United States v. Gwendolyn Berry

Case: 19-20050 Document: 00515326543 Page: 1 Date Filed: 02/28/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 19-20050 FILED
February 28, 2020
UNITED STATES OF AMERICA, Lyle W. Cayce
Clerk
Plaintiff - Appellee
v.
GWENDOLYN BERRY, also known as Gwen Berry,
Defendant - Appellant
MICHAEL BERRY,
Appellant
Appeals from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, JONES, and DUNCAN, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Michael and Gwendolyn Berry appeal a final order of garnishment under
the Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. § 3613, and
28 U.S.C. § 3205, contending that investment retirement accounts in Michael’s
name are not yet subject to restitution for Gwendolyn’s crime victims and,
alternatively, that no more than a quarter such funds can be garnished. We
conclude that half the funds—around $1 million—may be garnished now and
AFFIRM.
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BACKGROUND
Gwendolyn Berry pled guilty and was convicted of wire fraud, mail fraud,
and falsifying a tax return, all in connection with the ongoing theft of funds
from her employers. As part of her sentence, she was ordered to pay restitution
of more than $2 million.
To enforce the judgment, the government applied under 18 U.S.C. § 3613
and 28 U.S.C. § 3205 for a writ of garnishment directed to “Vanguard
Marketing Corp. and/or The Vanguard Group” (“Vanguard”). The government
sought to garnish five investment retirement accounts (“IRAs”) held under
Gwendolyn’s or her husband’s name. After Gwendolyn agreed to release the
funds in the accounts in her name, the government reapplied to garnish
Vanguard for 50% of the funds in two accounts in Michael’s name. The district
court granted the writ.
Michael and Gwendolyn each objected and moved to quash. After a
hearing, the district court denied those motions and denied the Berrys’ motion
to reconsider. In January 2019, the district court issued a final order of
garnishment requiring Vanguard to liquidate certain accounts held in
Michael’s name and pay half of their holdings, approximately $1 million, to the
government. Michael and Gwendolyn each timely appealed and sought a stay
of enforcement of garnishment pending appeal. The district court granted the
motion to stay. This court separated this case from Gwendolyn’s appeal of her
criminal conviction. 1
1 The conviction was upheld. United States v. Berry, No. 18-20617, 2019 WL 5866610
(5th Cir. Nov. 8, 2019).
2
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STANDARD OF REVIEW
This court “review[s] garnishment orders for abuse of discretion.” United
States v. Tilford, 810 F.3d 370, 371 (5th Cir. 2016). We review
“interpretation[s] of relevant statutory provisions . . . de novo.” Id.
DISCUSSION
In MVRA, federal law provides for restitution to victims of federal crimes
and affixes a lien on a defendant’s property and rights to property to secure
such restitution. Thus, 18 U.S.C. § 3613(a) states:
The United States may enforce a judgment imposing a fine in
accordance with the practices and procedures for the enforcement
of a civil judgment under Federal law or State law.
Notwithstanding any other Federal law. . . , a judgment imposing
a fine may be enforced against all property or rights to property of
the person fined, except that—
...
(3) the provisions of section 303 of the Consumer Credit
Protection Act (15 U.S.C. 1673) shall apply to enforcement of
the judgment under Federal law or State law.
Federal law creates the lien, but state law defines the property interests
to which the lien attaches. United States v. Elashi, 789 F.3d 547, 548–49 (5th
Cir. 2015) (citing United States v. Rodgers, 461 U.S. 677, 683, 103 S. Ct. 2132,
2137 (1983)).
The Berrys raise arguments grounded in both federal and state law to
urge that Michael’s IRAs are not part of “all property or rights to property of
the person fined.” 2 As a fallback, they maintain that, if Michael’s IRAs are
part of Gwendolyn’s “property or rights to property,” the provisions of § 303 of
2Michael and Gwendolyn incorporate each other’s separate briefs, except that
Gwendolyn does not incorporate Michael’s supplemental brief.
3
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the Consumer Credit Protection Act cap how much the government may
garnish from them. 3 We take these arguments in turn.
I. Federal Law
Relying on the federal tax code’s treatment of IRAs, the Berrys first deny
that any non-defendant spouse’s IRA can be part of a defendant spouse’s
“property or rights to property” under 18 U.S.C. § 3613. Binding precedent is
against them.
In United States v. Loftis, 607 F.3d 173 (5th Cir. 2010), this court stated:
The Mandatory Victims Restitution Act makes a restitution
order enforceable to the same extent as a tax lien. 18 U.S.C.
§ 3613(c). Consequently, the district court also correctly held that
the government could garnish Todd’s [the defendant’s] one-half
interest in any community property solely managed by Lisa,
including her retirement savings account. Id. at 179 n.7 (citation
omitted).
Based in part on this analysis, the court affirmed the restitution order of
the district court. Id. at 179–80. That is, the Loftis court affirmed a restitution
order garnishing an IRA solely managed by a non-defendant spouse. See
United States v. Loftis, No. 3:06-CV-1633-P, 2007 WL 9711722, at *4 n.3 (N.D.
Tex. Sept. 28, 2007).
