United States v. Miller
| Decision Date | 12 July 2022 |
| Docket Number | 21-2725 |
| Citation | 39 F.4th 844 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Steven MILLER, Defendant, Appeal of: Liliya Krasilnikova, Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Beth A. Clukey, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.
Steve A. Greenberg, Attorney, Greenberg Trial Lawyers, Chicago, IL, for Appellant.
Steve A. Greenberg, Attorney, Greenberg Trial Lawyers, Chicago, IL, for Defendant.
Before Wood, Hamilton, and Jackson-Akiwumi, Circuit Judges.
This appeal presents an unusually tangled story about ownership of a family residence. The district court sorted out the mess as well as the record would allow. We affirm its decision finding that defendant Steven Miller had a one-half ownership interest in the property and that it should be used to pay restitution for Miller's crime.
Miller and appellant Liliya Krasilnikova are married. In 2018, Miller pled guilty to one count of wire fraud. Part of his sentence included an order to pay approximately $1.1 million in restitution. Days after Miller received his sentence, Krasilnikova agreed to sell their family home to a third party. The United States then gave notice of a lien on the property, asserting that Miller had a one-half interest in the proceeds and that his share should be used to pay restitution. Krasilnikova argues that the government is entitled to nothing. She contends that she was the sole owner and that Miller had no interest in the property or the sale proceeds.
The title to the property was indeed only in Krasilnikova's name, and title is ordinarily king in determining ownership interests in property. As Judge Bucklo explained in careful detail, however, the evidence here shows that the property was the subject of not one but several highly irregular, indeed fraudulent, transactions preceding Miller's conviction and the eventual sale of the home. The fraudulent transactions included the very transfer of title that Krasilnikova relies upon to assert that she was the sole owner. Since the paper title is not reliable, the district court properly considered the additional evidence, and the court did not err by dividing the proceeds equally between Miller and Krasilnikova based on their shared exercise of control over their family home.
This appeal comes to us in the form of a civil garnishment order inside a criminal prosecution. See United States v. Kollintzas , 501 F.3d 796, 800 (7th Cir. 2007) ().
After Miller pled guilty to one count of wire fraud, he was sentenced to a year and a day in prison and two years of supervised release. He was also ordered to pay approximately $1.1 million in restitution to two financial institutions and a government agency. Upon entry of judgment, the order for payment of restitution became a lien in favor of the government on all of Miller's property and rights to property. See 18 U.S.C. § 3613(c) ; Kollintzas , 501 F.3d at 802. Such a lien is perfected against purchasers and other third parties when the government files a notice of the lien with an appropriate public office, such as the county clerk or recorder. See § 3613(d) ; 26 U.S.C. § 6323(f). Important to note: "Liens to pay restitution debts 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 (internal citations omitted), quoting United States v. Denlinger , 982 F.2d 233, 235 (7th Cir. 1992).
The government then tried to collect Miller's assets to use them for restitution. Days after her husband was sentenced, Krasilnikova entered into a contract to sell their family home ("the Crescent Avenue property") for $855,000. Shortly after that, the United States filed a lien on the property to enforce the restitution judgment and collect what it said was Miller's portion of the proceeds. Krasilnikova disputed that claim. She asserted that Miller—and thus the government in his stead—was not entitled to any of the proceeds because title to the Crescent Avenue property was only in her name. With the sale pending, the parties struck a bargain: the government would lift the lien on the property to allow the sale to go forward, but the sale proceeds would sit in escrow while the parties resolved the dispute.
