U.S. v. Rostoff, Civil Action No. 96-10558-WGY.

• Decision Date: 03 June 1997
• Docket Number: Civil Action No. 96-10559-PBS.,Civil Action No. 96-10558-WGY.
• Citation: 966 F.Supp. 1275
• Parties: UNITED STATES of America, Plaintiff, v. Steven M. ROSTOFF and David R. Rostoff, Defendants.
• Court: U.S. District Court — District of Massachusetts

966 F.Supp. 1275

UNITED STATES of America, Plaintiff, v. Steven M. ROSTOFF and David R. Rostoff, Defendants.

Civil Action No. 96-10558-WGY.

Civil Action No. 96-10559-PBS.

United States District Court, D. Massachusetts.

June 3, 1997.

Rayford A. Farquhar, U.S. Attorney, Christopher Alberto, U.S. Attorney's Office, Boston, MA, for U.S.

Michael J. Traft, Carney & Bassil, Boston, MA, for Steven M. Rostoff, David Rostoff.

MEMORANDUM AND ORDER

YOUNG, District Judge.

This case arose out of a criminal action in which two brothers, Steven M. and David R. Rostoff (collectively, the "Rostoffs"), were convicted of conspiracy, 18 U.S.C. § 371, bank fraud, 18 U.S.C. § 1344, and making false statements, 18 U.S.C. § 1014. United States v. Steven M. Rostoff, Crim. No. 92-10006-01-Z; United States v. David Rostoff, Crim. No. 92-10006-02-Z), aff'd United States v. Rostoff, 53 F.3d 398 (1st Cir.1995).¹ The presiding judge, the Honorable Rya Zobel, sentenced each Rostoff to 15 months in prison followed by two years of supervised release, ordered each to pay a special assessment of $3,650.00 immediately, and, pursuant to the Victim and Witness Protection Act of 1982, 18 U.S.C. § 3663, ordered each to pay restitution to the Federal Deposit Insurance Corporation of an amount "not to exceed $650,000 without interest."²

In imposing the restitution orders, Judge Zobel also stated that "I'm sure counsel will explain to defendants that if at the end of probation there is no possibility of the [$650,000.00] being paid, then it will be remitted." The period of supervised release for each brother ended on March 31, 1996. During that period, Steven made restitution payments of $7,463.21 and David made payments of $8,200.00 — amounting to 1.17% and 1.26% of the total restitution orders, respectively. The remainder of the restitution remains unpaid.

In March, 1996, the United States commenced this action,³ seeking to convert the unpaid portions of the criminal restitution orders into civil judgments pursuant to the Federal Debt Collection Procedures Act (the "Debt Collection Act"), 28 U.S.C. § 3001 et seq. In denying the government's motion for summary judgment, this Court held that 1) the Debt Collection Act does in fact allow the government to convert an unpaid restitution order into a civil judgment in this manner, but 2) in light of Judge Zobel's qualifying language regarding the ability to pay, a genuine issue of material fact remained for trial as to whether, at the end of the supervised release period, there was any "possibility of the [$650,000.00] being paid." United States v. Rostoff, 956 F.Supp. 38, 44-45 (D.Mass. 1997).

After conducting a four day bench trial on precisely this question, this Court, on May 2, 1997, made oral findings and rulings from the bench and entered civil judgments in favor of the United States against Steven Rostoff for $706,790.47 and against David Rostoff for $705,980.00. In each case, the judgment represents the entire balance of restitution which remained unpaid at the end of the supervised release period, plus a ten percent surcharge imposed pursuant to 28 U.S.C. § 3011(a). The Rostoffs now bring a timely motion under Fed.R.Civ.P. 59 and Fed. R.Civ.P. 52(b) to alter or amend the Court's judgment. This memorandum addresses the motion to alter and amend and, in so doing, sets forth the Court's oral findings and rulings in a more reflective and analytical fashion.

I. THE STATUTORY FRAMEWORK

The Debt Collection Act provides the "exclusive civil procedures for the United States ... to recover a judgment on a debt." 28 U.S.C. § 3001(a)(1). The act defines a judgment as a "judgment, order, or decree entered in favor of the United States in a court and arising from a civil or criminal proceeding regarding a debt." 28 U.S.C. § 3002(8). Debt is defined as "an amount that is owing to the United States on account of a ... fine, assessment, penalty, [or] restitution. ..." 28 U.S.C. § 3002(3)(B). This Court holds that, in enacting this statute, Congress intended to create a holistic, unitary, and simple approach to collecting debts due the United States, including restitutionary debts arising under the Victim and Witness Protection Act, 18 U.S.C. § 3663. Allowing the Debt Collection Act to be used in this manner "supports both the public policy encouraging adherence to court-ordered restitution orders under the Victim [and] Witness Protection Act, as well as the letter and spirit of the law as codified in 18 U.S.C. § 3663." Rostoff, 956 F.Supp. at 44. Having reviewed both statutes, the Court concludes the process should operate as follows:

