U.S. v. Goddard, 1:09-CR-20

CourtUnited States District Courts. 6th Circuit. Eastern District of Tennessee
Citation735 F.Supp.2d 820
Docket NumberNo. 1:09-CR-20,1:09-CR-20
PartiesUNITED STATES of America v. Jimmy L. GODDARD.
Decision Date28 July 2010

Gary S. Humble, U.S. Department of Justice, Office of U.S. Attorney, Chattanooga, TN, for Plaintiff.

MEMORANDUM

CURTIS L. COLLIER, Chief Judge.

Before the Court is the Government's motion for an entry of order of garnishment against assets held by Benton Bancshares, Inc. ("BBI") on behalf of Defendant Jimmy L. Goddard ("Defendant") and his wife, Mary Ellen Goddard ("Mrs. Goddard") (Court File No. 48). Mrs. Goddard intervened and responded in opposition to the Government's motion (Court File No. 50). The Government then filed a reply (Court File No. 53). On June 30, 2010, the Government and Mrs. Goddard presented oral arguments on this motion.

For the following reasons, the Court will GRANT IN PART the Government's motion (Court File No. 48), insofar as the Court will enter an order of garnishment as to one-half of the assets identified by BBI in its answer to the application for writ of garnishment (Court File No. 30).

I. BACKGROUND

Defendant, a former bank president, was convicted of misapplication of bank funds following a guilty plea. On October 22, 2009, the Court ordered Defendant to pay $1,185.328.00 in restitution, pursuant to the Mandatory Victims Restitution Actof 1996 ("MVRA"), 18 U.S.C. § 3663A (Court File No. 25).

On January 21, 2010, the Government filed two applications for writ of garnishment on BBI against Defendant's property (Court File Nos. 26, 27). On February 16, 2010, BBI filed a single affidavit and answer to these applications (Court File No. 30). The answer identified the assets which are at issue here.

These assets fall into three categories: 1) approximately $1,100 in cash; 2) $110,536.96 in proceeds from the liquidation of BBI for stock owned by Defendant and Mrs. Goddard; and 3) an estimated $63,510 to $95,265 in future stock dividends to be paid out within the next 36 months on that same stock ( id.) (collectively, "BBI assets").

On February 25, 2010, Mrs. Goddard intervened and filed a motion to quash the writ of garnishment (Court File No. 34). Initially, Mrs. Goddard argued these assets were exempt from the Court's restitution order, because they were held by both Defendant and Mrs. Goddard in a tenancy by the entirety. The Government responded, arguing property held in a tenancy by the entirety is subject to Defendant's restitution obligation under the MVRA (Court File No. 38). Mrs. Goddard replied, in which she conceded a restitution order under the MVRA has the same nature as a tax lien, and, under Tennessee and federal law, a tax lien can be asserted against marital property held in a tenancy by the entirety (Court File No. 40 at 1). In other words, Mrs. Goddard withdrew her objection to the writ of garnishment by acknowledging the Government had some interest in the assets. Mrs. Goddard argued, however, the Government is only entitled to a portion of the jointly held assets, rather than their entire sum. She proposed dividing up the assets based on either an equitable one-half split or based upon the life expectancy of her and her husband, as a measure of the value of the right of survivorship ( id. at 2-3).

On March 30, 2010, the Court denied Mrs. Goddard's motion to quash the writ of garnishment, noting Mrs. Goddard had conceded the Government had at least some interest in the property (Court File No. 42). The Court declined, however, to determine at that time the extent of the Government's interest, as the Government had not yet conducted discovery on the nature of the assets ( id.). In the present motion, the Court must now answer this question.

II. DISCUSSION

In the present motion, the Government seeks 100% of the BBI assets ( id.). Mrs. Goddard opposes to the Government's motion, asserting claim to a portion of the assets (Court File No. 50). Because the parties agree the assets are held in a tenancy by the entirety ( id. at 1-5; Court File No. 53), Mrs. Goddard argues the Government is only entitled to that portion of the assets in which Defendant has an individual interest ( id. at 6-9). In her written arguments, Mrs. Goddard advocated for a straightforward one-half division of the assets (Court File No. 50). At oral argument, she advocated for a more nuanced approach, which would take into account the differences in Defendant's and Mrs. Goddard's right of survivorship.

For the reasons below, the Court concludes the BBI assets must be divided equally between the Government and Mrs. Goddard.

