UNITED STATES v. KOELN (2024)

MEMORANDUM AND ORDER

This closed criminal case is before the Court on Defendant John Koeln's pro se Motion for Hearing on a Claim for Exemption from garnishment under 26 U.S.C. § 6334(a)(8) (ECF No. 95). The United States opposes the motion. and filed two exhibits with its Response (ECF No. 96), including records from Defendant's divorce proceeding in St. Louis County Family Court. Defendant did not file a Reply in support of his motion and the time to do so has passed. Defendant's motion is denied for the following reasons.

Background

On December 12, 2019, a federal grand jury indicted Defendant John Koeln (“Defendant”) on five counts of wire fraud in violation of 18 U.S.C. §§ 1343 and 2. On October 28, 2020, Defendant pleaded guilty to wire fraud in violation of 18 U.S.C. § 1343. (ECF No. 33.) As part of his Guilty Plea Agreement, Defendant admitted that he embezzled $1,007,031 from his former employer, Unlimited Prepaid Distribution (“UPD”). (Id. at 2-3.)

On March 4, 2021, this Court ordered Defendant to pay $1,007,031.80 in restitution related to his wire fraud conviction, to be paid “in monthly installments of at least $300.00, or no less than 10% of the defendant's gross earnings, whichever is greater, with payments to commence no later than 30 days after release from imprisonment.” (Judgment, ECF No. 65 at 6.)

On February 5, 2024, this Court granted the United States’ application to issue a writ of garnishment against the Defendant's property held in an E*TRADE retirement account to partially satisfy Defendant's restitution balance. (See ECF Nos. 92, 93.) Following service of the writ, E*TRADE filed its answer, stating it is in possession of Roth IRA brokerage account of which Defendant is the sole owner, and having a balance of approximately $15,470.00.

Defendant filed the instant pro se motion for a garnishment exemption on February 26, 2024. Defendant seeks a child support exemption under 26 U.S.C. § 6334(a)(8), with respect to the United States’ effort to garnish Defendant's E*TRADE IRA account. The United States opposes the motion, asserting that Defendant's claimed exemption is inapplicable on its face. In support of its Response, the United States submitted two exhibits, including records from Defendant's divorce proceeding in St. Louis County, Missouri Family Court.¹

Discussion

A. Applicable Law

The Mandatory Victims Restitution Act (“MVRA”) requires “defendants convicted of a crime ‘committed by fraud or deceit’ to make restitution to the victim of the offense in the full amount of each victims’ loss.” United States v. Workman, 71 F.4th 661, 664 (8th Cir. 2023) (citing United States v. Spencer, 700 F.3d 317, 322 (8th Cir. 2012) (quoting 18 U.S.C. §§ 3663A(c)(1)(A)(ii), 3664(f)(1)(A))). “The ‘primary and overarching goal’ of the MVRA ‘is to make victims of crime whole, to fully compensate these victims for their losses and to restore these victims to their original state of well-being.’ ” United States v. Frazier, 651 F.3d 899, 904 (8th Cir. 2011) (quoted case omitted). The MVRA is also intended to “ensure that the offender realizes the damage caused by the offense and pays the debt owed to the victim as well as to society.” United States v. Ekanem, 383 F.3d 40, 44 (2d Cir. 2004) (citing S. Rep. No. 104-179, at 12 (1995)).

Pursuant to the MVRA, a fine imposed or an order of restitution “is a lien in favor of the United States on all property and rights to property of the person fined,” and “[t]he lien arises on the entry of judgment and continues for 20 years or until the liability is satisfied, remitted, set aside, or is terminated.” 18 U.S.C. § 3613(c). With limited exceptions, a judgment imposing a fine or restitution “may be enforced against all property or rights to property of the person fined,” except for certain types of exempt property. 18 U.S.C. § 3613(a) & (f). The types of exempt property include: (1) wearing apparel and school books; (2) fuel, provisions, furniture, and personal effects; (3) books and tools of a trade, business, or profession; (4) unemployment benefits; (5) undelivered mail; (6) certain annuity and pension payments; (7) workmen's compensation; (8) judgments for support of minor children; (9) certain service-connected disability payments; and (10) assistance under the Job Training Partnership Act. 18 U.S.C. § 3613(a)(1).

