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United States v. Schippers

United States District Court, S.D. Iowa, Central Division

November 1, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
RALPH L. SCHIPPERS, Defendant

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[Copyrighted Material Omitted]

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Fidelity Management Trust Co, Garnishee, Pro se, Boston, MA.

For Marla Schippers, Movant: Ryan Richard Gravett, LEAD ATTORNEY, OLIVER LAW FIRM PC, Windsor Heights, IA.

For USA, Plaintiff: Andrew H Kahl, LEAD ATTORNEY, UNITED STATES ATTORNEY'S OFFICE - DSM, DES MOINES, IA; Maureen McGuire, LEAD ATTORNEY, U S Attorney's Office, Des Moines, IA.

OPINION

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ORDER

JOHN A. JARVEY, UNITED STATES DISTRICT JUDGE.

I. INTRODUCTION

This matter comes before the Court pursuant to two objections--one to a restitution order and another to a writ of garnishment--filed by Marla Schippers (" Marla" ).[1] The first objection was filed on February 7, 2013. Marla objected to this Court's order dated February 5, 2013, directing that the proceeds from the sale of her marital home ($38,766.96) be paid toward restitution owed by her former husband, Defendant Ralph Schippers (" Ralph" ). [Dkt. No. 5 Page 2, Order No. 4:12-mj-135.] The second objection was filed on April 4, 2013. Marla objected to a writ of garnishment relating to Ralph's 401-K account dated March 27, 2013.[2] [Dkt. No. 36 Page 2.] In her objections, Marla alleges that she was awarded one-half of these assets in a decree of dissolution of marriage on August 23, 2012. In addition, Marla argues that she is entitled to one-half of the net proceeds from the sale of the marital home based on a statutory dower interest. Accordingly, she requests that one-half of the proceeds from the sale of the marital home and Ralph's 401-K account (" the subject properties" ) be released to her. This Court held a hearing on her objections on April 24, 2013.

The Government filed a resistance to Marla's objection to the restitution order. [Dkt. No. 35.] On April 5, 2013, the Government also filed a response to Marla's objection to the garnishment of Ralph's 401-K account. [Dkt. No. 38.] The Government contends that the Court should deny any claim by Marla to the funds from the marital home or Ralph's 401-K account because Marla does not have an ownership

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interest in the subject properties, and the transfer of these assets in the divorce decree constituted fraudulent transfers. The Government argues that the subject properties should be applied in full to the restitution Ralph owes. This Court agrees, and it denies Marla's claims to the subject properties for two reasons.

First, Marla never acquired an ownership interest in the subject properties through her divorce decree because two federal district judges had issued restraining orders on the properties prior to the filing of the divorce petition that remained in effect until the end of Ralph's criminal case, when he was sentenced on January 17, 2013.[3] Before the restraining orders were entered, Ralph owned the properties separately, and based on Iowa law, the property transfers made to Marla must be set aside because the conveyances were unreasonable, inequitable, and fraudulent. See Nichols v. Nichols, 526 N.W.2d 346, 348-49 (Iowa 1994); see also Travelers Indem. Co. v. Cormaney, 258 Iowa 237, 138 N.W.2d 50, 58 (Iowa 1965). This Court also finds that Marla does not have a statutory dower interest in these assets as Marla is not married to Ralph, and Ralph is not deceased. See Freedom Financial Bank v. Estate of Boesen, 805 N.W.2d 802, 811 (Iowa 2011).

Second, the transfers of the subject properties through the divorce decree must be set aside as void because the transfers were fraudulent in violation of federal laws. In considering the factors under 28 U.S.C. § 3304(b)(2), this Court finds that Ralph had the " actual intent to hinder, delay, or defraud a creditor" under 28 U.S.C. § 3304(b)(1)(A): Marla was an " insider" ; there were mounting criminal and civil suits against Ralph before the transfers were made; Ralph transferred substantially all of his assets to Marla; Ralph did not receive equivalent value for the transfers; Ralph was insolvent before and after the transfers occurred; and the transfer occurred shortly before Ralph incurred a substantial debt. See 28 U.S.C. § 3304(b)(2); see also United States v. Sherrill, 626 F.Supp.2d 1267, 1274 (M.D. Ga. 2009).

