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UNITED STATES v. YORK

December 6, 1995

UNITED STATES OF AMERICA, et al., Plaintiffs,
v.
JOHN C. YORK, et al., Defendants.



The opinion of the court was delivered by: RICHEY

INTRODUCTION

 Before the Court in the above-entitled case is the defendant USGI, Inc.'s "Motion to Stay Execution of Judgment and to Quash Attachment" and the plaintiff's partial Opposition thereto. In its Motion, USGI requests that the Court (1) approve a rider adding USGI as a principal on the supersedeas bond obtained by USGI's co-defendants in the above-entitled case; (2) enter a stay of execution pending appeal of the judgment against USGI; and (3) quash the government's attachment of $ 3,813,154.64, representing FHA insurance proceeds that are beneficially owned by a third-party investor. Upon consideration of the pleadings filed by the parties, the entire record herein, the law applicable thereto, and for the reasons detailed below, the Court shall grant USGI's motion.

 BACKGROUND

 On July 24, 1995, USGI filed with the Court a Stipulation and Order that it would post a $ 1,000.00 bond to comply with Rule 7. Upon approval of that Stipulation by the Court, USGI did post the $ 1,000.00 bond. USGI advised the Court, however, that it did not have sufficient assets to post a bond in the full amount of the judgment, and that it would continue discussions with the government as to whether an accommodation regarding a supersedeas bond could be reached. USGI and the government were unable to reach any agreement for the posting of a bond for less than the entire amount of the judgment.

 Since July, USGI has engaged in negotiations with First Commonwealth and Signet Bank to structure an arrangement whereby USGI would be added as a party to the supersedeas bond already posted by John C. York and First Commonwealth. Ultimately, an arrangement was agreed upon whereby USGI could be added to the bond in return for its pledge of certain assets that it owns. A rider to the original bond, adding USGI as a principal, issued on September 27, 1995.

 Meanwhile, in July, the government advised USGI that the government intended to execute on the judgment against USGI by pursuing an "administrative offset" with respect to a defaulted Federal Housing Administration ("FHA")-insured, mortgage-backed loan involving a multifamily residential project known as the Lincoln Discovery Park IV Project. USGI previously had submitted, on May 13, 1995, an application to FHA for insurance proceeds on the loan. USGI is the mortgagee-of-record and an issuer of a participation and servicing agreement under which a 100% beneficial interest in the mortgage loan is held by TFINN & Co, a nominee for Lehman Brothers. TFINN is not connected to the litigation underlying the present Motion nor is it otherwise affiliated with USGI. By administrative offset, the government proposed satisfying its judgment against USGI by refusing to pay the FHA insurance claims submitted by USGI on the mortgage loan.

 USGI protested the proposed offset, and informed the government that it had no equitable or beneficial interest in the Discovery Park mortgage loan. USGI also informed the government that it was hopeful that it would be added to the supersedeas bond posted by John C. York and First Commonwealth. Nevertheless, on September 12, 1995, FHA notified USGI that it had paid over to the Government National Mortgage Association ("Ginnie Mae") a partial settlement of USGI's insurance claim on the Discovery Park loan in the amount of $ 3,673,617.65 to "satisfy the ruling of the U.S. District Court for the District of Columbia calling for an award to Ginnie Mae of $ 6.3 million." As a result of the final settlement of USGI's insurance claim, FHA paid, in total, $ 3,813,154.64 to Ginnie Mae.

 After it obtained the rider to the supersedeas bond, USGI forwarded the rider to the government and requested that the government consent to the posting of the amended supersedeas bond, reverse the offset, and consent to the entry of a stay pending appeal. On October 2, 1995, the government consented to the posting of the bond and entry of the stay, but refused to reverse the offset.

 On October 6, 1995, USGI filed the instant Motion to Stay Execution of Judgment and to Quash Attachment. On October 17, 1995, the York parties filed a response, urging the Court to grant USGI's motion. On October 31, 1995, the government filed a partial Opposition, to which USGI replied on November 7, 1995. In its Opposition, the government consents to the approval of the amended bond and the imposition of a prospective stay of execution. The Court shall, therefore, approve of the amended supersedeas bond and shall enter a stay pending appeal of execution of judgment against USGI. The government opposes, however, USGI's Motion to Quash Attachment. Therefore, the Court must herein decide the question whether to grant USGI's Motion to Quash Attachment.

 DISCUSSION

 USGI asserts that the Court should quash the government's attachment of the Discovery Park insurance claim proceeds because the government was not authorized by law to effect an offset under the circumstances of this case. USGI further asserts that, assuming the offset was validly undertaken, the fact that USGI is not a beneficial owner of the proceeds attached and the fact that the government's interests are adequately protected by the supersedeas bond justify the relief sought herein. In response, the government asserts that it had the authority to effect an offset and, further, that this Court lacks the authority to quash the resulting attachment of insurance proceeds. The Court will ...


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