Under the MVRA, the United States may enforce a judgment imposing a fine or restitution “in accordance with the practices and procedures for the enforcement of a civil judgment under Federal law or State law.” 18 U.S.C. § 3613(a) & (f). The United States may also enforce an order of restitution “by all other available and reasonable means.” 18 U.S.C. § 3613(f); 18 U.S.C. § 3664(m)(1)(A).

The Federal Debt Collection Procedure Act (the “Act”) is a provision of federal law that the United States may utilize to enforce a restitution order in a criminal case. See 28 U.S.C. §§ 3001–3308; 28 U.S.C. §§ 3001(a),(b); 3003(b)(2). Under the Act, “A court may issue a writ of garnishment against property (including nonexempt disposable earnings) 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, in order to satisfy the judgment against the debtor.” 28 U.S.C. § 3205(a). If the court determines the statutory requirements have been satisfied, the court “shall issue” a writ of garnishment. § 3205(c)(1). “The writ shall state ․ [t]hat the garnishee shall withhold and retain any property in which the debtor has a substantial nonexempt interest and for which the garnishee is or may become indebted to the judgment debtor pending further order of the court.” § 3205(c)(2)(F).

Pursuant to § 3202(d), a judgment debtor may move to quash a writ of garnishment and request a hearing on such a motion. 28 U.S.C. § 3202(d). Issues at hearings under the Act are limited to determining the validity of any claim of exemption, the United States’ compliance with statutory requirements, and validity of default judgments. Id.; see United States v. Smith, 88 F. App'x 981, 981 (8th Cir. 2004) (unpublished per curiam) (citing § 3202(d)’s limits on issues at hearings under the Act).

The judgment debtor bears the burden of showing that an exemption applies to the property at issue. See 28 U.S.C. § 3202(b) (“you are hereby notified that there are exemptions under the law which may protect some of this property from being taken by the United States Government if [name of judgment debtor] can show that the exemptions apply.”); United States v. Smith, No. 4:13-CR-143-CDP (E.D. Mo. Oct. 17, 2022) (ECF No. 1197 at 6) (stating that the burden is on the restitution debtor to establish the applicability of any claimed exemption).

The FDCPA provides that the defendant in a garnishment action may request a hearing, 28 U.S.C. § 3202, and Defendant has requested a hearing in this case. The issues at such a hearing are limited by the statute. See 28 U.S.C. § 3202(d). Moreover, a defendant is not entitled to an evidentiary hearing unless he “adequately demonstrates the probable validity of his claim of exemption.” United States v. Clark, 990 F.3d 404, 406, n.1 (5th Cir. 2021). See also United States v. Montijo, No. 17-CR-0518, 2021 WL 2470507, at *4 (S.D.N.Y. May 19, 2021) (no hearing is required where a party fails to object based on one of the issues specified in 28 U.S.C. § 3202(d), “where the objection is plainly without merit, or where the objection was simply a matter of statutory interpretation.”) (citations omitted); United States v. Jenkins, No. 6:15-CV-0018 (GTS/TWD), 2015 WL 5023731, at *5 (N.D.N.Y. Aug. 25, 2015) (colorable claim to exemption required for hearing).

B. Defendant's Claimed Exemption

Defendant asserts that his E*TRADE IRA account cannot be garnished under the statute's judgments for support of minor children exemption, which states:

Judgments for support of minor children.--If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

26 U.S.C. § 6334(a)(8) (emphases added).

The United States argues that Defendant's claim fails on its face for two distinct reasons, both based on the statute's language. First, the relevant child support order was not entered prior to the date of the levy and, second, Defendant's retirement account is not “salary, wages, or other income.” The United States is correct on both points.

