United States v. Beulke

• Decision Date: 20 September 2012
• Docket Number: No. CR10–40126–RAL.,CR10–40126–RAL.
• Citation: 892 F.Supp.2d 1176
• Parties: UNITED STATES of America, Plaintiff, v. David BEULKE, Defendant.
• Court: U.S. District Court — District of South Dakota

892 F.Supp.2d 1176

UNITED STATES of America, Plaintiff,

v.David BEULKE, Defendant.

No. CR10–40126–RAL.

United States District Court,

D. South Dakota,

Southern Division.

Sept. 20, 2012.

Jan Leslie Holmgren, Kevin Koliner, U.S. Attorney's Office, Sioux Falls, SD, for Plaintiff.

David Alan Palmer, Ioux Falls, SD, for Defendant.

OPINION AND ORDER REGARDING GOVERNMENT'S COLLECTION MOTIONS

ROBERTO A. LANGE, District Judge.

Defendant David Beulke pleaded guilty to embezzling from his long-time employer, the 3M Corporation, in violation of 18 U.S.C. § 1341. Doc. 2; Doc. 3. On April 1, 2001, this Court sentenced Beulke to 51 months in prison and ordered Beulke to pay the amount he embezzled—$5,610,563.00—in restitution. Doc. 26; Doc. 35. Beulke liquidated assets to pay much of his restitution obligation, but he still owed $1,250,418.46 at the time of the hearing on the pending motions. Doc. 56 at Ex. A. This Court established a payment plan for restitution at the sentencing hearing under which Beulke must pay 50% of the deposits in his inmate trust account quarterly while in jail, 10% of the amount in his inmate trust account while at a Residential Reentry Center, and monthly payments of $1,000.00 once he is released. Doc. 28 at 6.

On April 4, 2012, the Government filed a Motion for Permission to Enforce Collection requesting that this Court (1) order Beulke to turn over any tax refunds received as a result of payment of restitution in 2011, as well as any future tax refunds; (2) grant the Government permission to enforce the restitution order against Beulke's 401(k) account; and (3) find that Beulke is delinquent in the payment of restitution to refer Beulke to the Treasury Offset Program (“TOP”) for offset of any of Beulke's federal disbursements to go toward his restitution. Doc. 38; Doc. 39. The Government also filed a Motion for Order Pursuant to 18 U.S.C. § 3664(n) asking this Court to order Beulke to apply all of his 3M pension payments to the restitution order while he is incarcerated. Doc. 47; Doc. 48. This Court grants in part and denies in part the Government's motions.

I. Tax Benefits

Beulke does not resist the Government's request for his surrender of any tax refunds received as a result of payment of restitution in 2011. In his brief and at the hearing, Beulke agreed that he has a duty to apply all money from income tax refunds to his criminal restitution obligation and has agreed to do so.

II. 401(k) Account

Beulke contests the Government's request to enforce the restitution order against his 401(k) account resulting from his employment with the 3M Corporation. Doc. 44. Beulke argues that some of his deposits into the 401(k) occurred prior to his embezzlement scheme and that his wife, Linda Beulke (“Mrs. Beulke”), who sued him for divorce after he was sentenced, is entitled to half the 401(k) as part of the forthcoming property division in the divorce action. Doc. 44 at 8. This Court accordingly allowed Mrs. Beulke to participate in the hearing on the pending motions.

The Mandatory Victims Restitution Act (“MVRA”) requires a sentencing court to order defendants to pay full restitution to their victims. 18 U.S.C. §§ 3663A–3664. This Court applied the MVRA in ordering Beulke to pay full restitution to 3M, even though he had negotiated directly with 3M and its insurer to reduce his repayment obligation. Among other things, the MVRA makes civil remedies for collecting unpaid fines available to the Government for collecting unpaid restitution judgments. See18 U.S.C. §§ 3613(f), 3664(m)(1)(A). The chief enforcement provision is set forth in § 3613(a):

The United States may enforce a judgment imposing a fine in accordance with the practices and procedures for the enforcement of a civil judgment under Federal law or State law. Notwithstanding any other Federal law (including section 207 of the Social Security Act), a judgment imposing a fine may be enforced against all property or rights to property of the person fined ...