A restitution order, properly entered as part of a criminal judgment, is in the nature of a mandatory, equitable injunction that is intended to be self-executing.⁴ The burden of compliance rests neither with the executive (i.e., law enforcement officers) nor judicial (i.e., probation officers) branches of government, but rather falls directly upon the offender himself. See 18 U.S.C. § 3664. Once a criminal judgment of restitution has entered, the offender has a duty to marshal all of his assets in an effort to satisfy it. See id. The only assets not available for restitution are 1) assets subject to superior, secured interests of innocent third parties, and 2) those assets necessary for the criminal offender to house, clothe, and feed himself and those to whom he owes a statutory or common law duty of support. This Court emphasizes that the second exception does not permit the offender to maintain the level of luxury to which he had grown accustomed prior to the offense.

The offender's duty to marshal his assets will often require liquidating them and using the proceeds to satisfy the restitution order, but the offender should not engage in sales that are contrary to sound business judgment. When assets can be sold only at a price that is significantly below their actual economic value, there is no obligation to liquidate. In that circumstance, however, the offender does have a duty to refrain from alienating or further encumbering the assets, save insofar as necessary to house, feed, and clothe himself and his dependents at the minimal level described previously. If the offender does, in fact, alienate such assets while subject to a restitution order, the alienation is void as against public policy because it directly violates a criminal judgment of a United States District Court. As matter of law, it is as though the transaction never occurred.

Although a restitution order is intended to be self-executing, the sentencing court, with the assistance of the United States Probation Office (the "Probation Office"), see 18 U.S.C. § 3601, has significant tools at its disposal to "encourage" compliance during the period of supervised release. Congress has empowered the courts to 1) require the offender to disclose all relevant financial information to the Probation Office, see 18 U.S.C. § 3583(d); U.S. Sentencing Guidelines Manual § 5B1.4(b)(18) (1995); see also United States v. Ismoila 100 F.3d 380, 394 (5th Cir.1996), cert. denied, ___ U.S. ___, 117 S.Ct. 1712, 137 L.Ed.2d 836 (1997); 2) direct the sale of assets, with the proceeds to be paid to the victim, see 18 U.S.C. § 3664(f)(3); or 3) order that assets be paid into the court or be transferred in kind to the victim to whom the restitution is owed, see id. If the offender conceals assets from the Probation Office or fails to make payments as directed, the sentencing judge may revoke the supervised release and return the offender to prison. 18 U.S.C. § 3583(d).⁵ Congress has therefore given the sentencing court (and the Probation Office) significant leverage to pressure a criminal offender to disgorge assets — not just ill-gotten assets, but any assets, however obtained.

Nevertheless, at the end of the supervised release period, restitution orders frequently remain unpaid. In some circumstances, this is because the offender truly lacks the ability to pay. In other instances, however, the offender simply has not paid, and the probation officer, for whatever reason, has not sought a court order requiring the offender to pay over a specific asset or face a return to prison.

Once it becomes evident that restitution will not be made in full by the end of the supervised release period, the executive branch may take action to convert the restitution order into a civil judgment pursuant to the Debt Collection Act, 28 U.S.C. § 3001 et seq.⁶ As Congress intended for the Debt Collection Act and the Victim and Witness Protection Act to operate in tandem with extreme simplicity, it seems logical that the civil case be assigned to the same court that imposed the criminal restitution order. This Court notes that the procedure used in this district to handle motions brought pursuant to 28 U.S.C. § 2255 appears particularly appropriate. Such motions are entered on the criminal docket of the district court that entered the judgment, see Federal Rules Governing Section 2255 Proceeding for the United States District Courts, Rule 3(b), and then given a separate civil action number.

This Court also notes that after a restitution order is converted into a civil judgment pursuant to the Debt Collection Act, the United States is in the same position as any other creditor. Unlike a federal tax lien, which gives the United States super priority over other creditors, see 26 U.S.C. § 6323, in this context the United States is an ordinary judgment creditor, see 28 U.S.C. § 3201. Furthermore, if and when the United States seeks to execute upon the civil judgment, the ex-offender, having completed his sentence, is now afforded all the protections of the civil law, including those against garnishment of wages, see 28 U.S.C. § 3203(a), the homestead protections afforded by various states, see, e.g., Fla. Const. art. X, § 4; Tex. Const. art. XVI, § 50; N.Y. C.P.L.R. § 5206 (McKinney 1996); see also Peter S. Canellos, Sheltered From Bankruptcy:...