Failing to mention Loftis until a footnote in Michael’s reply brief, the
Berrys contend both that Michael’s IRA is a species of federal property that
preempts Gwendolyn’s state law community property rights and that an anti-
alienation provision for IRAs also prevents Gwendolyn from gaining access to
Michael’s IRAs. Either way, they contend, Gwendolyn has no present rights
3 They also contend that the writ of garnishment is facially defective for various
reasons, but acknowledge this set of arguments repeats arguments raised in Gwendolyn’s
conviction appeal. In her appeal, this court rejected the same arguments. Berry, 2019 WL
5866610, at *10. We and the Berrys are bound by that decision.
4
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in Michael’s IRAs, and his accounts are not (yet) subject to § 3613-based
garnishment for her crimes.
Both interpretations, however, fail to take account of the
“notwithstanding” clause of § 3613(a) and conflicting authority. The Berrys
cite no law exempting 26 U.S.C. § 408, which governs IRAs, from being an
“other Federal law” expressly subject to the MVRA regime. The Berrys
analogize to ERISA law, represented by their reliance on Boggs v. Boggs,
520 U.S. 833, 117 S. Ct. 1754 (1997), but ERISA has no direct application to
IRAs. In any event, this court has held that notwithstanding its anti-
alienation provision, 29 U.S.C. § 1056(d)(1), ERISA retirement accounts are
subject to MVRA restitution awards. United States v. DeCay, 620 F.3d 534,
541 (5th Cir. 2010).
Equally fatal to the Berrys’ interpretation of Michael’s IRAs is that it
contradicts the interpretation adopted in Loftis, and “a later panel of this court
cannot overrule an earlier panel decision.” Hill v. Carroll County, 587 F.3d
230, 237 (5th Cir. 2009). Michael counters that “[t]his Court’s opinion in Loftis
did not address the issues now presented for review.” Under our rule of
orderliness, though, an earlier panel decision binds even if that panel’s opinion
does not explicitly address arguments presented to the later panel. See
Legendre v. Huntington Ingalls, Inc., 885 F.3d 398, 403 (5th Cir. 2018).
Accordingly, pursuant to Loftis, Gwendolyn’s one-half interest in Michael’s
solely managed IRA is part of “all property and rights to property of the
[spouse] fined” under § 3613. 4
4This holding does not conflict with United States v. Novak, 476 F.3d 1041 (9th Cir.
2007), on which the Berrys rely.
The Novak court asked, “When is a participant’s interest in a retirement plan
‘property or [a] right[ ] to property’ under 18 U.S.C. § 3613(a)?” Id. at 1060. To answer this
question, the court “look[ed] to ERISA” alone because “the species of property rights” at issue
was “[r]etirement plans covered by ERISA” and because such plans are “governed exclusively
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II. State Law
Turning to state law, the Berrys deny that Michael’s IRAs are “solely
managed” community property. Instead, they contend that the IRAs are
Michael’s separate property and, as such, not part of Gwendolyn’s “property or
rights to property” subject to garnishment under § 3613. We disagree.
The Berrys initially quibble 5 about which state law applies. They
propose Pennsylvania law because Michael’s agreement with Vanguard
includes a choice-of-law provision designating Pennsylvania law. The Berrys
waive their proposal, though, by citing no authority to show that a custodial
agreement determines what law governs the marital property rights of a non-
party to that agreement. L & A Contracting Co. v. S. Concrete Servs., Inc.,
17 F.3d 106, 113 (5th Cir. 1994) (an argument lacking authority is “abandoned
for being inadequately briefed”). In general, the law of the debtor’s domicile
state defines the property interests to which a judgment lien may attach.
Compare Elashi, 789 at 548–49, with Rodgers, 461 U.S. at 683, 103 S. Ct. at
2137, and United States v. Mitchell, 403 U.S. 190, 190, 91 S. Ct. 1763, 1765
(1971). Thus, the relevant law is that of Gwendolyn’s domicile state, Texas.
by federal law[, s]ee 29 U.S.C. § 1144(a) (dictating that, with certain exceptions, ERISA ‘shall
supersede any and all State laws insofar as they . . . relate to any employee benefit plan’).”
Id. at 1061.
Not only is this case not an ERISA case; it also involves no preemption clause
comparable to 29 U.S.C. § 1144(a). The closest analogue, 26 U.S.C. § 408(g), governs only
how “[t]his section”—not “any and all State laws insofar as . . . they relate to any . . . benefit
plan”—“shall be applied.” The IRA preemption provision is plainly narrow and in no way
applicable here.
On both these grounds, Novak is distinguishable from this case, and the two decisions
cannot conflict. Cf. Tilford, 810 F.3d at 371, 373 (affirming denial of non-defendant spouse’s
motion to quash garnishment of her employer’s contributions to her 401(k) retirement
plan(s)).
5 The Berrys identify no difference between Pennsylvania and Texas law relevant to
this case.