Federal courts have reached different conclusions as to whether a defendant had " actual intent" to fraudulently transfer property when confronted with similar " badges of fraud." [4] However, even if

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Ralph did not commit actual fraud under § 3304(b)(1)(A), the Government is still entitled to the recovery it seeks as the transfers meet the statutory standard for constructive fraud under § 3304(b)(1)(B)(ii). The transfers were absent reasonably equivalent consideration, and Ralph " believed or reasonably should have believed he would incur debts beyond his ability to pay as they became due." See 28 U.S.C. § 3304(b)(1)(B)(ii); see also United States v. Woods, No. 5:07-CV-187-BR, 2008 WL 9375548, at *3 (E.D. N.C. Dec. 10, 2008).

The Mandatory Victims Restitution Act (" MVRA" ) grants the Government the authority to use the collection procedures of the Federal Debt Collection Procedures Act (" FDCPA" ) to enforce restitution ordered as part of a criminal sentence. See United States v. Yielding, 657 F.3d 722, 726-27 (8th Cir. 2011); see also United States v. Witham, 648 F.3d 40, 49 (1st Cir. 2011); United States v. Kollintzas, 501 F.3d 796, 800-01 (7th Cir. 2007); United States v. Mays, 430 F.3d 963, 965-66 (9th Cir. 2005); United States v. Phillips, 303 F.3d 548, 550-51 (5th Cir. 2002). Based on the MVRA and FDCPA, Ralph's fraudulent transfers are set aside to satisfy Ralph's debts to Granger Motors and Universal Underwriters Insurance Company. Marla Schippers's requests to release one-half interests in the proceeds from the sale of the marital home and Ralph's 401-K account to Marla are DENIED.

II. FACTS

In approximately January of 1998, Ralph began embezzling money from his employer, Granger Motors. It was not until May of 2012 when Ralph's breach of his employer's trust came to light. At that time, Granger Motors reported Ralph's conduct to the Federal Bureau of Investigation (" FBI" ), following which the FBI learned that Ralph embezzled over $1 million from Granger Motors. On May 18, 2012, Ralph's employment was terminated.

On June 28, 2012, U.S. District Court Judge Ronald Longstaff issued a restraining order with respect to Ralph's real property, his residence, until the end of Ralph's criminal case. [Dkt. No. 2, Order No: 4:12-mj-135.] The marital home was sold on July 20, 2012, and the net proceeds from the sale ($38,766.96) were placed in the Clerk of Court's registry. U.S. District Court Judge Harold Vietor issued a restraining order on August 7, 2012 to restrain Ralph or any family member from taking any action that would affect Ralph's 401-K account until Ralph's criminal case concluded. [Dkt. No 2, Order No: 4:12-mj-164.]

Shortly thereafter, on August 13, 2012, Ralph's wife, Marla, filed a petition for dissolution of marriage in the Iowa District Court for Dallas County. The decree included an agreement that Marla would

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receive one-half of Ralph's 401-K plan and one-half of the proceeds from the sale of their marital home. The decree of dissolution was filed on August 23, 2012, and it dissolved the marriage between Ralph and Marla.

On September 17, 2012, Ralph pleaded guilty to an information charging him with wire fraud. Seven days later, the same court that filed Marla and Ralph's divorce decree, entered an order nunc pro tunc recognizing the restraining orders that had been issued by the federal district courts on the subject properties in June and July of that year. [Dkt. No. 38-2 Page 1.] The order nunc pro tunc provided that any interest Marla had in Ralph's 401-K, and any interest Marla had in the proceeds from the sale of the marital house, were still subject to the federal court orders.

