeal, Frank contends, first and foremost, that the district court erred when it rejected his argument that ERISA altogether prohibits the government from seizing his 401(k) retirement account. In the alternative, he argues that the district court disregarded limits on how much of his account...