Opinion
MISCELLANEOUS ACTION NO: 03-42C, SECTION: "A" (5)
December 8, 2003
MEMORANDUM OPINION
On October 17, 2001, the District Court for the Eastern District of Texas sentenced defendant for violations of 18 U.S.C. § 371, conspiracy, and 2321, trafficking in motor vehicle parts. As part: of his sentence, defendant was ordered to pay restitution ($370,170.36), a fine ($7,500.00), and a special assessment fee ($1,100.00). The Government asserts that Sowada has paid $200.00 toward the special assessment but no other payments have been received.
The Government filed writs of continuing garnishment: under the Federal Debt Collection and Procedures Act ("FDCPA") to obtain non-exempt property in the custody or control of Hibernia National Bank, T. Rowe Price Associates, and Entergy. These entities filed answers to the writs and Sowada filed a response in which he requested a hearing pursuant to 28 U.S.C. § 3014(b)(2). Sowada also notified the Government of his intention to claim certain exemptions.
The Government requested a hearing on Sowada's exemption claim. On May 16, 2003, this Court issued an order requiring Sowada to file a statement under oath no later than May 30, 2003, describing each item of property that he claims is exempt from seizure and a memorandum establishing the legal basis for his claims of exemption. On July 7, 2003, Sowada filed his "response" to the Court's May 16, 2003, order but that response was actually a motion to stay all efforts to collect on the monies owed pending Sowada's release from custody. The Court denied the stay.
Both parties agreed that the legal issues presented in the exemption claim do not require a live evidentiary hearing. For purposes of the instant ruling only, the Government will concede that the Entergy plan was an ERISA-qualified plan. However, the Government reserves the right to attack that assertion at a later date if necessary.
On September 30, 2003, Sowada filed his Verified Statement of Claimed Exemptions in which he claims that a T. Rowe Price Fund valued at $498,028.12 is exempt from garnishment. Sowada asserts that the funds originated from an ERISA-qualified pension plan through his former employer Entergy, and that such plans are exempt from garnishment. It is undisputed that the Price Fund to which Sowada transferred the funds is not an ERISA-qualified plan. Nevertheless, Sowada asserts that the funds should be exempt from garnishment because he was forced to prematurely remove the funds from the ERISA-protected Entergy plan after he lost his employment — a result brought about by the Government's insistence that he begin serving his prison term prior to reaching retirement age. Further, Sowada suggests that some of the funds subject to garnishment may be exempt due to his spouse's community property interest. Sowada asserts that his spouse has never been provided notice of the garnishment or an opportunity for a hearing.
In response, the Government argues that ERISA plans are not protected from seizure by the federal government for satisfaction of criminal fines and court-ordered restitution. Even if they were, argues the Government, those funds lost all ERISA protection once Sowada removed them from the Entergy plan. Finally, the Government asserts that Louisiana law permits seizure of community assets to satisfy a spouse's separate obligations. The Government also asserts that Mrs. Sowada was not entitled to notice of the garnishment proceedings.
The monies in the Price Fund are not exempt from seizure as the proceeds of an ERISA-qualified plan because such plans are themselves subject to garnishment by the federal government. Congress has decreed that federal criminal fines and restitution orders are to be treated as if they were debts for delinquent taxes. 13 U.S.C. § 3613(a), (c); United States v. Rice, 196 F. Supp.2d 1196, 1202 (N.D. Okla. 2002). In Shanbaum v. United States, the Fifth Circuit held that ERISA's anti-alienation provision does not prevent the United States from seizing ERISA pension funds to satisfy a debt for delinquent taxes. 32 F.3d 180, 183 (5th Cir. 1994). The Fifth Circuit reasoned that IRC § 6321 creates a lien for unpaid taxes in favor of the United States. Id. IRC § 6331 gives the IRS authority to levy on all property subject to certain enumerated exemptions. Id. Pension plan benefits are not an enumerated exemption. Id. Thus, while a private creditor might be precluded from garnishing an ERISA-protected plan, see Guidry v. Sheet Metal Workers Nat'l Pen. Fund, 493 U.S. 365, 110 S.Ct. 680, 107 L.Ed.2d 782 (1990), the United States government faces no such bar.