On January 17, 2013, Ralph was sentenced to a term of imprisonment of forty-one months. He was also ordered to pay restitution in the amount of $1,433,825.37. [Dkt. No. 26 Page 5.] On February 5, 2013, this Court entered an order that the funds held by the Clerk of Court be paid toward the restitution Ralph owed. On March 26, 2013, the Government requested that a writ of garnishment be issued to Fidelity Investments to garnish Ralph's 401-K account, and it was issued on March 27, 2013. Marla objected to this Court's orders, arguing that she was entitled to one-half of the funds based on a divorce decree.

III. DISCUSSION

This Court first addresses the issue of whether Marla can recover a one-half interest in the proceeds from a marital home and 401-K account based on a divorce decree. In resolving that issue, the Court makes two findings, which leads it to deny Marla's claims:

(1) Marla does not have an ownership interest in the subject properties based on her divorce decree because two federal district judges entered restraining orders on the properties before the divorce petition was filed that preserved the assets for future resolution. Prior to the entry of the restraining orders, the subject properties were Ralph's separate properties, and to distribute a one-half interest in the subject properties to Marla would be unreasonable, inequitable, and fraudulent under Iowa law. Additionally, Marla does not have a statutory dower interest in the properties as Marla is no longer Ralph's wife, and Ralph is not dead.

(2) The transfers in the divorce decree must be set aside because they were fraudulent under § 3304(b)(1)(A) and § 3304(b)(1)(B)(ii). The Government presented sufficient evidence to show that Ralph had the " actual intent to hinder, delay, or defraud a creditor." See 28 U.S.C. § 3304(b)(1)(A). Also, the transfers were made absent reasonably equivalent consideration, and Ralph " believed or reasonably should have believed he would incur debts beyond his ability to pay as they became due." See id. § 3304(b)(1)(B)(ii).

A. Marla Schippers Has No Ownership Interest in the Subject Properties

1. Marla Schippers's Arguments

At the April 24, 2013 hearing, Marla's counsel argued that Marla has an ownership interest in both properties. Marla is entitled to the proceeds from the sale of the home based on her equal contributions to its mortgage,[5] and her " statutory dower

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interest right that was awarded to her in her divorce decree." " It wasn't Mr. Schippers' property to transfer...We believe that it was Ms. Schippers' from the time the divorce decree was entered." Marla's counsel claimed Marla has a statutory right to the home even if Marla's name was not on the mortgage or deed. Yet, Marla's counsel does not cite in its objections (or at the April 24, 2013 hearing) any statute or case law supporting these propositions. Additionally, Marla's counsel alleged that under Iowa law, Ralph's pension is equally Marla's income after their 20-year marriage. Marla is only seeking " her share" and is " not trying to take anything away from the victims in this case."

2. The Government's Arguments

The Government takes issue with the claim that Marla has any " ownership interest" in the properties, which belonged to Ralph at the time the restraining orders were entered and until his criminal judgment. [Dkt. No. 35 Page 3]; [Dkt. No. 38 Page 3.] Citing Nichols, 526 N.W.2d at 348-49, the Government argues that in Iowa " one spouse may own property independent of the other," and since Marla has no interest in the home, she has no interest in its proceeds. [Dkt. No. 35 Page 3.] Nor does Marla have an interest in the 401-K account. Here lies the crux of the Government's argument: because the district court's order nunc pro tunc did not award interests in the properties to Marla, but recognized the federal courts' restraining orders, and Ralph owned the properties at the time his criminal judgment was entered, the properties should be applied to Ralph's restitution order in accordance with 18 U.S.C. § 3613(c).[6] [Dkt. No. 38 Page 3.]