A. Restitution Reaches Entireties Property

The Mandatory Victims Restitution Act ("MVRA") allows a federal court to order a defendant to make restitution, in additionto any sentence imposed. See 18 U.S.C. § 3663A(a)(1)(A). The MVRA grants the Government authority to enforce victim restitution orders in the same manner it recovers fines and by all other available means. 18 U.S.C. § 3664(m)(1)(A)(i)-(ii). Pursuant to 18 U.S.C. § 3613(c), once restitution is ordered, all of the defendant's property becomes subject to a lien in favor of the United States. In addition, for purposes of debt collection, such a lien is treated like a tax lien. § 3613(c). Thus, "any property the IRS can reach to satisfy a tax lien, a sentencing court can also reach in a restitution order." United States v. Hosking, 567 F.3d 329, 335 (7th Cir.2009); see also United States v. Kollintzas, 501 F.3d 796, 802 (7th Cir.2007) ("Liens to pay restitution debts are treated like tax liens, so that they are 'effective against every interest in property accorded a taxpayer by state law.' ").

Under the Internal Revenue Code, pursuant to 26 U.S.C. § 6321, the United States may place "a lien in favor of the United States on all property and rights to property, whether real or personal, belonging to such person." According to the Supreme Court, the breadth of this statute "reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." United States v. Nat'l Bank of Commerce, 472 U.S. 713, 720, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985) (citations omitted). More specific to this case, the Supreme Court has also held § 6321 tax liens may attach to property owned by a delinquent taxpayer and his or her spouse as tenants by the entireties. United States v. Craft, 535 U.S. 274, 288, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002).

In Craft, a husband failed to pay property taxes for a number of years, resulting in a tax assessment of $482,446. At the time the government's lien attached, the husband and wife owned real property as tenants by the entireties. The Court considered whether the government's lien could attach to this property:

Whether the interests of respondent's husband in the property he held as a tenant by the entirety constitutes "property and rights to property" for the purposes of the federal tax lien statute, 26 U.S.C. § 6321, is ultimately a question of federal law. The answer to this federal question, however, largely depends upon state law. The federal tax lien statute itself creates no property rights but merely attaches consequences, federally defined, to rights created under state law. Accordingly, we look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer's state-delineated rights qualify as "property" or "rights to property" within the compass of the federal tax lien legislation.

Id. at 278, 122 S.Ct. 1414 (citations and internal quotations omitted). The Court reviewed Michigan's law on tenancies by the entirety and determined each spouse possesses "property and rights to property" for purposes of § 6321. Id. at 282-85, 122 S.Ct. 1414. Thus, the Court held, federal tax liens may attach to one spouse's interest in entireties property. Id. at 288, 122 S.Ct. 1414. However, the Court left to the Sixth Circuit to determine, on remand, the proper valuation of each spouse's interest. Id. at 289, 122 S.Ct. 1414 ("We express no view as to the proper valuation of respondent's husband's interest in the entireties property."). Because the parties in Craft subsequently settled, the method of valuating each spouse's interest remained undecided.

In this case, the Government and Mrs. Goddard both agree Defendant's interest in the BBI assets are subject to theCourt's restitution order. In addition, both agree these assets are owned by Defendant and Mrs. Goddard as tenants by the entireties. Thus, the preliminary steps identified in Craft are satisfied. The only outstanding question is how to value Defendant's interest.

B. Methods of Valuating an Interest in Entireties Property

Because the parties in Craft settled the issue before the case was remanded, the valuation question remains an issue of first impression in this circuit. In addition, as recently noted by the Eastern District of Michigan, the question remains unsettled across the federal judiciary. See United States v. Barczyk, 697 F.Supp.2d 789, 799 (E.D.Mich.2010) ("[W]hile some patterns do emerge, there is no consensus on how to value spousal interests in joint tenancies.").1 There are two methods which have been adopted by other courts. The first method looks to each spouse's respective life expectancy to calculate the economic value of each spouse's right of survivorship in entireties property. The second method ignores the right of survivorship and recognizes each spouse as holding a one-half interest.

1. Life Expectancy

The first method attempts to factor a couples' rights of survivorship into their respective interests in entireties property. See, e.g., In re Murray, 318 B.R. 211, 214 (Bankr.M.D.Fla.2004) ("Despite its administrative inconvenience, ... the value of a debtor's interest in tenancy by the entireties property must be determined by reference to joint life actuarial tables"); Basher v. United States (In re Basher), 291 B.R. 357, 364-66 (Bankr.E.D.Pa.2003) (holding...

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