U.S. v. Sawaf

• Decision Date: 26 January 1996
• Docket Number: No. 94-1236,94-1236
• Citation: 74 F.3d 119
• Parties: -520, 64 USLW 2475, 96-1 USTC P 50,063, 19 Employee Benefits Cas. 2489, Pens. Plan Guide P 23,917 UNITED STATES of America, Plaintiff-Appellee, v. Ali H. SAWAF and Elena V. Sawaf, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 119

74 F.3d 119

77 A.F.T.R.2d 96-520, 64 USLW 2475,

96-1 USTC P 50,063,

19 Employee Benefits Cas. 2489,

Pens. Plan Guide P 23,917

UNITED STATES of America, Plaintiff-Appellee, v. Ali H. SAWAF and Elena V. Sawaf, Defendants-Appellants.

No. 94-1236.

United States Court of Appeals, Sixth Circuit.

Argued Sept. 28, 1995.

Decided Jan. 26, 1996.

Keith V. Morgan, U.S. Dept. of Justice, Tax Division, Washington, DC, Gary R. Allen, Acting Chief (briefed), David English Carmack (briefed), David A. Shuster (argued and briefed), U.S. Dept. or Justice, Appellate Section, Tax Division, Washington, DC, Michael L. Shiparski, Asst. U.S. Atty., Daniel M. LaVille, Office of U.S. Atty., W.D.Mich., Grand Rapids, MI, for plaintiff-appellee.

Robert C. Anderson (argued and briefed), Marquette, MI, for defendants-appellants.

Before: KEITH, DAUGHTREY, and PHILLIPS ^*, Circuit Judges.

PHILLIPS, Circuit Judge.

This appeal requires us to decide whether the anti-alienation provision, Sec. 206(d), of the Employee Retirement Income Security Act (ERISA) prohibits the Internal Revenue Service (IRS) from garnishing taxpayers' vested interest in an ERISA-qualified pension fund in order to satisfy an IRS judgment for unpaid taxes. The district court held that Sec. 206(d) did not prohibit the garnishment and entered a garnishment order. On the taxpayers' appeal, we affirm.

I.

At various times from 1982 to 1989, the IRS assessed deficiencies against appellants Dr. and Mrs. Sawaf for the tax years 1980-82 and 1988. Because the Sawafs never paid these assessments, the IRS filed suit in 1990 in the U.S. District Court for the Western District of Michigan to reduce the liens created by the unpaid assessments to judgment. On August 30, 1991, the district court granted the IRS's motion for summary judgment and entered judgment against the Sawafs in the amount of $148,823.05, plus costs, statutory interest, and penalties from the dates of the assessments.

By February of 1993, the judgment remained unpaid. Consequently, the IRS filed an application for a writ of garnishment in the district court, as authorized by the Federal Debt Collection Procedure Act (FDCPA). See 28 U.S.C. Sec. 3205. The district court issued a Writ of Continuing Garnishment to the garnishee, MFC First National Bank (MFC), requesting MFC to indicate whether it had in its custody any of the Sawafs' property. MFC responded that it had custody of approximately $300,000 of a "Profit Sharing Agency Account" in which the Sawafs had a vested interest. ¹

When the Sawafs then requested a hearing regarding the garnishment, the district court granted the request and scheduled a hearing before a magistrate judge. At the hearing, ² Dr. Sawaf proceeded pro se and claimed that ERISA exempted his pension from garnishment. Counsel for the IRS responded that he understood Sawaf to be invoking ERISA's anti-alienation provision, 29 U.S.C. Sec. 1056(d), as protection from garnishment, but that he believed the provision offered no protection against any IRS suits to enforce tax judgments.

At the close of the hearing, the magistrate judge indicated that, because the Sawafs were proceeding pro se, he would allow them seven days to produce any authority they believed supported their position. In response, Dr. Sawaf sent the magistrate judge two documents: (1) a copy of a 1993 letter from the IRS to MFC, offered to show that the pension fund sought to be garnished was qualified under I.R.C. Sec. 401(a) and (2) a form 5500/CR Return/Report of Employee Benefit Plan.

The magistrate judge issued his Report and Recommendation on November 29, 1993. In it, he concluded that the Sawafs had failed to meet the burden of proof imposed on them by the FDCPA, See 28 U.S.C. Sec. 3014(b)(2), which requires a defendant claiming his property is exempt from a federal debt collection action to prove he is entitled to the exemption. The magistrate judge rejected two of the Sawafs' claimed exemptions out of hand: 1) The exemptions claimed under 45 U.S.C. Secs. 231(m) or 352(e) were inapplicable, as they address railroad employees' benefits; 2) The exemptions under Mich.Comp.Laws Ann. Sec. 38.40 were inapplicable, as they pertain to Michigan state employee benefits.