Other courts have recognized that the United States's ability to garnish ERISA plan funds for income tax liabilities likewise demonstrates that the United States can garnish ERISA funds for satisfaction of criminal fines and penalties. United States of America v. Garcia, 2003 WL 22594362 (D. Kan. 2003);United States v. Tyson, 242 F. Supp.2d 469 (E.D. Mich. 2003);Rice, 196 F. Supp.2d 1196. This Court agrees with those district courts that have concluded that the United States can garnish ERISA funds for satisfaction of criminal fines and penalties. To hold otherwise would give convicted criminal defendants greater rights than those citizens who owe a tax debt to the government. Thus, the Price Fund is not protected from garnishment because the Entergy plan from which it originated was itself subject to garnishment.
Neither party cited, nor has the Court been able to locate, any decisions in which the Fifth Circuit has addressed the United States's ability to garnish ERISA pension funds for the satisfaction of federal criminal fines and penalties.
Nor is Mrs. Sowada's community interest in any of the property an impediment to garnishment. The FDCPA provides that the United States can garnish property which is co-owned by a debtor with another person only to the extent allowed by the law of the state where the property is located. See 28 U.S.C. § 3010(a). It is well-settled under Louisiana law that community assets can be seized to satisfy a separate or community obligation incurred by one of the spouses during the community regime. La. Civ. Code art. 2345; Hebert v. Unser, 593 So.2d 977, 979 (La. 5th Cir. 1992).
The notice issue, however, is more troublesome. In Shel-Boze, Inc. v. Melton, the First Circuit held that due process did not require the creditor to individually serve the debtor's spouse with notice of the garnishment proceedings. 509 So.2d 106, 108 (1st Cir. 1987). In that case, the wife's wages were garnished for a community obligation incurred by her husband. Demand letters threatening garnishment of the wife's wages were sent to the community residence. The court reasoned that where both spouses reside together service upon one was sufficient, particularly where the debtor spouse had been served with a default judgment at the community residence. Id. at 109.
The instant case is distinguishable from Shel-Boze and all of the other cases cited by the government in two key respects. First of all, Shel-Boze involved a community obligation. The criminal penalty owed by Sowada might very well be a separate obligation depending on whether Mrs. Sowada benefitted from the ill-gotten proceeds. La. Civ. Code art. 2363 ("An obligation resulting from an intentional wrong not perpetrated for the benefit of the community . . . is a separate obligation."). While community funds can be seized to satisfy a spouse's separate obligation, La. Civ. Code art. 2345, including a separate obligation created by a criminal act, id. art. 2364.1, the Court is reluctant to so easily toss aside Mrs. Sowada's due process rights in situation where she stands to lose a significant sum of money accumulated through years of effort.
Second, unlike the garnishee spouse in Shel-Boze, Mrs. Sowada is not domiciled with her husband. Sowada is incarcerated in a federal facility located in Texas. Although Sowada was clearly served with notice of the garnishment, there is no indication that: Mrs. Sowada has received notice that she stands to lose her entire community interest in Sowada's IRA account. Again, given the sum of money involved, the Court chooses to err on the side of protecting Mrs. Sowada's due process rights.
The Court notes that on October 22, 2003, after Sowada filed his exemption memorandum, the United States filed into the record a Certification of Service of Documents on Judgment Debtor (Rec. Doc. 15). The United States certifies that it has now served a copy of the writ of garnishment by certified mail upon Mrs. Sowada. In order to ensure that Mrs. Sowada has an opportunity to be heard before her community interest is garnished, the Court will hold the matter in abeyance until January 30, 2004. If Mrs. Sowada makes no appearance in the garnishment proceedings, the United States can then move to enforce the writ.