Case: 09-10482 Document: 00511112770 Page: 1 Date Filed: 05/17/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 17, 2010
No. 09-10482 Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff-Appellee
v.
TODD LOFTIS,
Defendant
LISA LOFTIS,
Movant-Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before GARWOOD, SMITH, and CLEMENT, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
Lisa Loftis (“Lisa”) appeals the district court’s Final Order of
Garnishment, which set aside a community property partition agreement
entered into between Lisa and her husband, Todd Loftis (“Todd”). She contends
that the district court erroneously found the partition agreement to be a
fraudulent transfer, and she challenges the scope of the garnishment ordered.
We reject her arguments and affirm.
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FACTS AND PROCEEDINGS
This garnishment proceeding arose out of Todd’s conviction for conspiracy
to defraud the United States with false and fraudulent claims. From 1998 to
2004, Todd, as the president of Tools and Metals, Inc. (“TMI”), directed TMI
employees to inflate the cost of tools that were purchased by Lockheed Martin,
a Department of Defense (“DOD”) contractor. The inflated costs were then
passed on to the government. Todd also directed TMI employees to conceal the
conspiracy by destroying invoices and removing evidence from TMI computers.
DOD began investigating Todd and TMI in 2002. Its investigator
contacted Lockheed employees and counsel, former employees of TMI, as well as
other companies doing business with TMI. Sometime around September 1, 2004,
an investigator visited TMI’s offices. A TMI employee told Todd about the
investigator’s visit and gave him the investigator’s business card.
Shortly before the investigator’s visit, the Loftises’ attorney, James Wyss,
recommended that the couple execute a community property partition agreement
as part of their estate planning. Wyss considered Todd to be a “high risk
professional” because of Todd’s high net worth and his position as the president
of a large company that had recently been sold. Wyss typically advises high risk
professionals “to move assets from one spouse to another to preserve the
acquired assets,” and to protect assets from possible judgment creditors. The
Loftises entered into a partition agreement, the subject of this lawsuit, in early
September 2004, though the exact date is unclear. Under the agreement, Lisa
received assets valued at $2,337,777.16. The partition agreement values the
property received by Todd at $2,000,000, though the government disputes this
valuation. The agreement did not allocate the Loftises’ $1,000,000 home in
Colleyville, Texas (referred to by the parties as the “Hawthorne House”). A later
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conversion of the Hawthorne House to Lisa’s separate property has been set
aside as fraudulent in a related proceeding.1
Todd was officially notified of the criminal investigation by the United
States Attorney’s office in Fort Worth, Texas on October 1, 2004, no more than
a month after entering into the agreement. He was charged by information and
pleaded guilty after signing a factual basis admitting the allegations of fraud
detailed above. The district judge sentenced Todd to eighty-seven months’
imprisonment and ordered him to make restitution in the amount of
$20,000,000.
The government filed two applications for writs of garnishment to recover
the restitution and sought to garnish property transferred to Lisa under the
partition agreement. The two proceedings were consolidated in the district
court. Though Todd did not make an appearance in the garnishment proceeding,
Lisa appeared as a party-in-interest and filed motions to quash the writs,
arguing that the partitioned property was exempt from garnishment because it
was her separate property. She further sought to limit the government’s ability
to garnish the couple’s jointly managed community property to Todd’s one-half
interest.
The district court denied in part and granted in part Lisa’s motions,
finding it likely that the government would be able to show that the partition
agreement was fraudulent. Though the district court initially granted Lisa’s
motion to quash to the extent the government sought to garnish Lisa’s interest
in the couple’s jointly managed community property, the court later reversed
this holding on the government’s motion to reconsider, finding instead that the
entirety of the couple’s jointly managed community property was subject to
garnishment. The court further held that Todd’s interest in Lisa’s retirement
1
This transfer took place on November 12, 2004, over a month after DOD informed
Todd that he was under criminal investigation.
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savings account could be garnished, even though this asset was Lisa’s solely
managed community property.
