United States v. Malcolm Petal ( 2011 )

Case: 10-30473 Document: 00511533158 Page: 1 Date Filed: 07/07/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 7, 2011
No. 10-30473 Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff–Appellee,
v.
MALCOLM PETAL, also known as Malcolm Rachmiel Petal, also known as
Malcolm R. Petal, II, also known as J. Malcolm Petal, also known as Malcolm
J. Petal,
Defendant–Appellant.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:08-CR-176
Before HIGGINBOTHAM, OWEN, and HAYNES, Circuit Judges.
PER CURIAM:*
Malcolm R. Petal, proceeding pro se, appeals the district court’s entry of
a final order of garnishment against William Bosch IV, the lessee of Petal’s New
Orleans residence. We affirm but remand in the interest of justice and out of an
abundance of caution.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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No. 10-30473
I
Petal pleaded guilty to a charge of conspiracy to bribe a Louisiana state
official in connection with a program receiving federal funds. The district court
sentenced Petal to 60 months’ imprisonment and payment of $1,350,000
restitution to the state of Louisiana.
Before reporting to federal prison, Petal entered into a residential lease
agreement, leasing his New Orleans home to Bosch for $3,200 per month. After
Petal reported to prison, the United States applied to the district court for a writ
of garnishment to Bosch pursuant to the Federal Debt Collection Procedures
Act (FDCPA).1 The district court granted the application. Bosch, as required by
statute, answered the writ.2 Petal moved to quash the writ, arguing that the
district court lacked jurisdiction to issue the writ because Petal did not have a
substantial interest in the rental proceeds. Petal asserted that the mortgagee,
Capital One, N.A. (the Bank), had a superior interest to his or the United States’
interest in the lease proceeds under the terms of his mortgage. He additionally
asserted that the Bank had foreclosed on the residence and was entitled to the
lease proceeds.
The Government opposed Petal’s motion to quash. The Government
requested that the court issue a final order of garnishment directing Bosch to
pay unpaid rents to the United States. The Government also requested that
Ruth Petal, who was acting as Petal’s agent and landlord, deliver any post-dated
rent checks she possessed to the United States.3 The district court denied Petal’s
1
28 U.S.C. § 3205.
2
Id. § 3205(c)(4).
3
At this point, Petal filed a premature appeal in this court, which we dismissed for lack
of jurisdiction. United States v. Petal, No. 10-30159 (5th Cir. April 28, 2010).
2
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motion to quash and issued a final order of garnishment along the lines
requested by the Government.
Petal timely appealed. The district court denied Petal’s motion to stay the
final order of garnishment pending appeal, finding that Petal lacked standing
to assert the third party Bank’s interests. This court also denied Petal’s request
for a stay without explanation.4
II
The Government contends, for the first time on appeal, that Petal lacks
standing. “The doctrine of standing asks whether a litigant is entitled to have
a federal court resolve his grievance,” a question that “involves both
constitutional limitations on federal-court jurisdiction and prudential limitations
on its exercise.”5
We must address the Government’s challenge to constitutional standing,
which pertains to our subject matter jurisdiction, before addressing the merits
of the case.6 To meet the constitutional standing requirement, a party must
show “(1) an injury in fact (2) that is fairly traceable to the actions of the
defendant and (3) that likely will be redressed by a favorable decision.”7 Petal
asserted in the district court that garnishment of the rental proceeds was illegal
because he did not have a “substantial . . . interest” in those proceeds, as
required by 28 U.S.C. § 3205(a). He claimed he lacked such an interest because
4
United States v. Petal, No. 10-30473 (5th Cir. Sept. 15, 2010).
5
Kowalski v. Tesmer, 543 U.S. 125, 128 (2004) (internal quotation marks and citation
omitted).
6
Del-Ray Battery Co. v. Douglas Battery Co., 635 F.3d 725, 729 (5th Cir. 2011)
(“Defendants assert several new challenges to subject matter jurisdiction on appeal, which
must be addressed before reaching the merits of the case.”) (citing Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94 (1998)).
7
Proctor & Gamble Co. v. Amway Corp., 242 F.3d 539, 560 (5th Cir. 2001) (citations
omitted).
3
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the Bank’s rights to the proceeds following foreclosure were superior to his or the
Government’s rights, and also because the terms of his mortgage required that
he pay the rental proceeds to the Bank. Petal’s monthly payment obligation
under his mortgage is $5,458.41. Petal also asserted that if the lease proceeds
were not garnished, he could “preserve the asset” (the residence), a contention
the Government does not contest. A favorable decision vacating the writ of
garnishment would no doubt redress Petal’s alleged injury stemming from the
writ. Bearing in mind that whether Petal has “standing to make the argument
is distinct from whether the argument has merit,”8 we conclude that Petal
satisfies the minimum requirements for constitutional standing.