Next, Krasilnikova filed a motion in the district court in Miller's criminal case. She sought an order to release the escrowed funds to her. The government objected and asserted it was entitled to one-half of the sale proceeds. To resolve the dispute, the district court applied the framework of the Federal Debt Collection Procedures Act (FDCPA), 28 U.S.C. §§ 3001 – 3308. The FDCPA governs collection of, among others, debts for securing restitution in federal criminal cases. United States v. Sheth , 759 F.3d 711, 716 (7th Cir. 2014). When the government asserts a lien on property of a criminal defendant, a person with a competing interest in the property is entitled to participate in the court collection proceedings. Kollintzas , 501 F.3d at 801, 803. The so-called "interested person" then has the burden of establishing her ownership interest in the disputed property. Id. at 803.1
As an "interested person," Krasilnikova asserted a competing right to the Crescent Avenue property over which the government had asserted an apparently valid lien. To resolve ownership disputes under the FDCPA, courts "look initially to state law to determine what rights the [criminal defendant] has in the property the Government seeks to reach," and then turn to "federal law to determine whether the [defendant's] state-delineated rights qualify as ‘property’ or ‘rights to property’ within the compass of the federal tax lien legislation." Kollintzas , 501 F.3d at 802, quoting Drye v. United States , 528 U.S. 49, 58, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999). The latter is not in dispute, so the state law issue is decisive.
After holding an evidentiary hearing, the district court concluded that the government was entitled to one-half of the proceeds from the Crescent Avenue property sale. The court first determined that under Illinois law, courts evaluating ownership can look past title and instead ask who actually exercised control over the property at issue. United States v. Miller , 558 F. Supp. 3d 655, 661–62 (N.D. Ill. 2021), citing People v. Chicago Title & Trust Co. , 75 Ill.2d 479, 27 Ill.Dec. 476, 389 N.E.2d 540, 544–45 (1979). Krasilnikova's sole title was not decisive but rather a factor to be considered. The district court gave little weight to the title because it reflected "a number of serious irregularities." Id. at 663.
The court ultimately found that Miller and Krasilnikova exercised shared control over the property so that each was entitled to half of the proceeds. To reach an even split, the court took guidance from Illinois divorce law. Illinois courts split marital property "in just proportions." Id. , quoting 750 ILCS 5/503(d). The court concluded that a fifty-fifty split satisfied that standard here, and at least that Krasilnikova did not prove she was entitled to more, as was her burden under the FDCPA. The court therefore awarded the government Miller's half of the sale proceeds. Krasilnikova has appealed.
We review the district court's factual findings for clear error and conclusions of law de novo. United States v. Henricks , 886 F.3d 618, 623 (7th Cir. 2018). Krasilnikova's central argument on appeal is that the district court misapplied state law by finding that Miller had an interest in the Crescent Avenue property despite her sole title. We disagree.
A series of property transfers and mortgages casts significant doubt on the legitimacy of Krasilnikova's paper title. Ample evidence suggests that Miller and Krasilnikova manipulated property and financial records to conceal the true ownership of the Crescent Avenue property. In such circumstances, Illinois law authorizes courts to evaluate ownership in light of evidence of genuine control over the property. The evidence showed that Miller and Krasilnikova exercised equal control over the property and thus had equal property interests at the time of sale. At the very least, the district court did not clearly err in finding that they did. We turn now to evidence of the history of the Crescent Avenue property, and then apply Illinois law to this ownership dispute.2
In 2012, Krasilnikova purchased the Crescent Avenue property with a $250,000 gift she received from her parents. Miller handled the closing by himself at Krasilnikova's direction. At the time, Miller and Krasilnikova were engaged. Krasilnikova did not obtain title to the property immediately. Instead, county property records indicate that the title passed to a land trust. The beneficiaries of the trust were Krasilnikova and Ellen Malecki, a person who would play a big role in later transactions, and they were listed as joint tenants.
In December 2012, Miller and Krasilnikova were married. They razed the old house on the Crescent Avenue property and built a new one. The improvements cost around $425,000. To help finance the building, SRK Ventures LLC issued a mortgage loan for $200,000 to the trust, with the loan to be paid off in four months. The loan agreement bore Krasilnikova's and Ellen Malecki's signatures, but Malecki testified that her signature was forged. Miller himself guaranteed the construction loan. A law firm disbursed the funds from the trust to the subcontractors with Krasilnikova's and Ellen Malecki's signatures, but Malecki testified that her signature was again forged.3
Miller and Krasilnikova moved into the Crescent Avenue property in 2013. The two would go on to live together and raise two children...
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