United States v. Krol

UNITED STATES OF AMERICA, v. KURT MICHAEL KROL, Defendant.

5:15-CR-292-FL-1

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

November 22, 2017

ORDER

This post-judgment proceeding comes before the court on petitioners' motion (D.E. 97) to quash three writs of garnishment directed, respectively, to Branch Bank & Trust ("BB&T") (D.E. 80), Universal Mania, Inc. ("Universal") (D.E. 81), and USAA Federal Savings Bank ("USAA") (D.E. 82). The government responded in opposition. D.E. 98. Subsequently, petitioners filed a supplemental memorandum (D.E. 105) in support of their motion to quash. The government requested and was allowed to respond (D.E. 113) to the supplemental memorandum. Petitioners requested and were allowed to file a reply. D.E. 115. Additionally, at the 7 November 2017 status conference, the parties presented argument on their respective stances on petitioners' motion and petitioners submitted additional materials in support of it. See 7 Nov. 2017 Minute Entry (D.E. 117). For the reasons set forth below, the motion will be denied.

BACKGROUND

On 15 December 2015, defendant Kurt Michael Krol ("defendant") pleaded guilty, pursuant to a plea agreement, to one count of trafficking in counterfeit goods, in violation of 18 U.S.C. § 2320(a)(1). 15 Dec. 2017 Minute Entry (D.E. 7). On 3 May 2017, a criminal judgment was entered against defendant with a directive that defendant pay restitution in the amount of $4,214,371.08 ("restitution order"). J. (D.E. 55) 7. The court further ordered with respect to restitution as follows:

Payment of restitution shall be due and payable in full immediately. However, if the defendant is unable to pay in full immediately, the special assessment and restitution may be paid through the Inmate Financial Responsibility Program (IFRP). The court orders that the defendant pay a minimum payment of $25 per quarter through the IFRP, if available. The court, having considered the defendant's financial resources and ability to pay, orders that any balance still owed at the time of release shall be paid in installments of $100 per month to begin 60 days after the defendant's release from prison. At the time of defendant's release, the probation officer shall take into consideration the defendant's ability to pay the restitution ordered and shall notify the court of any needed modification of the payment schedule.

J. 8.

On 12 July 2017, in an effort to collect on the restitution order, the government filed four applications for writ of garnishment as to BB&T (D.E. 63), JP Morgan Chase Bank NA (D.E. 64), Universal (D.E. 65), and USAA (D.E. 66), respectively. On 28 July 2017, the writ of garnishment was issued as to JP Morgan Chase Bank NA.¹ D.E. 74. On 8 August 2017, the remaining three writs were issued. D.E. 80, 81, 82. USAA filed an answer to the writ it was issued asserting that defendant maintained an interest in one account. USAA's Answer (D.E. 94) 2. BB&T filed an answer stating that defendant maintained interests in multiple accounts, as more fully discussed below. BB&T's Am. Answer (D.E. 106) 3. Universal answered that defendant did not maintain an "ownership interest in any property in [its] possession, custody or control" and that it was not indebted or under any liability to defendant. Universal's Answer (D.E. 93) 1.

Petitioners seek to quash the writs of garnishment as to USAA, BB&T, and Universal on the following bases: (1) the property the government is seeking to garnish is not the property of defendant ("Objection One"); (2) the writs of garnishment are procedurally defective ("ObjectionTwo"); (3) the writs should not apply to property covered by the Claim for Exemptions Form attached to each writ (D.E. 80-1, 81 -1, 82-1) ("Objection Three"); (4) defendant's outstanding debt is significantly overstated ("Objection Four"); (5) to the extent that property is joint property of defendant and either Regina Krol² or Universal, defendant is not the "equitable owner" of such property ("Objection Five"); and (6) the language of the payment schedule in the criminal judgment controls and the government cannot collect money outside of that schedule ("Objection Six").

Petitioners also make the following requests: (1) that the court impose a payment plan regarding defendant's remaining debt; (2) that the court prohibit the government from collecting the remainder of the debt in a manner that harms or embarrasses innocent individuals; (3) that the court enter any order which justice requires to protect petitioners and other innocent parties from undue hardship, burden, or expense; and (4) that the court hold a hearing on this matter.