The Government also argues that Petal lacks prudential standing to assert
the Bank’s rights. Prudential standing “embodies judicially self-imposed limits
on the exercise of federal jurisdiction,”9 and while we have previously addressed
a party’s prudential standing when that issue was not raised in the court below
or in our court,10 we are not required to do so.11 We conclude that Petal has
prudential standing to challenge the writ of garnishment to the extent he is
seeking to advance his own financial interest, as distinguished from that of the
Bank. Were Petal to succeed in his arguments, and the lease payments from
Bosch were to be paid to the Bank, Petal’s obligations to the Bank would be
8
United States v. DeCay, 620 F.3d 534, 538 n.2 (5th Cir. 2010).
9
Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11 (2004) (internal quotation
marks and citation omitted).
10
Nat’l Solid Waste Mgmt. Ass’n v. Pine Belt Reg’l Solid Waste Mgmt. Auth., 389 F.3d
491, 498-99 (5th Cir. 2004) (addressing prudential standing sua sponte).
11
Ensley v. Cody Res., Inc., 171 F.3d 315, 320 (5th Cir. 1999) (holding that defendant
waived prudential standing argument by failing to object in the trial court); see also Baca v.
Ladd, No. 94-50581, 1996 WL 46567, at *3 n.3 (5th Cir. Jan. 19, 1996) (unpublished)
(“Constitutional standing limitations may not be waived, but prudential standing restrictions
may.”).
4
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correspondingly reduced. Petal is not seeking to enforce the Bank’s interests for
the Bank’s sake, but to further his own interests.12
III
We turn now to the merits of Petal’s objections to the writ of garnishment.
We review the district court’s final order of garnishment for an abuse of
discretion.13 We review de novo underlying issues of statutory interpretation.14
The FDCPA provides, in relevant part, that 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.”15 Property, in turn, is defined as “any
present or future interest, whether legal or equitable, in real, personal (including
choses in action), or mixed property, tangible or intangible, vested or contingent,
wherever located and however held.”16
In his motion to quash, Petal advanced two alternative arguments. First,
he contended that garnishment was improper because the terms of his mortgage
required that he pay the lease proceeds to the Bank. Second, Petal asserted that
the Bank had foreclosed on the residence, and that the Bank’s interest in the
lease proceeds was superior to that of the United States or Petal under federal
tax law and the FDCPA. As a result of his mortgage or the effect of the
foreclosure, Petal argued that he did not have a “substantial interest” in the
12
Ensley, 171 F.3d at 320.
13
United States v. Clayton, 613 F.3d 592, 595 (5th Cir. 2010).
14
Id.
15
28 U.S.C. § 3205(a).
16
Id. § 3002(12).
5
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proceeds subject to garnishment under the FDCPA. Petal continues to advance
these arguments, as well as others, on appeal.
A copy of the residential lease and Petal’s mortgage were before the
district court, but Petal provided no evidence supporting his assertion that the
Bank had foreclosed on the residence. Therefore, we evaluate the district court’s
issuance of the writ of garnishment looking only to the evidence properly before
it when it issued the final order of garnishment.
We note at the outset that the Bank is not a party to this proceeding, and
the issues before us are somewhat narrow. The question is whether Petal had
a substantial interest in the proceeds from the Bosch lease that could be
garnished based on the record before the district court. To answer that question,
we need not resolve the precise contours of the Bank’s interests under the
mortgage or under Louisiana law. We conclude that notwithstanding any
interest the Bank may have in the lease proceeds from Petal’s property absent
foreclosure on that property, Petal’s interest in the lease payments is
“substantial” within the meaning of the FDCPA and those payments were
subject to garnishment.
The Bank is not a party to the residential lease, which names only Ruth
Petal as payee. Petal does not dispute that payments were delivered from Bosch
to Ruth Petal, not the Bank. As the Government points out, Petal’s mortgage
does not refer to or incorporate any of the statutory provisions of Louisiana law
pertaining to assignment of rents.17 Petal argues, however, that a provision of
his mortgage granting “all rights” to the Bank includes the Bank’s right to
receive lease payments. That provision applies to “all my present and future
rights, title and interests in and to the following described . . . immovable (real)
17
See, e.g., LA. REV. STAT. § 6:830(A) (“The mortgage may provide for an assignment of
rents, and if such assignment is made, any such assignment shall become absolute upon the
mortgagor's default . . . .” (emphasis added)).
6
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property.” As noted, we need not decide whether this conveyed to the Bank an
interest in lease proceeds absent foreclosure because it appears from the record
presently before us that any right the Bank may have had to lease proceeds was
not self-executing in the sense that the “all rights” provision did not restrict
Petal from collecting the lease proceeds, at least absent some demand or perhaps
the invocation of some proceeding by the Bank. We do not consider whether the
Bank would be entitled to collect the lease payments had it made a demand or
initiated proceedings because there is no evidence of such actions in the record
before us.