Id. Section 3613(a) recognizes three types of exceptions to the enforcement of restitution orders. The first type includes several exemptions available under I.R.C. § 6334(a). 18 U.S.C. § 3613(a)(1). The second type is property exempt under the Federal Debt Collection Practices Act. 18 U.S.C. § 3613(a)(2). The third type is the wage exemption available to debtors under the Consumer Credit Protection Act (“CCPA”). 18 U.S.C. § 3613(a)(3). None of these exceptions apply to Beulke's ERISA-qualified 401(k). ERISA's anti-alienation provision does not prohibit the Government from collecting unpaid restitution from a 401(k) account. See United States v. Novak, 476 F.3d 1041, 1049 (9th Cir.2007) (en banc) (explaining that § 3613(a) overrides ERISA's anti-alienation provision and allows the Government to “reach defendants' ERISA-covered retirement plan benefits when enforcing criminal restitution orders”); see also United States v. Irving, 452 F.3d 110, 126 (2d Cir.2006) (holding that “U.S.C. § 3613(a) permits courts to consider ERISA protected assets in determining appropriate fines and restitution”); United States v. Miller, 588 F.Supp.2d 789, 796 (W.D.Mich.2008) (“This Court joins the ranks of several other federal courts ... holding that ERISA presents no bar against enforcing restitution orders in criminal judgments by garnishing the defendant's pension plan distributions.”). Thus, the Government may seize Beulke's interest in his 401(k) under the MVRA enforcement mechanisms.

Beulke, who is the plan participant, and Mrs. Beulke, who is a plan beneficiary, Doc. 46–1, argue that the Government cannot garnish the entire 401(k) account because Mrs. Beulke has acquired an interest in the account as a result of South Dakota marital property law, even before she is divorced from Beulke. In support of this argument, the Beulkes rely on South Dakota Codified Laws (“SDCL”) § 25–4–44, which states: “When a divorce is granted, the courts may make an equitable division of the property belonging to either or both, whether the title to such property is in the name of the husband or the wife.” Mrs. Beulke also cited to Bell v. Bell, 499 N.W.2d 145 (S.D.1993), where the Supreme Court of South Dakota noted that pension plan benefits accrued during a marriage are a marital asset subject to division at divorce. Id. at 147. Mrs. Beulke argued at the hearing that under United States v. Yielding, 657 F.3d 722 (8th Cir.2011), generally “[o]wnership interests are defined by the law of the State in which the interest arose.” Id. at 729.

The Beulke's reliance on SDCL § 25–4–44, Bell, and Yielding is misplaced. State property law does not delineate Mrs. Beulke's pre-divorce property interest in Beulke's retirement plan; federal law does. “Retirement plans covered by ERISA, the species of property rights that here concerns us, are governed exclusively by federal law.” Novak, 476 F.3d at 1061;see also29 U.S.C. § 1144(a) (2006) (noting that ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit program” covered by ERISA). Federal law, not state community property law, determines whether a person has a “property or a right to property” interest in an ERISA-qualified pension plan. Novak, 476 F.3d at 1061. And ERISA “determine[s] the extent and nature of the rights a retirement plan participant holds in the plan.” Id.; see also Boggs v. Boggs, 520 U.S. 833, 849–850, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) (noting that a Qualified Domestic Relations Order (“QDRO”) and “the surviving spouse annuity provisions define the scope of a nonparticipant spouse's community property interests in pension plans consistent with ERISA”).

The United States Court of Appeals for the Eighth Circuit in United States v. Taylor, 338 F.3d 947 (8th Cir.2003), rejected the argument that state property law vests a non-divorced spouse with an interest in an ERISA-qualified plan. Id. at 950. In Taylor, a husband filed for divorce from his wife of thirty years in September 1994, the IRS was granted a tax lien in May 1995, and the couple's divorce became final in July 1995. Id. at 949. The wife argued that “under Texas community property law, [she] had substantial property rights in the plan proceeds even before the divorce” was final so she could avoid the government's tax lien. Id. at 950. The Eighth Circuit rejected this argument because state “community property law does not vest [a non-divorced spouse] with an interest in the plan proceeds.” Id.

Mrs. Beulke, as a non-divorced spouse, does not yet have a property interest in the ERISA-qualified pension plan. While the concept of marital property is critical to resolving the administration of estates and divorce proceedings, it will not vest in a non-divorced spouse an interest in her partner's ERISA-qualified pension plan. See Taylor, 338 F.3d at 950. What Mrs. Beulke essentially argues is that if she and Beulke had gotten a divorce and a state court judge had entered a QDRO with regard to the 401(k) account, then she would have an interest in the account. The prerequisite of a divorce and a QDRO have not occurred, however. Thus, her claimed property right in the 401(k) has not coalesced. See United States v. Kollintzas, 501 F.3d 796, 799 (7th Cir.2007) (affirming the district court's order that rejected a divorcing wife's “generalized claim regarding her contributions to the marriage as insufficient to establish an interest in the Assets”).

The result would be the same even if ERISA did not preempt state law because under state community property law the Government's perfected lien would apply against the entirety of Beulke's 401(k). “Liens to pay restitution are treated like tax liens” and are “effective against every interest in property accorded a taxpayer by state law.” Kollintzas, 501 F.3d at 802. “An order for payment of restitution becomes a lien on all property and rights to property of the defendant upon entry of judgment.” Id.;...