Neukirchen v. Wood County Head Start, Inc., 94-2133

• Decision Date: 27 April 1995
• Docket Number: No. 94-2133,94-2133
• Citation: 53 F.3d 809
• Parties: 67 Fair Empl.Prac.Cas. (BNA) 1169, 100 Ed. Law Rep. 44 Catherine NEUKIRCHEN, Plaintiff-Appellee, v. WOOD COUNTY HEAD START, INCORPORATED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 809

53 F.3d 809

67 Fair Empl.Prac.Cas. (BNA) 1169, 100 Ed. Law

Rep. 44

Catherine NEUKIRCHEN, Plaintiff-Appellee, v. WOOD COUNTY HEAD START, INCORPORATED, Defendant-Appellant.

No. 94-2133.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 1, 1994.

Decided April 27, 1995.

Michael R. Fox, Richard F. Rice (argued), Fox & Fox, Kristin J. Sederholm, Madison, WI, for Catherine Neukirchen.

Terrence J. Byrne, George Goyke (argued), Wausau, WI, for Wood County Head Start, Inc.

Donna Morros Weinstein, James Goeser (argued), Dept. of Health and Human Services, Region V, Office of Gen. Counsel, Chicago, IL, Richard D. Humphrey, Asst. U.S. Atty., Peggy A. Lautenschlager, U.S. Atty., Madison, WI, for Donna E. Shalala, amicus curiae.

Before CUDAHY, ESCHBACH, and MANION, Circuit Judges.

MANION, Circuit Judge.

Catherine Neukirchen obtained a judgment exceeding $86,000 against Wood County Head Start on a claim for age discrimination. Wood County Head Start refused to pay the judgment, however, so Neukirchen moved for a writ of execution against Wood County Head Start's property. The district court partially granted this motion, issuing a writ allowing execution against Wood County property costing less than $1000, along with property purchased with non-federal funds. Wood County Head Start appeals. We affirm in part and reverse in part, and remand for further proceedings.

I. Statement of the Case

Catherine Neukirchen, when she was fifty-two years old, applied to Wood County Head Start ("Wood County") for a position as a Central Manager or a Teacher Aide. Wood County refused to hire her based on her age and instead hired six younger applicants. Neukirchen sued Wood County for age discrimination pursuant to the Age Discrimination in Employment Act, 29 U.S.C. Sec. 621 ("ADEA"). Following a trial, the jury returned a special verdict finding that Wood County had willfully discriminated against Neukirchen on the basis of her age by failing to hire her for either position and awarded her back and front pay. The court entered judgment in favor of Neukirchen in the amount of $87,275.02.

Neukirchen then attempted to collect this judgment from Wood County. Wood County was apparently willing to compensate Neukirchen for its discrimination--at least at first. This is evidenced by correspondence between Wood County and the Department of Health and Human Services ("HHS")--the agency charged by Congress to implement Head Start--indicating that Wood County planned to use $70,000 of surplus funds to pay Neukirchen's age discrimination judgment. ¹ HHS, however, directed Wood County not to use the funds to pay Neukirchen, and Wood County dutifully obeyed HHS' directive.

After Neukirchen's efforts to collect from Wood County proved futile, she moved for a writ of execution against Wood County's property. Wood County moved to quash the writ of execution. The district court granted the Motion to Quash, subject to discovery and briefing. After discovery and briefing, the district court held a hearing on Wood County's motion, after which it issued a writ of execution against all Wood County property with a unit acquisition cost of less than $1000, along with property purchased with non-federal funds. Wood County and the Secretary of Health and Human Services ("Secretary"), as amicus curiae, appeal.

II. Analysis

On appeal, Wood County asserts that all property purchased with federal grant funds, including property costing less than $1000, constitutes federal property and as such is not subject to execution. Wood County also argues that property purchased with state funds is not subject to execution. We consider each issue in turn.

