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United States v. TDC Management Corp.

United States District Court, District of Columbia

July 13, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
TDC MANAGEMENT CORP. & T. CONRAD MONTS, Defendants, and WASHINGTON DEVELOPMENT GROUP - A.R.D., INC., Garnishee/Intervening Party.

          MEMORANDUM OPINION

          JOHN D. BATES, United States District Judge.

         This case involves the United States' effort to collect a sixteen-year-old unpaid judgment from local real estate developer T. Conrad Monts under the Federal Debt Collection Procedures Act("FDCPA"). In 2001, the United States obtained a nearly $1.3 million judgment against Monts and his corporation, TDC Management Corp. ("TDC"), for violations of the False Claims Act ("FCA"). Shortly after the judgment was affirmed, TDC ceased operations and dissolved. Then in 2008, in an effort to collect the judgment, the United States sought and obtained a writ of garnishment against a separate judgment (in an unrelated case) owed to the Washington Development Group - A.R.D., Inc. ("WDG"), a corporation Monts and his wife owned as tenants by the entireties. WDG intervened in this action to claim the funds, which are now held in escrow, and to object to the writ of garnishment. No other person or entity made a valid objection. Monts died in December 2009, and WDG dissolved in December 2012. Thereafter, the United States moved for a disposition order, which this Court granted in January 2015, based on its finding that Monts's status as a principal shareholder and director of WDG gave him a substantial property interest in the funds owed to WDG to support garnishment. On appeal, the D.C. Circuit held that Monts did not have a substantial interest, and remanded the case for consideration of "the Government's alternative argument that it may garnish WDGs assets by piercing the corporate veil between WDG and Monts." United States v. TDC Mgmt. Corp., Inc., 827 F.3d 1127, 1129 (D.C. Cir. 2016). Following remand, WDG moved for a disposition order and the government filed an opposition, requesting that the Court grant disposition in favor of the United States based on the veil-piercing theory.

         Upon careful consideration of the parties' competing motions and memoranda, [1] the applicable law, and the record, and for the reasons explained below, the Court will deny WDGs motion for a disposition order, grant the government's motion, and direct the garnishee to pay the United States.

         BACKGROUND

         On March 29, 2000, the Court, through another judge of this District, granted summary judgment on the merits of this case in favor of the United States, finding that Monts and TDC violated the FCA. Mar. 29, 2000 Mem. Op. & Order [ECF Nos. 148, 149]. The Court awarded the United States $1, 285 million in damages and civil penalties and found Monts and TDC jointly and severally liable for this award. Feb. 6, 2001 Mem. Op. & Order [ECF Nos. 164, 165]; Apr. 10, 2001 Order [ECF No. 171]. The D.C. Circuit affirmed the judgment. United States v. TDC Mgmt. Corp., Inc., 288 F.3d 421 (D.C. Cir. 2002). Shortly thereafter, "TDC ceased active operations and dissolved." Defs.' & Interv'r's' Resp. to Gov't's Objections to Magistrate's R&R [ECF No. 285] at 1.

         In an effort to collect the judgment in this case, the United States targeted an $8.4 million judgment obtained by WDG, another corporation wholly owned by T. Conrad Monts and his wife Barbara Monts, as tenants by the entireties, and for which Monts served as president and a director. Gov't's 2d Mot. for Order at 4; Interv'r's 2d Opp'n at 4; Ex. 1 to Gov't's 2d Mot. for Order [ECF No. 259-1] ("Hersh Decl.")at 1, 4; Ex. B to Interv'r's 2d Opp'n [ECF No. 261-2] ("Rogers Decl.") ¶43. In 2004, a jury in the D.C. Superior Court awarded WDG the $8.4 million judgment against the District of Columbia ("the District") in a lawsuit concerning an air-rights lease. Upon the government's application in July 2008, this Court issued a writ of garnishment against the judgment funds owed to WDG. See Gov't's Mots, for Writ of Garnishment [ECF Nos. 187, 188]; Jul. 8, 2008 Docket Notation. The government served the writ on the garnishees, the District and WDG. See Affs. of Service [ECF Nos. 218-3, 218-4].

         The District was the only party to file a timely response. See Jul. 23, 2008 District's Answer to Writ of Garnishment [ECF No. 189]. The District argued that the Superior Court judgment did not direct it to pay money to TDC or Monts, but to WDG, an entity "owned and controlled by Monts"; that both the District and WDG were appealing the judgment; and that at the same time the District and WDG were attempting to negotiate a settlement. Sept. 3, 2008 District's Resp. [ECF No. 191] at 1-2. Neither Monts nor TDC filed a timely objection to the writ or requested a hearing. Monts subsequently died in 2009. See Notice of Death of Def. T. Conrad Monts [ECF No. 203]. To date, no party has been properly substituted for Monts.

         In February 2012, the government moved for a disposition order pursuant to 28 U.S.C. § 3205(c)(7), directing the District to pay, from the judgment funds owed to WDG, an amount equal to the judgment against Monts and TDC in this action. See Gov't's 1st Mot. for Order [ECF No. 204]. Then, in March 2012-more than three-and-a-half years after the writ was issued-WDG moved to intervene in this action, arguing that the government could not garnish funds owned by a non-party. See Mot. to Intervene by WDG [ECF No. 211]; Interv'r's 1st Opp'n [ECF No. 210]. The Court permitted WDG to intervene to challenge the garnishment on its own behalf. See July 30, 2012 Mem. Op. & Order [ECF No. 235] at 8-11. The Court denied without prejudice the government's motion for a disposition order. Id. at 1, 7.

