United States v. McClanahan
| Decision Date | 31 July 2020 |
| Docket Number | CRIMINAL ACTION NO. 3:03-00053 |
| Citation | 475 F.Supp.3d 525 |
| Court | U.S. District Court — Southern District of West Virginia |
| Parties | UNITED STATES of America v. Shirley J. MCCLANAHAN |
Jessica Nathan, Susan M. Robinson, United States Attorney's Office, Charleston, WV, for United States of America.
Presently pending before the Court is Movant Larry McClanahan's Motion for Termination of Restitution Payment Schedule. Mot. for Termination , ECF No. 248. Larry McClanahan ("Mr. McClanahan") is the surviving spouse of Defendant Shirley J. McClanahan and executor of her estate. The Government timely filed a Response opposing the Motion, and Mr. McClanahan did the same with his Reply. Resp. in Opp'n , ECF No. 253; Reply , ECF No. 257. The Government also filed an untimely "Supplemental Exhibit" without seeking leave to do so. Supplemental Ex. , ECF No. 256. The issues have been adequately presented to the Court through the parties’ briefs and the issues they raise are ripe for resolution. For the reasons set forth below, the Court GRANTS the Motion.
On August 5, 2003, Defendant Shirley J. McClanahan ("Mrs. McClanahan") was sentenced to serve a forty-six-month term of imprisonment and to pay restitution in the amount of $405,844.11 for violating 18 U.S.C. § 657 —that is, for embezzlement with the intent to knowingly defraud the Huntington, West Virginia Policeman's Federal Credit Union ("Credit Union"). Judgment , ECF No. 22, at 1. A public school teacher for her adult life, Mrs. McClanahan began a second job as a bookkeeper for the Credit Union in 1982. PSR , ECF No. 259, at 13. Over the course of the next two decades, Mrs. McClanahan siphoned $405,884.11 from the Credit Union by writing checks to herself or her husband and by creating fictitious loans for other members. Id. at 6. Her husband—Movant Larry McClanahan—remained unaware of her actions. The same cannot be said of the National Credit Union Administration, which learned of the missing funds in 2002. Following an investigation, a single-count Information was filed in this Court charging Mrs. McClanahan with a violation of 18 U.S.C. § 657 on March 7, 2003.
Mrs. McClanahan promptly pleaded guilty to the charge, and this Court imposed a restitution obligation of $405,844.11 upon her at her sentencing. Judgment , at 5. After a number of initial adjustments in her restitution payment schedule, the Court ordered Mrs. McClanahan to pay restitution in the amount of 25% of her monthly payments from her state pension under the Consumer Credit Protection Act. United States v. McClanahan , No. 3:03-00053, 2006 WL 1455698, at *3 (S.D.W. Va. May 24, 2006). That limitation remained in effect throughout Mrs. McClanahan's term of incarceration and the years to follow, and she would come to repay $112,936.81 of her $405,844.11 obligation.
At some point in 2018, Mrs. McClanahan was diagnosed with a colon disorder that would eventually prove fatal. Mot. to Terminate , at 2. On March 11, 2019, Mrs. McClanahan died and left her husband as her "sole beneficiary, legatee, and devisee of her estate." Id. At the time of her death, her non-probate real estate holdings valued $113,600. Other non-probate assets included a $10,000 life insurance policy through New York Life, a $2,500 death benefit from the Public Employees Insurance Agency of West Virginia Retirement Board, and a separate $2,500 death benefit from the Cabell County Association of Retired School Teachers. A survivorship arrangement also provided for a monthly survivorship benefit in the amount of $2,045.51 to Mr. McClanahan.
It is essentially these assets that are the subject of the present dispute, which began in January 2020 when the United States Attorney's Office began demanding the sum of $292,906.30 from Mr. McClanahan (whom they identified as a "Beneficiary" of his wife's estate). Mem. of Law , ECF No. 249, at 3. Mr. McClanahan retained counsel in February 2020, who asked that the Government provide authority for the proposition that it could collect restitution on non-probate assets held by his client. Id. The Government waited until June 9, 2020 to respond, and then only to threaten suit for fraudulent transfer and demand that Mr. McClanahan pay his entire survivorship benefit towards restitution. Pl.’s Ex. G , ECF No. 248-7, at 1. This demand apparently encompassed the entirety of his benefit payment—not just the 25% that Mrs. McClanahan had paid during her lifetime. Id. The Government also contacted the Retirement Board in an attempt to interrupt benefit payments to Mr. McClanahan. Pl.’s Ex. F , ECF No. 248-6, at 1.