DISCUSSION

I. APPLICABLE LEGAL PRINCIPLES

The Federal Debt Collection Procedures Act of 1990 ("FDCPA"), 28 U.S.C. §§ 3001 et seq., provides several post-judgment remedies to collect on a debt, one of which is a writ of garnishment, 28 U.S.C. § 3205. The government may use a writ of garnishment to collect on a restitution judgment. See United States v. Idema, 118 F. App'x 740, 744 n.5 (4th Cir. 2005) (affirming district court's holding that the government may utilize a writ of garnishment to collect on a restitution judgment). The FDCPA allows a writ of garnishment to be entered

against property (including nonexempt disposable earnings) in which the debtor has a substantial nonexempt interest and which is in the possession, custody, or controlof a person other than the debtor, in order to satisfy the judgment against the debtor. Co-owned property shall be subject to garnishment to the same extent as co-owned property is subject to garnishment under the law of the State in which such property is located.

28 U.S.C. § 3205(a).

The court has discretion in managing garnishment proceedings and may "on its own initiative or the motion of any interested person, and after such notice as it may require, make an order denying, limiting, conditioning, regulating, extending, or modifying the use of any enforcement procedure . . . ." 28 U.S.C. § 3013.

II. OBJECTIONS ONE AND FIVE

In both Objections One and Five, petitioners contend that the government is trying to garnish property that is not owned by defendant.³ However, as of the time the writs of garnishment were served, USAA asserted that defendant maintained an interest in a joint bank account with Regina Krol (USAA's Answer 2) and BB&T asserted that he maintained an interest in five accounts as follows: (1) joint owner of two accounts with Claudia Stephens; (2) joint owner of an account with Regina Krol; (3) "sole signer" on an account for Singh Harpreet Enterprises, Inc.; and (4) "president" on an account for Sim's Enterprises, Inc. (BB&T's Am. Answer 3).

As to defendant's joint accounts with Claudia Stephens and Regina Krol, under North Carolina law "a presumption exists . . . that all funds in a joint bank account belong to the debtor." In re Anderson, Bankr. No. 03-13586C-7G, Adversary No. 04-2070, 2006 WL 995856, at *5 (M.D.N.C. 13 Feb. 2006) (citing Jimenez v. Brown, 131 N.C. App. 818, 825, 509 S.E.2d 241, 246 (1998) ("As a joint account, either party may terminate the account or withdraw all funds from the account. . . . ' [T]here is a presumption that all of the joint bank account is owned by the debtor . ..' and that the depositors have the burden to prove that ownership of the funds is otherwise." (citation omitted))). Petitioners have presented no evidence to rebut the presumption as to any of the joint accounts.

Moreover, regarding the joint accounts with Claudia Stephens, petitioners baldly state these are her personal accounts and that defendant does not have "equitable ownership of these funds." Pet'rs' Resp. to BB&T's Am. Answer (D.E. 116) 2-3. This argument alone does not establish that defendant has no interest in the funds deposited in these accounts.

As to the accounts for Singh Harpreet Enterprises, Inc. and Sim's Enterprises, Inc., petitioners state that defendant is "no longer" president of Sims Enterprises (Pet'rs' Resp. to BB&T's Am. Answer (D.E. 116) 1) and "no longer" signatory on the Singh Harpreet Enterprises, Inc. account (Pet'rs' Resp. to BB&T's Am. Answer 2). However, it is unclear on what date these actions occurred. If such changes occurred after the writ of garnishment was served, these funds are still subject to garnishment. See 38 C.J.A. Garnishment § 226 (noting that a lien created by the garnishment "attaches to property and claims of defendant of garnishable character in the garnishee's possession or owed by the garnishee at the time of the service of the writ"); see also 26 C.F.R. § 301.6332-3(c)(3) ("A levy on deposits held by a bank applies to those funds on deposit at the time the levy is made, up to the amount of the levy, and is effective as of the time the levy is made.")

Accordingly, petitioners have failed to demonstrate that defendant does not maintain an interest in the above accounts.

III. OBJECTION TWO

In Objection Two, petitioners contend that the writs of garnishment are procedurally defective. Specifically, they contend that the writs (1) do not include the amount of costs and interest due and (2) were issued by the clerk instead of the "court," as required.

A writ of garnishment must state "[t]he nature and amount of the debt, and any cost or interest owed with respect to the debt." 28 U.S.C. § 3205(c)(2)(A) (emphasis added). Here, the government maintains that no cost or interest had accrued as of the date the writs were issued. Petitioners do not contest this assertion, nor have they presented evidence to the contrary.

The statute is reasonably read as requiring that a writ state costs and interests if they are owed. If neither is owed, there is nothing to state. Accordingly, the writs of garnishment issued were not required to state nonexistent costs or interest.

The argument that the court and not the clerk must issue a writ of garnishment is also without merit. See United States v. Hammons, 106 F.3d 402 (table), 1996 WL...