A. Execution Against Property Costing Less Than $1000

The writ of execution issued by the district court allowed execution against Wood County property costing less than $1000, including property purchased with federal funds. Wood County and the Secretary argue that property purchased in whole or part with federal funds cannot be attached, no matter what the cost of the property. ²

It is clear in this circuit that property purchased with federal grant funds constitutes federal property. In re Joliet-Will County Community Action Agency, 847 F.2d 430 (7th Cir.1988) (holding that property purchased with federal grant funds did not belong to Joliet-Will but rather belonged to the federal government). It is also axiomatic that the doctrine of sovereign immunity prevents a judgment creditor from attaching federal property, absent consent by the United States. Buchanan v. Alexander, 45 U.S. (4 How.) 20, 11 L.Ed. 857 (1846) (holding that creditors of crew members of the frigate Constitution could not garnish their debtors' wages because "so long as the money remained in the hands of a disbursing officer, it is as much the money of the United States as if it had not been drawn from the treasury"); F.H.A. v. Burr, 309 U.S. 242, 244, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940) (absent waiver of sovereign immunity, United States is not subject to garnishment proceedings); Palmiter v. Action, Inc., 733 F.2d 1244, 1248 (7th Cir.1984) (holding that a judgment creditor could not garnish federal funds granted to an Indiana Head Start program).

The parties do not dispute these well-established principles. What is disputed, however, is whether property costing less than $1,000 constitutes federal property, making it immune from execution. Neukirchen argues that property costing less than $1,000 is not federal property and she cites 45 C.F.R. Sec. 74.139 in support of her position. This section provides:

When original or replacement equipment is no longer to be used in projects or programs currently or previously sponsored by the Federal Government, disposition of the equipment shall be made as follows:

(a) Equipment with a unit acquisition cost of less than $1000 and equipment with no further use value. The equipment may be retained, sold, or otherwise disposed of, with no further obligation to the Federal Government.

45 C.F.R. 74.139 (emphasis added).

Section 74.139 allows a local Head Start organization to dispose of equipment with a unit acquisition cost of less than $1000, once it is no longer needed. Because there is no further obligation to the federal government, Neukirchen contends that the federal government has no interest whatsoever in the property. However, in Joliet-Will this court clearly held that property purchased with federal funds constitutes federal property. Joliet-Will, 847 F.2d at 432 (property purchased with federal funds are assets of the federal government). And while the parties in Joliet-Will did not attempt to identify property based on its purchase price, the rationale we applied in that case applies equally to property costing less than $1000. Id. at 432. Specifically, in Joliet-Will this court examined the federal statute which funded the Joliet-Will County Community Action Agency and the governing federal regulations, and determined that the grants imposed "minute controls" over the funds and left little discretion for their use. Id. ³ Second, we determined that the local program's relationship with the federal government was more properly characterized as that of an agent designated to perform specific tasks rather than a borrower or an entrepreneur using invested funds. Id. Third, we noted that the federal statute did not authorize the federal government "to allow appropriated funds to be used to pay creditors of a private organization unless the creditor incurred an expense specifically authorized by the grants and relevant regulations." Id. Fourth, we focused on precedent holding that federal funds held by a grantee remained the property of the federal government unless and until the funds are expended according to the terms of the grant. Id. at 432-33. This court also noted, as least important in its reasoning, that existing federal criminal law treated thefts of federal grant money or personal property purchased with federal grant money as violations of federal law. Id. at 433. Based on these factors, we held that property purchased with federal funds constituted federal property. And all of these factors apply equally to property costing less than $1000.

It is true that one of the "minute controls" discussed in Joliet-Will was that if the federal government so requests the grantee must reconvey to the government every piece of property costing $1,000 or more. Id. at 432. This particular "minute control" does not extend to such property costing less than $1,000. Yet the applicable regulations place other controls on the use and disposition of Head Start property costing less than $1,000. For example, section 74.137 provides that "[e]quipment ... shall be used by the recipient in the project or program for which it was acquired as long as needed.... When no longer needed for the original project or program, the recipient shall use the equipment, if needed, in other projects or programs currently or previously sponsored by the Federal Government...." 45 C.F.R. Sec. 74.137. Even section 74.139, which Neukirchen relies upon, contains "minute controls" over the disposal of property costing less than $1,000. That provision states that a Head Start organization may dispose of such property only when it is "no longer to be used in projects or programs currently or previously sponsored by the Federal Government." Moreover, the other "minute controls" mentioned in Joliet-Will--such as regulations over the budget, chargeable items, costs, and use of funds--apply equally to Head Start property costing less than $1,000. Given the overwhelming control that the Secretary exercises over property purchased with federal funds and the corresponding lack of discretion on Wood County's part, we do not believe that the absence of specific regulations requiring Wood County to reconvey to the United States property costing less than $1,000 commands a different result. We, therefore, conclude...