Unconvinced of the Government's authority, Mr. McClanahan filed the instant Motion for Termination of Restitution Payment Schedule on June 26, 2020, along with a Memorandum of Law. The Government opposed the Motion, and sought relief of its own: (1) judicial notice that Mrs. McClanahan's estate Assets included the non-probate assets listed above, as well as two Chase bank accounts, (2) an order directing Mr. McClanahan to provide an accounting of disbursals from Mrs. McClanahan's estate, (3) an order requiring Mr. McClanahan to immediately surrender $30,000 to the Government, (4) and a separate garnishment order providing that Mr. McClanahan's survivor benefits would be paid to the Government.1 Gov't Mem. of Law , ECF No. 254, at 14. It is to the parties’ arguments in support of their respective positions that the Court now turns.
The pending Motion implicates two distinct questions: first, whether Mr. McClanahan has standing to request the relief he is seeking, and second, whether the Mandatory Victims Restitution Act permits the Government to pursue recovery of a third-party's assets to satisfy a deceased defendant's restitution obligations. In this apparent case of first impression, the Court concludes that the answer to the first question is yes and the answer to the second question is no.
The Court begins by considering whether the relatively unusual procedural posture of this case affects its jurisdiction to entertain Mr. McClanahan's Motion. As the Motion is styled as one "for Termination of Restitution Payment Schedule," the Government argues that Mr. McClanahan "is not qualified under 18 U.S.C. § 3572(d)(3)" to raise his claims.2 Gov't Mem. of Law , at 7. In relevant part, that statute provides that a "court may, on its own motion or the motion of any party, adjust the payment schedule [of a restitution obligation], or require immediate payment in full, as the interest of justice require." 18 U.S.C. § 3572(d)(3). The Government's argument, such as it is, appears to be that restitution is part of Mrs. McClanahan's criminal sentence and that the time to raise a challenge to that sentence under 18 U.S.C. § 2255 has passed. Gov't Mem. of Law , at ¶ 28.
That argument fails for two readily apparent reasons. First, the Court may "adjust the payment schedule" of a defendant's restitution obligation "on its own motion." See 18 U.S.C. § 3572(d)(3). Whether or not Mr. McClanahan has statutory standing to seek modification of his wife's restitution obligations is thus essentially an academic question, as the Court is free to act with or without his intervention. Second (and even more conspicuous) is the fact that the Government has been serving demands for payment upon Mr. McClanahan as executor of Mrs. McClanahan's estate. Gov't Mem. of Law , at ¶ 27. The Government's argument therefore boils down to two irreconcilable propositions: that Mr. McClanahan is the appropriate party upon which to serve payment demands, and the inappropriate party to object to those payment demands. The Court is unable to disentangle those competing claims, and thus has ample authority to consider Mr. McClanahan's Motion.
Having resolved that Mr. McClanahan is entitled to raise his argument in the context of this action, the Court turns to the substance of his claims. At core, Mr. McClanahan contends that the Government is unlawfully attempting to collect various non-probate assets—a life insurance policy, two one-time death benefits, and a monthly survivorship benefit—to use towards his wife's restitution obligation. The Government concedes that this is exactly what it is doing, though it argues that the Mandatory Victims Restitution Act ("MVRA") grants it the authority to do so.
Congress enacted the MVRA in 1996 as part of the Antiterrorism and Effective Death Penalty Act, see Pub. L. No. 104-132, 110 Stat. 1214 (1996), which "made payment of restitution as part of a criminal sentence mandatory for certain categories of offenses that directly and proximately caused a victim to suffer either a physical or a pecuniary loss," United States v. Abdelbary , 746 F.3d 570, 575 (4th Cir. 2014). Pursuant to this authority, the Government is empowered to enforce an order of restitution "against all property or rights to property of the person fined. " 18 U.S.C. § 3613(a) (emphasis added). Congress amended the MVRA in 2016 to provide that "[i]n the event of the death of the person ordered to pay restitution, the individual's estate will be held responsible for any unpaid balance of that restitution amount." Pub. L. No. 114-324, § 2(b), 130 Stat. 1948 (2016). Mr. McClanahan does not contest this authority; rather, he argues that his wife's estate does not include the assets that the Government is demanding. The Government disagrees, and claims it is entitled to the entirety of Mr. McClanahan's survivorship benefits,3 two $2,500 death benefits, and the policy value of a $10,000 life insurance agreement.4
As both parties note, there is little (and, really, no) precedent anywhere in the federal court system to guide the Court's analysis. And there is a good reason for that: the Government's argument—that a defendant's "estate" encompasses property that a defendant never owned and had no...
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