The government then moved for summary judgment to set aside the
partition agreement under the Federal Debt Collection Procedures Act
(“FDCPA”), 28 U.S.C. §§ 3304(b)(1)(A), 3304(b)(1)(B), 3304(a)(1), as well as under
T EX . F AM. C ODE § 4.106(a). The district court held that the agreement was
voidable under each provision. This timely appeal followed.
DISCUSSION
A. Fraudulent Transfer
The district court did an extensive analysis of the various FDCPA
provisions and held that the partition agreement was voidable under each
provision argued by the government.2 The partition agreement is clearly
voidable under 28 U.S.C. § 3304(b)(1)(B)(ii), and we affirm on that basis.
Because this court may affirm on any legally sufficient ground raised below,
BMG Music v. Martinez, 74 F.3d 87, 89 (5th Cir. 1996), we decline to address all
of the provisions analyzed by the district court.
Section 3304(b)(1)(B)(ii) states:
Except as provided in section 3307, a transfer made or obligation
incurred by a debtor is fraudulent as to a debt to the United States,
whether such debt arises before or after the transfer is made or the
obligation is incurred, if the debtor makes the transfer or incurs the
obligation–
....
(B) without receiving a reasonably equivalent value in exchange for
the transfer or obligation if the debtor–
....
(ii) intended to incur, or believed or reasonably should have believed
that he would incur, debts beyond his ability to pay as they became
due.
2
“We review a grant of summary judgment de novo, applying the same criteria as the
district court.” In re Hinsley, 201 F.3d 638, 642 (5th Cir. 2000) (quotation omitted).
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The terms of § 3304(b)(1)(B)(ii) are satisfied and a transfer is voidable if the
debtor (i) transferred assets without receiving reasonably equivalent value (ii)
when he reasonably should have believed he would incur a debt beyond his
ability to pay.3
The district court determined that the value of the assets received by
Todd, though estimated at $2,000,000 in the agreement, was not reasonably
equivalent to the $2,337,777.16 in assets transferred to Lisa. Reasonably
equivalent value means that “the debtor has received value that is substantially
comparable to the worth of the transferred property.” BFP v. Resolution Trust
Corp., 511 U.S. 531, 548 (1994) (interpreting the same term in the Bankruptcy
Code). Under the partition agreement, Todd received his nontransferable 401(k)
account, a ten-percent membership interest in an LLC, and his future income.
The parties mainly dispute the value of Todd’s future income, since it is clear
that most of the $2,000,000 valuation was attributed to this asset.
The value of an asset is determined from the creditor’s point of view. In
re Hinsley, 201 F.3d at 644. “The proper focus is on the net effect of the transfers
on the debtor’s estate, the funds available to the unsecured creditors.” Id.
(quotation omitted). As the district court correctly concluded, Todd’s future
income was of questionable worth from a creditor’s perspective when the
partition agreement was executed, see id. (“Value is determined as of the date
of transfer.”). At the time the partition was completed, the government was
investigating Todd’s extensive fraudulent conduct; he potentially faced a lengthy
prison term and a sizable criminal restitution. That is not to say that Todd’s
future income was worthless, cf. Calmes v. United States, 926 F. Supp. 582, 590
3
Title 28, United States Code, section 3307(a) provides a defense to garnishment under
§ 3304(b) to “a person who took in good faith and for reasonably equivalent value.” Because
Lisa did not receive reasonably equivalent value in the agreement, see infra, she is not entitled
to this defense.
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(N.D. Tex. 1996), but the asset cannot bear the substantial value attributed to
it by the agreement. Though we cannot determine with any precision on the
current record the properly discounted value of Todd’s future income at the time
of the agreement, we agree with the district court that there is a great disparity
between the value, from a creditor’s perspective, of the minor assets Todd
received in the agreement, including his speculative future income, and the
$2,337,777.16 in assets transferred to Lisa.