         In December 2012, the District and WDG settled all claims in the air-rights litigation, their cross-appeals were dismissed, and the District paid the $8.4 million judgment to WDG, less $2.1 million which the District held in escrow pending resolution of this action. See District's Status Report [ECF No. 238]. Within days of the settlement, WDG dissolved. See Gov't's Objection to Magistrate's R&R [ECF No. 284] at 3; Defs.' & Interv'r's' Resp. to Gov't's Objection to R&Rat 4. The net assets remaining in WDG, including the judgment paid by the District (less the funds held in escrow), were distributed to Barbara Monts, who was the sole shareholder of WDG after her husband's death. Gov't's 2d Mot. for Order at 5; Hersh Decl. at 2. WDG remained a party to this action pursuant to D.C. Code § 29-312.05(a), which provides that "[a] dissolved corporation continues its corporate existence ... to wind up and liquidate its business and affairs."

         Following referral of this case to a magistrate judge, the government sought discovery from Monts, TDC, and WDG on its veil-piercing theory, "which included, among other documents, tax returns and balance sheets and . . . corporate records." Defs.' & Interv'r's' Resp. to Gov't's Objections to R&R at 2. The government then filed another motion for a disposition order, directing the District to pay the United States the judgment in this case from the funds held in escrow. See Gov't's 3d Mot. for Order; Interv'r's 3d Opp'n. The government argued that the funds could be garnished because (1) Monts had a sufficient property interest in the funds as a shareholder and director of WDG, or alternatively, that (2) WDG was Monts's alter ego and the Court should disregard the corporate form and treat WDG's assets as Monts's. In January 2015, this Court granted the government's motion based on the first argument, and therefore did not "reach the question of veil-piercing." See Jan. 5, 2015 Mem. Op. [ECF No. 289] at 14.

         WDG appealed and the D.C. Circuit concluded that Monts did not have a substantial property interest in the settlement funds under the FDCPA. TDC Mgrnt. Corp., 827 F.3d at 1132. The D.C. Circuit remanded the case for this Court to "evaluate the Government's alternative argument that it may garnish WDG's assets by piercing the corporate veil between WDG and Monts." Id. at 1129. The D.C. Circuit further "commend[ed] to the district court's consideration, if necessary, the doctrine of third-party standing and 28 U.S.C. §§ 3205(a) and 3010(a), which refer to state law on co-owned property." LI at 1134.

         Following remand, WDG moved for a disposition order, asking the Court to direct the District to pay the escrow funds to WDG.[2] See Interv'r's Mot. for Order at 2. The government filed an opposition and renewed its request that the Court grant its disposition order. See Gov't's Opp'n to Interv'r's Mot. for Order at 15. This brings us to the present point, where the Court must decide whether the government can garnish the funds by piercing WDG's corporate veil.

         LEGAL STANDARDS

         The FDCPA, 28 U.S.C. § 3001 et seq, covers the collection of debts owed to the United States. Section 3205 sets forth the procedure by which the government may obtain post-judgment garnishment against a debtor's property. Id. § 32O5(a)-(c). It authorizes the United States to garnish property "in which the debtor has a substantial nonexempt[3] 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." Id. § 3205(a). Property is broadly described 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 (including community property and property held in trust (including spendthrift and pension trusts))[.]

Id. § 3002(12). To validly garnish property, the government must apply for a writ of garnishment against a judgment debtor's property. LI § 3205(b). If a court determines that the requirements for such a writ are met, "the court shall issue an appropriate writ of garnishment." Id. § 3205(c)(1). The government must "serve the garnishee and the judgment debtor with a copy of the writ of garnishment[.]" LI § 3205(c)(3). The garnishee must answer the writ within ten days of service. Id. § 3205(c)(2)(E). The judgment debtor or the United States may file a written objection to the answer and request a hearing within twenty days. Id. § 3205(c)(5). The objecting party-here, the United States-must "state the grounds for the objection and bear the burden of proving such grounds." LI[4] After a garnishee files an answer and if no hearing is requested within the required time period, the Court "shall promptly enter an order directing the garnishee as to the disposition of the judgment debtor's nonexempt interest in such property." Id. § 3205(c)(7).

         ANALYSIS

         I. D.C. LAW GOVERNING TENANCY BY THE ENTIRETIES

         WDG first argues that District of Columbia law governing tenancy by the entireties bars the government from garnishing the settlement funds owed to WDG to satisfy the judgment debt owed by T. Conrad Monts in this case. Interv'r's Mot. for Disposition Order at 5-8.

         The FDCPA itself creates no property rights, it merely attaches property rights created under state law. TDC Mgmt. Corp., 827 F.3d at 1131; Exp.-Imp. Bank of U.S. v. Asia Pulp & Paper Co., 609 F.3d 111, 117 (2d Cir. 2010). Under the FDCPA, "[c]o-owned property shall be subject to garnishment to the same extent as co-owned property under the law of the State in which such property is located." 28 U.S.C. § 3205(a); see also id § 3010(a). In the District of Columbia, "property subject to a tenancy by the entireties ... is unreachable by creditors of one but not of both of the tenants." Morrison v. Potter, 764 A.2d 234, 236-37 (D.C. 2000). WDG contends that "[t]ogether, the FDCPA and Morrison compel the conclusion that the government cannot garnish" the settlement funds. Interv'r's Mot. for Order at ...


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