United States v. Konczak

• Decision Date: 03 August 2015
• Docket Number: Civil Action No. 14-cv-0673-CBS
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. ROBERT KONCZAK, and MARCIA KONCZAK, Defendants.
• Court: U.S. District Court — District of Colorado

UNITED STATES OF AMERICA, Plaintiff, v. ROBERT KONCZAK, and MARCIA KONCZAK, Defendants.

Civil Action No. 14-cv-0673-CBS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

August 3, 2015

Magistrate Judge Craig B. Shaffer

MEMORANDUM OPINION AND ORDER

This civil action came before the court for a trial to the court on a single claim brought under the Federal Debt Collection Procedures Act ("FDCPA"), 28 U.S.C. § 3001 et seq. Plaintiff, the United States of America ("USA"), brings the claim on behalf of the Small Business Administration ("SBA") to collect on personal, unconditional guarantees executed by the Defendants, Marcia Konczak and Robert Konczak ("the Konczaks"). The court has original jurisdiction over this action pursuant to Title 28 U.S.C. § 1345.

I. Findings

At the time of the events related to this case, the Konczaks were residents of Woodland Park, Teller County, Colorado. Mr. Robert Konczak was the president of Konczak's Koncepts, Inc. ("Konczak's Koncepts"), a corporation that was formed with his wife, his son, Christopher Konczak, and his daughter-in-law, Keli Konczak, to renovate and operate a restaurant. (Trial Testimony of Robert Konczak). The Konczaks jointly owned 51% of the shares in Konczak's Koncepts while Christopher and Keli Konczak owned the remaining 49% of the shares.

On June 27, 2003, Mr. Konczak, as President of Konczak's Koncepts, signed a 20-year Note for a loan in the amount of $684,000.00 with interest at the rate of 5.314% per annum. (See Trial Exhibit 1, Trial Testimony of Robert Konczak). The loan was made by Pikes Peak Regional Development Corporation ("Pikes Peak"), a Certified Development Corporation. (See Trial Exhibit 1). In return for the Note, Konczak's Koncepts promised to pay $684,000.00, plus "interest on the unpaid principal balance, the fees specified in the Servicing Agent Agreement, and all other amounts required by this Note." (See Trial Exhibit 1). One hundred percent of the loan was guaranteed by the Small Business Administration ("SBA"). (See 15 U.S.C. § 636(a), Trial Testimony of Carla Donaldson).¹ The Note was assigned to the SBA on June 27, 2003. (See Trial Testimony of Carla Donaldson, Stipulated Finding of Fact ¶ 1 (Courtroom Minutes/Minute Order) (Doc. # 37)), Trial Exhibit 1 at page USA0206).

Also on June 27, 2003 the Konczaks, acting as individuals, signed Unconditional Guarantees, assuming personal responsibility for the loan. (See Trial Exhibit 2).² The Konczaks

"unconditionally guarantee[d] payment to the lender of all amounts owing under the note. This Guarantee remains in effect until the Note is paid in full. Guarantor must pay all amounts due under the Note when Lender makes written demandupon Guarantor. Lender is not required to seek payment from any other source before demanding payment from Guarantor."

(Trial Exhibit 2 at ¶ 1). Under the Unconditional Guarantees, the Konczaks are personally liable for the Note, including the principal, interest and any statutory fees. (Trial Exhibits 1, 2). The Unconditional Guarantees were also assigned to the SBA on June 27, 2003. (See Trial Exhibit 2 at pages USA0211, USA0230, Testimony of Carla Donaldson).

The loan proceeds were distributed to Konczak's Koncepts and used for purchase, renovation, and operation of the business. In July of 2007, Konczak's Koncepts ceased making payments and defaulted on its obligation to repay the loan. (See Trial Exhibits 12, 32, Trial Testimony of Robert Konczak). Christopher and Keli Konczak sought protection in bankruptcy. (Trial Testimony of Robert Konczak). Konczak's Koncepts failed and on October 17, 2008, filed Articles of Dissolution with the Colorado Secretary of State. (See Trial Exhibit 13).³

The SBA paid the debenture on March 26, 2008. (See Trial Exhibit 23 at page USA0326). Neither discussions between Pikes Peak and the Konczaks nor discussions between the SBA and the Konczaks resulted in any resolution of the debt. (See Trial Testimony of Carla Donaldson, Trial Testimony of Robert Konczak). On March 12, 2010, the SBA referred the debt to the United States Department of the Treasury's Financial Management Service ("Treasury") pursuant to Title 31 U.S.C. § 3711(g)(1). The SBA's initial referral to Treasury in March of 2010 identified only Konczak's Koncepts as liable on the Note. On January 30 and 31, 2012, the SBA made a second referral to Treasury that identified Konczak's Koncepts and the individual guarantors, the Konczaks, as all liable on the Note. (Trial Testimony of Carla Donaldson, Trial Testimony of Regina Crisafulli, Trial Testimony of Robert Konczak). Treasuryplaced the Konczaks on the Treasury Offset Program ("TOP") as required by 31 U.S.C. § 3716. Between March 2010 and January 2012, Treasury applied $2,552.70 of the Konczaks' social security benefit payments and federal tax refunds to the balance owed on the Note. (See Trial Exhibit 11, Trial Testimony of Regina Crisafulli). In 2012, the SBA applied a TOP offset of $6,000.51 to the balance owed on the Note. (See Trial Testimony of Regina Crisafulli). A total amount of $8,553.21 in TOP offsets was applied to the debt. (See id.).