This disparity is even greater when the Hawthorne House transfer is
considered. Todd transferred his interest in the Hawthorne House to Lisa
through a separate instrument two months after the partition.4 Through this
transfer, Todd divested himself of his interest in the couple’s $1,000,000 home,
his last remaining major asset. There is no doubt that the net effect of these two
agreements was to move nearly all of Todd’s tangible assets into his wife’s
hands. See In re Hinsley, 201 F.3d at 644 (finding no reasonably equivalent
value when “the net effect of the partition and assignments was to remove the
valuable assets from [the debtor’s] ownership, making them unavailable to the
judgment creditors.”). Viewing these two agreements together, it is clear that
Todd did not receive reasonably equivalent value.
Moreover, Todd should have reasonably believed that he was incurring
debts beyond his ability to pay when he defrauded Lockheed and the government
of millions of dollars. See United States v. Resnick, 594 F.3d 562, 567 (7th Cir.
2010) (“The second element [of § 3304(b)(1)(B)(ii)] was also satisfied because
Resnick certainly should have believed that he was incurring debts beyond his
4
Considering the Hawthorne House transfer together with the partition agreement is
appropriate because the Loftises candidly admit that they intended for the Hawthorne House
to be transferred at the same time as the partition agreement. See Duncan v. First Nat’l Bank
of Cartersville, Ga., 597 F.2d 51, 56–57 (5th Cir. 1979) (analyzing multiple transfers in fraud
analysis under Georgia law); see also In re Fisher, 296 F. App’x 494, 500 (6th Cir. 2008)
(unpublished) (“[W]e have recognized that transfers may be considered together when
appropriate.” (citing In re Fordu, 201 F.3d 693 (6th Cir. 1999))).
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ability to pay when he defrauded Universal of millions of dollars . . . .”); see also
28 U.S.C. § 3002(3)(B) (defining “debt” to include money owed to the government
on account of restitution). The district court therefore correctly set aside the
partition agreement under § 3304(b)(1)(B)(ii) and held that the partitioned
assets were not Lisa’s separate property.5
B. Garnishable Property
Lisa next challenges the scope of the garnishment. The district court held
that the government was entitled to garnish Lisa’s one-half interest in any
community property that was jointly managed or solely managed by Todd. Lisa
argues that this holding conflicts with this court’s opinion in Medaris v. United
States, 884 F.2d 832 (5th Cir. 1989). She further argues that the district court
erroneously determined that the partitioned property was not her sole
management community property.6
The FDCPA provides that “[c]o-owned property shall be subject to
garnishment to the same extent as co-owned property is subject to garnishment
under the law of the State in which such property is located.” 28 U.S.C.
§ 3205(a). Lisa correctly states that she has a one-half ownership interest in the
couple’s community property under Texas law. Broday v. United States, 455
F.2d 1097, 1100–01 (5th Cir. 1972). But her ownership interest does not define
what community assets may be seized by Todd’s creditors, a question that is
5
Because we find the partition agreement to be voidable under § 3304(b)(1)(B)(ii), we
decline to address the district court’s analysis of 28 U.S.C. §§ 3304(a)(1) and 3304(b)(1)(A), or
TEX . FAM . CODE § 4.106(a).
6
Lisa also contends that the district court issued writs of garnishment that exceeded
the scope of the government’s writ applications. The government’s applications sought to
garnish “the nonexempt property of Defendant, Todd Loftis . . . and his interest in the non-
exempt property of his spouse . . . .” The language sufficiently covers the community property
that the district court ordered garnished. The government has maintained throughout this
proceeding that it is entitled to garnish jointly managed community property and Lisa cannot
complain that she did not have notice of the government’s intent to seize these assets.
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determined by reference to whether the community assets are solely or jointly
controlled. A spouse’s solely managed community property is not subject to “any
nontortious liabilities that the other spouse incurs during marriage.” T EX. F AM.
C ODE § 3.202(b)(2). But any “community property subject to a spouse’s sole or
joint management, control, and disposition is subject to the liabilities incurred
by the spouse before or during marriage.” Id. § 3.202(c). Section 3.202(c)
permits the government to garnish Lisa’s one-half interest in the couple’s
community assets that were jointly managed or solely managed by Todd. See
Nelson v. Citizens Bank & Trust Co. of Baytown, Tex., 881 S.W.2d 128, 131 (Tex.
