Summary: The government, along with several named creditors, sued plaintiff, alleging that it could pierce the corporate veil of a corporation defendant and her ex-husband controlled, and thereby recover assets, which allegedly belonged to the corporation, transferred to defendant by her ex-husband as part of a divorce proceeding. The ex-husband had previously been adjudged guilty of several counts of fraud against the plaintiffs, and a large restitution judgment is outstanding. Both sides moved for summary judgment, and the Court denied both motions, holding that fact questions presented summary judgment but that, if plaintiffs proved their case, the assets at issue are subject to recovery.
Case Number: A2-01-127
Docket Number: 27
Date Filed: 6/14/02
Nature of Suit: 890
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION
United States of America; Kenneth Borowicz; Lloyd Johnson Farms, Inc.; Donald Gryskiewicz; John Grandstrand; Alen Szczepanski; Keith Szczepanski; Lynn Szczepanski; and Brian
Hapka,
Big H. Sales, Inc.; Ronald Monson, individually and in his capacity as a Shareholder of Big H. Sales, Inc.; Renae Monson, individually and in her capacity as a Shareholder of Big H. Sales, Inc.; and John Does I through X,
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MEMORANDUM AND ORDER
I. Introduction
Before the Court are two motions. First, defendant Renae Monson moves to dismiss the claims against her or, in the alternative, for summary judgment (doc. # 9). Second, plaintiffs move for summary judgment against Renae Monson and for creation of a constructive trust in their favor on several parcels of land transferred to Renae Monson (doc. # 16). Each side resists the other’s motion, and the other defendants are not involved in these motions. The motions came on for hearing on June 12, 2002, in Fargo North Dakota. As set forth below, and as explained at the hearing, both motions are DENIED.
III. Discussion
The Court will dispense with a lengthy review of the facts. In short, the United States has joined with several individuals to collect a debt owed by Ronald Monson to the individual defendants. This debt is evidenced by an over $700,000 restitution order entered by this Court in a criminal prosecution against Mr. Monson. The sentence against Ronald Monson was based on his guilty plea to two counts of fraud, both counts arising from his operation of Big H., Inc., his potato brokerage. Plaintiffs have sued Renae Monson, Ronald’s ex-wife, and a 50% shareholder and officer of Big H., seeking to recover several parcels of land Renae received from Ronald pursuant to a divorce decree. The essential allegation is that the money used to purchase those parcels was derived from Ronald’s fraudulent activity. Plaintiffs therefore seek to impose a constructive trust upon the land at issue. Finally, plaintiffs allege that they can pierce the corporate veil of Big H. as to Renae Monson and so obtain a judgment against her.
A. Motions for summary judgment
First, the Court rejects both sides’ contentions that they are entitled to summary judgment. Initially, the Court rejects defendant’s theory that the United States lacks jurisdiction to proceed against her in this fashion. The parties agree that 18 U.S.C. § 3612 provides the mechanism for imposing and collecting criminal restitution. The first section simply provides for notification to the Attorney General that a court has imposed restitution. The second section provides for the clerk to certify certain restitution information to the Attorney General. Subsection (c) then provides: “Responsibility for collection.--The Attorney General shall be responsible for collection of an unpaid fine or restitution concerning which a certification has been issued as provided in subsection (b).”
Based on this language, Renae asserts that she cannot be sued by the United States to recover Ronald’s debt. She argues that the United States is only authorized to collect debts for which a § 3612(b) certification has been issued, and since such certifications can only be issued when there is a judgment of conviction - as there is not against her - she cannot be sued by the United States. She also emphasizes 18 U.S.C. § 3613(a), which provides that criminal debts may be “enforced against all property or rights to property of the person fined[.]” She thus argues that the United States cannot proceed against her for collection of this debt.
The Court rejects this argument. There is a dearth of case law interpreting these provisions. However, it is evident to the Court that the statute contains no limitation on the United States’ ability to collect criminal restitution of the kind Ranae asserts. The debt the United States seeks to collect is a debt of Ronald Monson, properly assessed in a criminal proceeding. It asserts, in effect, that the money sought to be collected has been transferred to Renae. The Court can find no reason - either in the language of the statute or in public policy - to prohibit the United States from collecting money that criminals have illegally transferred to non-criminals, as allegedly occurred here. Thus, this basis for dismissal is denied.
The Court also rejects defendant’s assertion that the transfers at issue cannot be fraudulent as a matter of law because they were accomplished pursuant to a divorce decree. Indeed, there is ample precedent rejecting just this theory. See generally In re Marriage of Allen, 724 P.2d 651 (Colo. 1986); Maryland Casualty Co. v. Schroeder, 446 S.W.2d 117 (Tex. Ct. App. 1969). Simply put, the fact that the property was transferred to defendant in a divorce action does not prevent it from being recovered as a matter of law, assuming plaintiffs can prove that the property at issue was purchased with money stolen from them. Thus, this basis for summary judgment is rejected.
Also rejected is defendant’s contention that plaintiffs are not entitled to attempt to pierce the corporate veil as to her. The Court finds there is a fact question under North Dakota law as to whether such a pierce would be appropriate here, which leads it to reject both parties’ efforts at summary judgment. In short, the Court concludes that plaintiffs have stated facts sufficient to avoid defendant’s motion summary judgment, but insufficient to obtain it themselves. The motions are thus denied, and the issue will remain in the case pending trial.
However, the Court wishes to express its wariness on this point. It was evident at the hearing that the real issue here is the land. Indeed, plaintiffs expressly represented that they sought a judgment limited by the value of the land - approximately $313,000 - and defendant agreed that the land value would be the extent of her liability. It also seems apparent to the Court, and the parties agreed, that the main remedy sought to collect this amount is a constructive trust. This theory would not require proof that Renae had done anything wrong, but would focus on the nature of the funds used to purchase the land.
Thus, there would seem to be little need to pierce the corporate veil. Indeed, it might well be inappropriate to pierce the veil in order to impose general liability unconnected in any way to the land, which the parties seem to agree is at the crux of the case. However, the Court recognizes that plaintiffs may intend to pierce the veil in order to secure a judgment to be enforced in the event that the land has been sold and the proceeds of the sale cannot be traced. These are issues which will require further analysis before trial. Therefore, while the Court makes no ruling in this regard at this point, it urges the parties to consider carefully the need to pierce the corporate veil and how such a claim would relate to the others, and to be prepared to revisit the issue at or before trial.
In sum, the Court concludes that fact questions abound in this highly fact-sensitive case. Therefore, both parties’ motions for summary judgment are DENIED.
B. Scheduling and related matters
As the Court indicated at the hearing, it will be setting this case on for an expedited trial schedule, with trial to be set for December 2, 2002. Also as indicated at the hearing, the Court plans to restrict discovery in this case, given the vast factual record already developed in prior proceedings. The parties are therefore directed to make any requests for discovery by September 1, 2002, and all discovery must be completed by November 1, 2002. Given the unique nature of this case, the undersigned will retain control over discovery matters. However, the Court reiterates its desire that the parties have an early settlement conference before the Honorable Karen K. Klein, United States Magistrate Judge, and the Court therefore DIRECTS them to contact the Magistrate Judge to schedule such a conference.
IT IS SO ORDERED.
Dated this _____ day of June, 2002.
______________________________
RODNEY S. WEBB, CHIEF JUDGE
UNITED STATES DISTRICT COURT