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In Texas, the “separate property” of one spouse is not the community
property of both spouses, TEX. FAM. CODE ANN. § 3.002 (West), and spouses
may designate “separate property” by written agreement, signed by both
parties, id. §§ 4.102, 4.104. In 2006, when Michael rolled over his ERISA
account into an IRA, Gwendolyn signed the rollover document, acknowledging
that she thereby waived her right to survivorship that federal law guaranteed
her on the ERISA account. The Berrys contend that this document, signed by
both spouses, constitutes a valid agreement to make the resulting IRAs
Michael’s separate property. 6
Texas law runs contrary, however. “Absent a specific reference to a
partition or language indicating that such a division was intended, Texas
courts have refused to uphold transactions between spouses as partitions.”
Byrnes v. Byrnes, 19 S.W.3d 556, 559 (Tex. App. 2000); accord McPhee v. I.R.S.,
No. CIV.A. 300CV2028D, 2002 WL 31045978, at *2 (N.D. Tex. Sept. 10, 2002).
Further, “[t]he term ‘partition’ as used in [§ 4.102] contemplates a division of
property among the parties, not a complete forfeiture or assignment.” Byrnes,
19 S.W.3d at 559. Gwendolyn’s waiver of a right to survivorship, however,
included no specific reference to partition or language indicating such a
division, and at the same time, her waiver of a right to survivorship was entire.
The waiver was not a partition.
More broadly, “[p]roperty possessed by either spouse during . . . marriage
is presumed to be community property,” TEX. FAM. CODE ANN. § 3.003 (West),
and indeed, “[r]etirement benefits accrued during a marriage are
6 The Berrys also maintain that the right to partition property is a state constitutional
right, and thus that garnishment of Michael’s IRAs would “constitute[] not only an unlawful
taking under the Federal constitution but under the Texas Constitution as well.” This point
depends entirely on the Berrys’ unsubstantiated allegation that they established in writing
that Michael’s IRA funds are his separate property. Otherwise undeveloped, the argument
fails.
7
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presumptively community property.” Howard v. Howard, 490 S.W.3d 179, 184
(Tex. App. 2016). “The degree of proof necessary to establish that property is
separate property is clear and convincing evidence.” TEX. FAM. CODE ANN.
§ 3.003 (West). A waiver of an ERISA right to survivorship (in the same
document that one is named beneficiary of the rollover IRA, as Gwendolyn was
here) is not clear and convincing evidence to overcome the presumption that
Michael’s IRAs are community property.
To be sure, Michael’s IRAs are solely managed community property, and
a wife has only a one-half interest in her husband’s solely managed community
property, Elashi, 789 F.3d at 549. Gwendolyn, therefore, has only a one-half
interest in Michael’s IRAs, but the government concedes as much. It
requested, and the district court granted, garnishment in accord with this
limitation.
III. Consumer Credit Protection Act
The Berrys’ final argument relies on the garnishment cap in § 303 of the
Consumer Credit Protection Act (“CCPA”), which limits restitution under
18 U.S.C. § 3613(a)(3). The CCPA sets maximum garnishment at 25% of
“earnings for that week,” 15 U.S.C. § 1673, and the statutory definition of
“earnings” includes “periodic payments pursuant to a pension or retirement
program,” 15 U.S.C. § 1672(a).
The Berrys contend that, if the government were to liquidate Michael’s
IRA funds, then the lump sum resulting from that liquidation would be
“earnings.” They posit that “[e]arnings are defined as payment through
personal services or retirement benefits,” and they note that the definition of
“earnings” in § 1672 does not explicitly exclude lump-sum payouts of
retirement benefits. The Berrys aver further that excluding Michael’s IRAs,
which have no periodic payment requirement (other than to preserve tax
benefits) would be absurd because that would make “[t]he language of the
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policy . . . the difference between losing all his savings or being able to continue
to pay bills during retirement.” That result would, they think, frustrate the
CCPA’s purpose of “allow[ing] retirees to continue to participate in the
economy.”
Nevertheless, the CCPA does not apply here. To be “earnings” under the
CCPA, retirement fund payments, as much as anything, must be
“compensation paid or payable for personal services.” 15 U.S.C. § 1672. Even
if Michael’s or his employer’s payments into the ERISA plan might have been
“earnings” when the payments were made, he is no longer covered by that plan.
Upon retirement, Michael rolled over the ERISA plan in a lump sum to the
company-run IRA plan.
Michael is not required to receive periodic payments from the IRA as
from an ERISA-governed pension plan, and after his cash-out and deposit into
a new retirement account, a lump-sum payment from the new account is not
compensation paid for personal services, United States v. Sayyed, 862 F.3d 615,
619 (7th Cir. 2017) (“A lump-sum distribution of retirement funds is clearly not
compensation paid for personal services or periodic payments pursuant to a
retirement program.”); see also DeCay, 620 F.3d at 543 (deeming “payments
made from an employer’s retirement program to an employee” “‘earnings’ under
the CCPA” (emphasis added)); Usery v. First Nat’l Bank of Ariz., 586 F.2d 107,
110–111 (9th Cir. 1978) (wages are no longer “earnings” once deposited into an
employee’s bank account). Because the funds to be garnished are not
compensation paid for personal services, they are not “earnings,” and the
CCPA’s limit on garnishment does not apply.
CONCLUSION
The district court’s garnishment order is AFFIRMED.
9