App. 1994).
This court’s opinion in Medaris, discussing the enforcement of a federal tax
lien, is not to the contrary. In the portion of Medaris relied on by Lisa, the court
held that the IRS was entitled to attach the debtor’s one-half interest in his
wife’s income because her income was a community asset. 884 F.2d at 833–34.
The court reached this conclusion despite the earnings in question being the
wife’s sole management community property under state law. Id. at 833. As
noted, sole management community property is ordinarily beyond the reach of
a spouse’s creditors for nontortious liabilities incurred during marriage. T EX.
F AM. C ODE § 3.202(b). This exemption, however, was inapplicable to the federal
government because the Tax Code made such state law exemptions void as to tax
liens. Medaris, 884 F.2d at 833–34 (citing 26 U.S.C. § 6334(c)).
Lisa contends that the Medaris court “treated the sole management
community property as joint management community property, and concluded
that the government could seize half (rather than none) of the property.”
Accordingly, Lisa argues that the government should be limited to seizing Todd’s
one-half interest in the couple’s community property, including jointly managed
property. Contrary to Lisa’s suggestion, there is no indication that the Medaris
court treated the spouse’s earnings as joint management community property.
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Rather, the court held that a provision of state law that would otherwise bar a
creditor from attaching sole management property was inapplicable to tax liens.7
The Medaris court had no occasion to interpret the equivalent of T EX. F AM. C ODE
§ 3.202(c) when discussing whether the government could attach the spouse’s
wages, because that provision is only applicable to property “subject to [the
debtor] spouse’s sole or joint management, control, and disposition.” The
relevant property in Medaris was the non-debtor wife’s solely managed property.
Section 3.202(c) is implicated here and renders all jointly managed community
property subject to the nontortious liabilities incurred by Todd.
Finally, Lisa argues that all of the partitioned property is her sole
management community property, and so the government can only garnish
Todd’s one-half interest in these assets. “During marriage, each spouse has the
sole management, control, and disposition of the community property that the
spouse would have owned if single . . . .” T EX. F AM. C ODE § 3.102(a). Property
that a spouse would have owned if single includes personal earnings, revenue
from separate property, personal injury recoveries, and “the increase and
mutations of, and the revenue from” the spouse’s sole management property. Id.
§§ 3.102(a)(1)–(4). Other community property is presumed to be joint
management property unless the spouses provide otherwise by power of attorney
in writing or other agreement. Id. § 3.102(c). Further, when the sole
management property of one spouse is mixed or combined with the other
7
The Mandatory Victims Restitution Act makes a restitution order enforceable to the
same extent as a tax lien. 18 U.S.C. § 3613(c); see United States v. Meux, 597 F.3d 835, 838
(7th Cir. 2010) (stating that “[l]iens based on restitution orders are treated like tax liens”
(quotation omitted)). Consequently, the district court also correctly held that the government
could garnish Todd’s one-half interest in any community property solely managed by Lisa,
including her retirement savings account. 28 U.S.C. § 3003(b)(1) (“This chapter shall not be
construed to curtail or limit the right of the United States under any other Federal law or any
State law . . . to collect taxes or to collect any other amount collectible in the same manner as
a tax.” (emphasis added)); see Medaris, 884 F.2d at 833–34.
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spouse’s sole management property, the commingled property is considered to
be jointly managed property, absent a written agreement to the contrary. Id.
§ 3.102(b).
Lisa has not attempted to show that any particular asset, other than her
retirement savings account, consisted of sole management property that was not
commingled with Todd’s property. Indeed, when pressed at oral argument
before the district court, the only sole management property her counsel could
specifically identify was the retirement savings account. The partitioned assets
consisted mostly of the couple’s joint savings or assets attributable to Todd’s
income and stock sales, and assets purchased with those funds. These are not
assets that Lisa would have “owned if single.” T EX. F AM. C ODE § 3.102(a). The
district court was correct to treat these assets as jointly managed property.
CONCLUSION
For the reasons stated, the judgment of the district court is AFFIRMED.
10