United States v. Shkreli

47 F.4th 65

UNITED STATES of America, Appellee,

v.Martin SHKRELI, Defendant,Evan Greebel, Defendant-Appellant.

Docket No. 21-993

August Term, 2021

United States Court of Appeals, Second Circuit.

Argued: April 28, 2022

Decided: August 24, 2022

THOMAS R. PRICE, Assistant United States Attorney (Varuni Nelson, Rachel G. Balaban, Beth P. Schwartz, on the brief), for Breon Peace, United States Attorney for the Eastern District of New York, Brooklyn, New York, for Appellee.

REED BRODSKY, Gibson, Dunn & Crutcher LLP, New York, NY, for Defendant-Appellant.

Before: WESLEY, BIANCO, and PÉREZ, Circuit Judges.

WESLEY, Circuit Judge:

Evan Greebel was ordered to pay $10,447,979 in restitution to his victims following his convictions for conspiracy to commit wire fraud and conspiracy to commit securities fraud. The United States Government sought to enforce Greebel's restitution order under the Mandatory Victims Restitution Act ("MVRA") by garnishing approximately $921,000 contained in Greebel's retirement accounts. The United States District Court for the Eastern District of New York (Matsumoto, J .) granted the Government's application for writs of garnishment seeking access to defendant's 401(k) retirement accounts.

This appeal requires us to decide whether the district court properly granted the Government's application for garnishment. Like the district court, we hold that the MVRA permits the Government to garnish Greebel's retirement funds to compensate the victims of his crimes, notwithstanding the Employee Retirement Income Security Act of 1974 ("ERISA")’s anti-alienation provision.

We further agree with the district court that the plan documents provide Greebel the right to withdraw the funds in his retirement accounts. At the same time, we reiterate that the Government, in seeking garnishment to enforce restitution under the MVRA, steps into the defendant's shoes, acquiring whatever rights the defendant himself possesses to the balance of the 401(k) accounts. Thus, here, the Government's right to Greebel's retirement funds may be limited by the ten-percent early withdrawal tax to which Greebel would be subject. The district court did not consider whether Greebel would be subject to the early withdrawal tax upon seizure of funds by the Government or determine what property interest remains in Greebel's retirement accounts. Accordingly, we remand to the district court to address those questions in the first instance.

Finally, we reject Greebel's argument that the Consumer Credit Protection Act ("CCPA") limits the Government from garnishing more than 25 percent of the funds in his accounts.

BACKGROUND

A. Factual Background

In 2017, Evan Greebel was convicted of Conspiracy to Commit Wire Fraud, 18 U.S.C. § 1349, and Conspiracy to Commit Securities Fraud, 18 U.S.C. § 371, as a result of his conspiring with co-defendant Martin Shkreli and others to defraud investors in Retrophin, Inc. At the time Greebel so conspired, he was a partner at the law firm Katten Muchin Rosenman LLP ("Katten") and served as Retrophin's outside counsel. In August 2018, the district court sentenced Greebel to, inter alia , pay restitution to his victims in the amount of $10,447,979, which was "due and payable immediately from available assets ... until paid in full," in accordance with the MVRA. J. App'x 73.¹

This appeal arises out of the Government's effort to garnish two of Greebel's retirement accounts to enforce his restitution order under the MVRA.

1. Greebel's 401(k) from Fried Frank

The Government sought to garnish Greebel's interest in his 401(k)-retirement account at Merrill Lynch from the time he worked as an associate at the law firm Fried, Frank, Harris, Shriver & Jacobson LLP ("Fried Frank"). Greebel's 401(k) is sponsored by Fried Frank and governed by the "Amendment and Restatement of Fried, Frank, Harris, Shriver & Jacobson LLP 401(k) Incentive Savings Plan" (the "Fried Frank Plan"). The relevant section of the Fried Frank Plan is Article VI (Payment of Benefits and Withdrawals; Loans).