Section 6334(a)(8) gives priority to child support orders “entered prior to the date of levy,” in other words, before the date of the restitution judgment. See, e.g., United States v. Odimegwu, 2023 WL 5016163 at *4 (N.D.N.Y. Jun. 8, 2023) (“[T]he child support exemption does not apply because the objecting parties’ finalized legal separation was executed after the criminal restitution judgment was entered.”); United States v. Wandell, 2017 WL 6033047 at *2 (D. Colo. Oct. 13, 2017) (refusing to apply Section 6334(a)(8) where “the decree of dissolution of marriage [was] entered prior to the date of the restitution order.”); United States v. Corso, 2016 WL 3349213 at *4 (D. Conn. Jun. 14, 2016) (concluding a restitution order had to be paid over a child support order where the “child support Order was obtained long after the Restitution Order entered”).

Here, Defendant claims exemption from garnishment based on the state court's judgment in his marriage dissolution case, In re: Koeln v. Koeln, Case No. 19SL-DR05146 (21st Jud. Cir., St. Louis Cnty., State of Mo.). See ECF No. 95-1, at 1. The Judgment of Dissolution of Marriage was entered on March 25, 2022, however, more than one year after the restitution judgment was entered in this case. See Judgment in a Criminal Case, ECF No. 65 at 6-7 (Mar. 4, 2021); Judgment of Dissolution of Marriage, ECF No. 96-2 at 5 (dated Mar. 25, 2022). Because the state court's child support judgment was not “entered prior to the date of the levy,” Section 6334(a)(8)’s exemption does not apply.

In addition, Section 6334(a)(8) exempts from garnishment “salary, wages, or other income” necessary to pay a child support judgment. The Eighth Circuit Court of Appeals has not addressed the issue, but other circuits have held that these terms in the statute's child-support exemption collectively mean “items received by individuals for services rendered, such as bonuses, tips, commissions, and fees.” Woods v. Simpson, 46 F.3d 21, 24 (6th Cir. 1995). After engaging in a detailed analysis of the statute's terms as well as relevant canons of construction, the Fifth Circuit similarly held that “other income” means money akin to salary or wages, and further held that “other income” does not include retirement accounts, which are not akin to salary or wages, as they are not amounts received directly for labor. Clark, 990 F.3d at 407-09. The Court finds the Fifth Circuit's analysis persuasive, and will adopt it. As such, this is a second reason why Section 6334(a)(8)’s exemption does not apply here.

Conclusion

For the foregoing reasons, the Court will deny Defendant John Koeln's pro se Motion for Hearing on a Claim for Exemption from garnishment under 26 U.S.C. § 6334(a)(8). Defendant is not entitled to a hearing on his claim as he failed to “adequately demonstrate[ ] the probable validity of his claim of exemption.” Clark, 990 F.3d at 406, n.1. Defendant's motion is denied because he failed to meet his burden to show that an exemption applies to the property at issue. See 28 U.S.C. § 3202(b). The United States is entitled to garnish Defendant's E*TRADE IRA account to collect the restitution judgment in this case.

Accordingly,

IT IS HEREBY ORDERED that Defendant John Koeln's pro se Motion for Hearing on a Claim for Exemption from garnishment under 26 U.S.C. § 6334(a)(8) (ECF No. 95) is DENIED in all respects.

FOOTNOTES

1.   The Court takes judicial notice of the Missouri state court judgment on which Defendant's claimed exemption rests. “[F]ederal courts may ․ take judicial notice of proceedings in other courts if they relate directly to the matters at issue.” United States v. Evans, 690 F.3d 940, 943 (8th Cir. 2012) (quoted case omitted); see also Levy v. Ohl, 477 F.3d 988 (8th Cir. 2007) (district court may take judicial notice of public state records).

RONNIE L. WHITE, UNITED STATES DISTRICT JUDGE