Although he finally rejected it as well, the magistrate judge devoted more attention to the Sawafs' claimed exemption under Mich.Comp.Laws Ann. Sec. 600.6023(1)(k), (l). Those subsections "exempt from levy and sale under any execution" any IRA, pension, profitsharing, or other account as defined by I.R.C. Sec. 401. The magistrate judge noted that the post-hearing documents the Sawafs had submitted tended to show that their plan qualified under Sec. 401. But he further explained that the Michigan exemption does not extend to any lien excluded from exemption by law. Mich.Comp.Laws Ann. Sec. 600.6023(2). The magistrate judge then noted that Treasury Reg. Sec. 1.401(a)-13(b)(2) provides that tax liens in favor of the United States are excluded from exemption by law. Accordingly, he determined that Michigan state law did not provide the Sawafs an exemption from the IRS garnishment. The magistrate judge then concluded that because the Sawafs had failed to prove they were entitled to any exemption, the court should, under the FDCPA, issue an order of garnishment to MFC in the amount of the unpaid judgment plus costs, penalties, and interest.

The magistrate judge then notified the parties of their rights to object to his report, and the Sawafs responded by sending an objection letter to the district court. The court approved the magistrate judge's Report and Recommendation in an order which noted that "Defendants have filed no specific objections to the Report and Recommendation. They merely state in their letter that they object to the report and recommendation and request a hearing. Defendants are not entitled to further hearing on this matter." (JA 82-83) Therefore, the district court adopted the Report and Recommendation, and it issued an Order of Garnishment directing MFC to pay the United States $191,644.57, plus interest, from the Sawafs' profitsharing account.

MFC paid the requested amount. In recognition of this payment, on February 1, 1994, the IRS filed a Termination of Garnishment and Satisfaction of Judgment with the district court. Later that month, the Sawafs--now represented by counsel--noticed this appeal.

II.

The facts in this case are not in dispute; all contested rulings of the district court are on pure questions of law and are, therefore, reviewable de novo. In re Embry, 10 F.3d 401, 402-03 (6th Cir.1993).

As an initial matter, we note that there is some question whether the Sawafs' letter objecting to the magistrate judge's Report and Recommendation adequately preserved their objections to that report for appeal to this court. Under the Magistrates Act any party objecting to the magistrate judge's recommendation may within ten days of receiving a copy of the report "file written objections to such proposed findings and recommendations as provided by the rules of court." 28 U.S.C. Sec. 636(b)(1). Our rule is that a party must file its objections to a magistrate judge's report with the district court within the ten-day period or waive the right to appeal; objections must be specific. See United States v. Walters, 638 F.2d 947, 949-50 (6th Cir.1981); Howard v. Secretary of Health & Human Servs., 932 F.2d 505 (6th Cir.1991).

In this case, the Sawafs mailed a letter to the district court that simply said, "We object to the report and recommendation given by [the magistrate judge]. Therefore we request a hearing in this matter." (JA 81) The IRS raises legitimate questions about the adequacy of this objection under our precedents. Certainly it cannot stand as a model or even as one minimally sufficient in all circumstances. In view, however, of the limited nature of the legal question that was disputed in the district court and our disposition of that issue on appeal, we will treat it as a sufficient objection to those aspects of the magistrate judge's Report that are now specifically challenged on appeal.

III.

The Sawafs' primary contention is that the district court erred in approving the magistrate judge's recommendation that a writ of garnishment issue. Specifically, they contend that because their pension plan qualified under ERISA, Sec. 206(d) of that act forbids involuntary alienation of the plans' funds, hence exempts their interest in the pension fund from the IRS's garnishment order. We disagree.

The IRS has secured a judgment against the Sawafs for the amount of their assessed tax deficiency. In order to enforce that judgment, the IRS proceeded under the Federal Debt Collection Procedure Act (FDCPA), 28 U.S.C. Secs. 3001-3308 (1988). The FDCPA allows the United States to collect a judgment owed it by obtaining a garnishment against "property ... in which the debtor has a substantial nonexempt interest and which is in the possession, custody, or control of a person other than the debtor." Sec. 3205(a) (emphasis added); see also Sec. 3202(a) (allowing enforcement of judgment through "any of the remedies [including garnishment] set forth in this subchapter").

Application of Sec. 3205(a) to this case raises two questions: (1) whether the Sawafs' vested interest in their pension fund is the type of "property" that may be reached by FDCPA garnishment orders; and (2) if it is, whether ERISA nevertheless exempts the pension fund from such orders. Turning to the first question, the FDCPA's definition of "property" is broad: " 'Property' includes any present or future interest, whether legal or equitable, in real, personal ... or mixed property, tangible or intangible, vested or contingent, wherever located and however held (including ... property held in trust (including ... pension trusts )) ...." Sec. 3002(12) (emphasis added). This broad definition of "property" plainly encompasses the Sawafs' vested interest in their...