Petal contends that the district court should have determined that after
the Bank foreclosed on the residence, the Bank obtained a lien priority ahead of
the Government’s on the fruits of that real property, specifically the lease
proceeds. However, because there was no evidence before the district court that
the Bank had foreclosed on Petal’s residence, the district court did not err in
failing to determine priorities of competing debtors under Louisiana or other
law.
Petal’s argument that the district court lacked authority to seize property
that belonged to the Bank is similarly premised on his contention that the Bank
had foreclosed on his residence.
The record before the district court demonstrated that Petal possessed a
“substantial” “present or future interest” in personal property—the cash rental
payments due—that were properly subject to garnishment.
IV
Petal contends that the district court should have joined the Bank as a
required party under Federal Rule of Civil Procedure 19. Petal did not seek to
have the Bank joined in the district court. We cannot say that the district court
abused its discretion in failing to join the Bank when the district court was never
requested to do so.
7
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V
During the pendency of this appeal, the Government moved the district
court to issue a show-cause order to Bosch and Ruth Petal for failing to comply
with the final writ of garnishment. The transcript of the show-cause hearing
demonstrates that until October 2010, Bosch continued making lease payments
to Ruth Petal, who in turn forwarded those payments—often along with personal
funds to make up the difference between the lease and mortgage amount—to the
Bank.18 Before the magistrate issued her report and recommendation, the
district court granted the Government’s motion to dismiss the show-cause claim
against Bosch, which the Government submitted after it reached a settlement
with him. The magistrate’s report and recommendation, which was adopted by
the district court, declined to hold Ruth Petal liable for the lease proceeds
forwarded to the Bank. The magistrate reasoned that Ruth Petal was not
subject to the initial writ of garnishment and that she had not personally
profited by forwarding the proceeds to the Bank. The magistrate did, however,
sanction Ruth Petal $3,000 for failing to provide an accounting of the lease
payments, as required by the final writ of garnishment, and also for her role in
encouraging Bosch to disregard the writ of garnishment. Ruth Petal has
separately appealed the contempt finding.
Also during the pendency of this appeal, Petal has moved this court to take
judicial notice of a state court order issuing a writ of seizure and sale for the
residence on August 11, 2009, attaching a copy of the state court order to his
motion. This state court order precedes not only the final order of garnishment
issued in April 2010, but also the initial issuance of the writ of garnishment in
18
Neither the transcript nor the magistrate’s report and recommendation are included
in the record on appeal, but we “may take judicial notice of the record in prior related
proceedings and draw reasonable inferences therefrom.” CitiFinancial Corp. v. Harrison, 453
F.3d 245, 249 n.3 (5th Cir. 2006) (internal quotation marks and citation omitted).
8
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November 2009. We decline to grant Petal’s motion to take judicial notice
because evidence of the foreclosure has not been presented to the district court.19
Even were we to take judicial notice of this state court order, many questions
appear unresolved. In proceedings before the magistrate judge that occurred
after the present appeal was commenced, there is an indication that a new lease
on Petal’s residence was executed in June 2010 under which Bosch made
payments directly to the Bank. However, there is an indication elsewhere that
the new lease continues to be between Bosch and Petal and that Bosch began
paying the Government the monthly lease payments in October 2010. The
Bank’s interests in the residence and lease payments from Bosch are far from
clear, even were we to consider the state court order.
We again note that the Bank is not and has not been a party to the
proceedings before us. At the show cause hearing in the district court, the
United States Attorney made the following statement in response to the court’s
inquiry regarding the Bank’s position regarding its mortgage:
Not that we’re aware of, Your Honor, but I’m glad you brought
that point up, because that goes toward the point I referenced
earlier, which is the degree of opposition there has been to these
collection efforts, and that includes two Motions to Quash, one
premature appeal, one timely appeal that’s still pending, two
Motions to Stay, and one Motion to Dismiss these show cause
hearings for lack of jurisdiction.
It’s Malcolm Petal’s contention somehow his mortgage
company has a superior right to these rents than does the United
States of America. The mortgage company, I’ve actually spoken
with their lawyer, there is no such intention [sic], and if there was
such a contention, it would be incumbent upon the mortgage
company to make that. They are the proper party with standing to
make that argument.
19
See Singleton v. Wulff, 428 U.S. 106, 121 (1976).
9
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It is unclear to us from the record whether any further proceedings in the
district court might be appropriate, and the parties have not argued or briefed
whether, under the FDCPA, the district court retains authority to modify the
final order issuing the writ of garnishment that is the subject of this appeal.20
In light of all that has transpired since Petal filed his notice of appeal, and out
of an abundance of caution and in the interest of justice, we believe it is
appropriate to remand this case to the district court so that it may take any
action that may be warranted under the law and developing facts.
* * *
We AFFIRM the district court’s entry of a final disposition order of
garnishment and REMAND to the district court.
20
See 28 U.S.C. § 3013 (“The court may at any time on its own initiative or the motion
of any interested person, and after such notice as it may require, make an order denying,
limiting, conditioning, regulating, extending, or modifying the use of any enforcement
procedure under this chapter.”).
10