Treasury employed two private collection agencies, CBE Group and Progressive Financial Services, Inc. ("PFS"), to collect the debt. (See Trial Testimony of Regina Crisafulli, Trial Exhibit 19, Stipulated Finding of Fact ¶ 8).⁴ In letters dated May 7, 2010 and December 7, 2010, the Konczaks offered to pay $25,000.00 to settle the total amount that was owed at that time. (See Exhibits 3, 5, Stipulated Finding of Fact ¶ 8 (See Courtroom Minutes/Minute Order) (Doc. # 37)). On December 18, 2010, the Konczaks prepared and executed a "Consumer Debtor Financial Statement" for PFS to support their offer of settlement. (See Trial Exhibit 6). On March 4, 2011 the Konczaks' counsel wrote a letter to PFS, stating in pertinent part: "[t]he purpose of this letter is to provide you again updated financial information and to advise that my clients are prepared to make another settlement offer provided I can first discuss the matter with a supervisor." (See Trial Exhibit 7).

On May 11, 2011, the Konczaks wrote a letter to CBE Group, in which they offered to settle their personal guarantees for the Note. (See Trial Exhibit 8, Trial Testimony of Robert Konczak). Also on May 11, 2011, the Konczaks submitted to CBE a Consumer Debtor Financial Statement that was prepared on May 4, 2011. (See Trial Exhibit 8, Trial Testimony of Robert Konczak). On July 13, 2011 and August 1, 2011, the Konczaks wrote letters to CBE Group in which they again offered to settle their personal guarantees for the Note. (See Trial Exhibits 9,10, 14). Neither of the private collection agencies acting on Treasury's behalf were able to collect the debt. (See Trial Testimony of Regina Crisafulli). On January 30, 2012, Treasury sent a letter to Robert Konczak, demanding immediate payment of the loan. (See Trial Exhibit 11 at page USA291, Trial Testimony of Regina Crisafulli). Mr. Konczak testified that he never received that letter, as it was mailed to Konczak's Koncepts' address after it was dissolved.

Interest accrued on the debt between the date that the Note was funded in September 2003, and the "charge-off" date, July 6, 2009. (Trial Testimony of Carla Donaldson).⁵ No further interest has accrued on the Note since the charge-off date. (Id.). Because the debt has been delinquent for over two years, Treasury added a 30% Debt Management Service ("DMS") fee of $198,029.11 on the debt's principal and interest for costs of collection. See 31 U.S.C. § 3717(e)(1) ("The head of an executive, judicial, or legislative agency shall assess on a claim owed by a person--(1) a charge to cover the cost of processing and handling a delinquent claim."); Title 31 U.S.C. § 3711(g)(6) ("Any agency operating a debt collection center to which nontax claims are referred or transferred under this subsection may charge a fee sufficient to cover the full cost of implementing this subsection. The agency transferring or referring the nontax claim shall be charged the fee, and the agency charging the fee shall collect such fee by retaining the amount of the fee from amounts collected pursuant to this subsection."); Title 31 C.F.R. § 285.12(j) ("Fiscal Service and other debt collection centers (as defined in paragraph (a) of this section) may charge fees sufficient to cover the full cost of providing debt collection services authorized by this section."). Treasury also added a 3% DOJ fee of $26,539.09 to the principal and interest of the debt. See "21st Century Department of Justice Appropriations Authorization Act," Pub. L. 107-273, Div. C, Title I, §11013(a), Nov. 2, 2002, 116 Stat. 1823,Title 28 U.S.C. § 527 Note ("Notwithstanding section 3302 of title 31, United States Code, or any other statute affecting the crediting of collections, the Attorney General may credit, as an offsetting collection, to the Department of Justice Working Capital Fund up to 3 percent of all amounts collected pursuant to civil debt collection litigation activities of the Department of Justice. Such amounts in the Working Capital Fund shall . . . be used first, for paying the costs of processing and tracking civil and criminal debt-collection litigation, and, thereafter, for financial systems and for debt-collection-related personnel, administrative, and litigation expenses."). The Konczaks are indebted to the USA in the total amount of $884,666.09, which includes the principal amount of $599,043.83, interest in the amount of $61,053.17, and fees of the Departments of Treasury and Justice in the amount of $224,569.09. (Trial Exhibit 31).

On April 13, 2012, Treasury referred the debt to the Department of Justice ("DOJ") for litigation. (See Trial Testimony of Regina Crisafulli, Certificate of Indebtedness (Trial Exhibit 12)). Also on April 13, 2012, the DOJ sent a demand letter to each Defendant at their residence in Woodland Park, requesting immediate payment of...