Section 6.01 of Article VI states that "[u]pon a Participant's Separation from Service, other than by reason of his death, he shall be entitled to a distribution of his interest in his Account balance in a single lump sum or shall be entitled to effect a no-load transfer of the Investment Fund share held in his Account to an Individual Retirement Account ["IRA"] established by [Merrill Lynch]." J. App'x 220 (emphasis added). Section 6.02(a) provides that "the distribution of a Participant's Account balance shall occur upon the earliest practicable date after the Investment Date of the Plan Year in which his Separation from Service occurs" except as provided in the following subsections 6.02(b) and (c). Id . Section 6.02(b) establishes that "if the value of the Participant's vested Account balance is more than $1,000, then his vested Account balance shall not be distributed until he reaches his sixty-second (62nd) birthday unless he elects within the period between thirty (30) days and one hundred and eighty (180) days after he receives the notice required by Treasury Regulation Section 1.411(a)-11(c) to receive his benefits prior to that date." Id. (emphasis added). Section 6.02(c) provides that "a Participant may consent to postpone the distribution of his Account balance beyond the date specified in Subsection (a) or (b) by filing a written statement with the Pension Committee stating the date upon which he desires the distribution to be made." Id.

2. Greebel's 401(k) from Katten

The Government also sought to garnish Greebel's interest in his 401(k)-retirement account at Charles Schwab from his time working as an associate and partner at Katten. Greebel's account is governed by the "Katten Muchin Rosenman LLP Defined Contribution Plan, as Amended and Restated Effective January 1, 2007" (the "Katten Plan"). The relevant section of the Katten Plan is Article VII (Withdrawals).

Section 7.4, governing Partial Withdrawal by Inactive Participants,² provides that "[b]y applying to the Applicable Administrative Named Fiduciary ["AANF"]³ in the form and manner prescribed by the [AANF], an Inactive Participant may make a withdrawal from all Accounts of any amount, up to the entire value , of his Accounts." J. App'x 306 (emphasis added). Section 7.5 (Withdrawal Processing Rules) establishes the procedure for requesting a withdrawal of funds. Section 7.5(a) provides that "[t]here is no minimum for any type of withdrawal," and Section 7.5(b) provides that "[t]here is no maximum number of withdrawals permitted in any Plan Year." Id. "A Participant must submit a withdrawal request in accordance with the procedures established by the [AANF]." Id. at 307 (Section 7.5(c)).

B. Procedural History

To enforce Greebel's restitution order under the MVRA, the Government applied under 28 U.S.C. § 3205 for writs of continuing garnishment ("writs") for Greebel's interest in his retirement accounts under the Fried Frank Plan and Katten Plan. Greebel objected pursuant to 28 U.S.C. § 3205(c)(5) of the Federal Debt Collection Procedures Act, 28 U.S.C. § 3001 et seq. , seeking to vacate both writs. He argued that he does not have a current, unilateral right to withdraw funds from either retirement account, and thus the accounts are protected by ERISA's anti-alienation provision and not subject to garnishment. In the alternative, Greebel contended the CCPA limits the Government from garnishing more than 25 percent of the funds in the accounts.

Greebel requested a hearing on the motion for writs of garnishment. The district court granted Greebel's request for a hearing over the Government's objection. At the hearing, three witnesses testified about the two retirement plans. Each of the witnesses testified that former employees of their respective firms, such as Greebel, can withdraw the funds in their retirement accounts at any time after leaving the firm.⁴ Following the hearing, the district court granted the Government's request for writs of garnishment. Greebel appealed.

DISCUSSION

We review the district court's decision de novo because Greebel's arguments on appeal sound in statutory and contractual interpretation.⁵ We begin by laying out the statutory provisions at issue in this case: the MVRA's restitution requirement and procedure for enforcement, ERISA's prohibition on disbursing retirement funds to third parties, and the CCPA's cap limiting garnishment of earnings. The answer to whether the Government may enforce Greebel's restitution obligations against his ERISA-protected funds, and the appropriate amount subject to garnishment, lies in the interplay between these provisions.

I. The MVRA Permits Garnishment of Funds Otherwise Protected by ERISA's Anti-Alienation Provision

"The [MVRA] is one of several federal statutes that govern federal court orders requiring defendants convicted of certain crimes to pay their victims restitution." Lagos v. United States , ––– U.S. ––––, 138 S. Ct. 1684, 1687, 201 L.Ed.2d 1 (2018). Section 3613(a) provides the procedures available to the Government for collecting unpaid restitution. The relevant provision of the MVRA states:

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 [certain enumerated sections] of the Internal Revenue Code of 1986 shall be exempt from enforcement of the judgment under Federal law;

(2) [Federal Debt Collection Procedures Act procedures for exempting certain property] 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

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