3. Federal Courts Issued Restraining Orders Preserving Assets for Future Resolution

Judge Longstaff issued a restraining order on the proceeds of Ralph's home on June 28, 2012. Judge Vietor issued another restraining order on Ralph's 401-K account on July 20, 2012. The restraining orders were put in effect when only Ralph's name was on the home's mortgage, title, and deed, and the 401-K account. Ralph did not object to the issuance of the federal courts' restraining orders being put into effect through the completion of his criminal case. The federal courts' restraining orders provide, in pertinent part:

" That RALPH L. SCHIPPERS, his agents, attorneys, family members and those persons in active concert or participation with him, and those persons or entities who have any interest or control over the subject property are hereby restrained, without prior approval of this Court and upon notice to the United States and an opportunity for the United States to be heard, from attempting or completing any action that would affect the availability, marketability, or value of said property, including but not limited to selling, assigning, pledging, distributing, mortgaging, encumbering, wasting, secreting, depreciating, damaging, or in any way diminishing the value of all or any part of their interest, direct or indirect, in the following property: [Real property located at 6300 S.E. 6th Avenue, Pleasant Hill, Polk County, Iowa; and Funds held by Fidelity Management Trust Company, Account No.

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XXXXX8274, in the name of Ralph L. Schippers]."

[Dkt. No. 2, Page 1, Order No: 4:12-mj-135]; [Dkt. No. 2, Page 1, Order No: 4:12-mj-164.] (emphasis added). As the Iowa district court later recognized in its order nunc pro tunc on September 24, 2012, Marla did not receive any interest in the subject properties through Marla and Ralph's divorce decree that was filed on August 23, 2012. The state divorce decree was never intended to grant more than it could.

Furthermore, the Iowa district court did not (and cannot) issue a divorce decree that conflicts with a federal court's restraining order. Moreover, if the divorce decree was formalized by an Iowa court and deemed fair and valid under Iowa law, it would have no effect on this Court's determination that the transfers were invalid under federal law. See Kirtland, 2012 WL 4463447, at *16 (citing United States v. Barrier Industries, 991 F.Supp. 678, 681 (S.D.N.Y. 1998)). As discussed below, the Government may still seek to void a transfer as a fraudulent conveyance even if a divorce decree was adopted as part of a state court judgment. See United States v. Kirtland, No. 10-10178-03-WEB, 2011 WL 3624997, at *2 (D. Kan. Aug. 17, 2011). " Pursuant to the Supremacy Clause of Article VI, the FDCPA controls the validity to the transfers of a debtor of the United States..." Kirtland, 2012 WL 4463447, at *16.

4. Marla Lacks a Property Interest in the Subject Properties Under Iowa Law

For purposes of dividing property at divorce, Iowa is known as an " equitable distribution" jurisdiction. See In re Marriage of Schriner, 695 N.W.2d 493, 496 (Iowa 2005) (citing In re Marriage of McNerney, 417 N.W.2d 205, 207 (Iowa 1987) (citing Iowa Code § 598.21(1) (1985))). Under Iowa statutory law, there are two tasks in dividing property at divorce. The first task is to determine the property subject to division and the proper valuations to be assigned to the property. See In re Marriage of Duffield, 819 N.W.2d 426 (Iowa 2012) (unpublished table decision) (citing In re Marriage of Schriner, 695 N.W.2d at 496). The second task is to divide that property in an equitable manner according to the enumerated factors in Iowa Code § 598.21, as well as other relevant factors determined by the court in a particular case. See Id.; see also Iowa Code § 598.21 (2009); In re Marriage of Engelbrecht, 829 N.W.2d 589, at *8 (Iowa 2013) (unpublished table decision) (citing In re Marriage of Fennelly, 737 N.W.2d 97, 102 (Iowa 2007)). Under Iowa law, property transfers in a divorce agreement may be set aside where the transfers are unreasonable, inequitable, and fraudulent. See, e.g., Travelers Indem. Co., 138 N.W.2d at 58.

a. Property Subject to Division and Separate Property

According to Iowa's Supreme Court, " 'Equitable distribution' essentially means that the courts divide the property of the parties at the time of divorce, except any property excluded from the divisible estate as separate property, in an equitable manner in light of the particular circumstances of the parties." In re Marriage of Schriner, 695 N.W.2d at 496. " Iowa...is not a community property state. Rather, it is a state where, as a general statement of the law, a spouse in his or her own right owns property separate from the other spouse." Nichols, 526 N.W.2d at 348-49. The Iowa Court of Appeals ...


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