United States v. Hyde

United States Court of Appeals
For the First Circuit

No. 05-2897

UNITED STATES OF AMERICA,

Appellee,

v.

PHILLIP HYDE,

Defendant, Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

Boudin, Chief Judge,
Lynch and Lipez, Circuit Judges.

Leonard A. Frisoli, with whom Zaheer Samee was on brief for
appellant.
Christopher R. Donato, Assistant United States Attorney, with
whom Michael J. Sullivan, United States Attorney, was on brief for
appellee.
William R. Moorman, Jr., with whom Joseph J. Koltun and Craig
& Macauley Professional Corporation were on brief for Board of
Trustees of the Public School Teachers' Pension & Retirement Fund
of Chicago.

August 7, 2007
 LIPEZ, Circuit Judge. This case requires us to decide

whether a restitution order under the Mandatory Victims Restitution

Act, codified in relevant part at 18 U.S.C. § 3613 ("MVRA"), allows

the government to garnish the sale proceeds of a house that the

debtor had attempted to exempt from the reach of creditors in a

Chapter 7 federal bankruptcy proceeding. Finding that the

government has such authority, we affirm the district court's order

allowing the government to enforce its writ of garnishment.

I.

For nearly two decades, appellant Phillip Hyde, a

Massachusetts resident, fraudulently received payments from his

mother's pension fund, the Public School Teachers' Pension and

Retirement Fund of Chicago ("the Fund"). Hyde's mother retired

from the Chicago Public School System in 1968 and collected monthly

pension checks until her death in 1982, at the age of eighty-two.

Thereafter, Hyde continued to receive and cash his mother's checks

using various means of subterfuge to prevent the Fund from learning

of her death. By the time the Fund became aware of Hyde's scheme

in 2000, Hyde had defrauded the Fund of $317,678.16.

The Fund sued Hyde for fraudulent conversion in May 2002

in federal district court in Massachusetts. In the course of that

proceeding, the court issued writs of attachment on behalf of the

Fund, which the Fund duly recorded, creating a lien against Hyde's

home.

-2-
 While the litigation was still ongoing, Hyde filed a

petition under Chapter 7 of the Bankruptcy Code on May 28, 2003.

On Schedule C of that petition, Hyde claimed a homestead exemption

of $300,000. See 11 U.S.C. §§ 522(b)(1) & (b)(3)(A); Mass. Gen.

Laws ch. 188, § 1.1 Pursuant to the Bankruptcy Code, property

eligible for such an exemption "is not liable during or after the

case for any debt of the debtor that arose . . . before the

commencement of the case," except in particular, listed

circumstances. 11 U.S.C. § 522(c). Notable among these exceptions

is a debt secured by a tax lien. See id. at § 522(c)(2)(B).

Shortly after Hyde sought Chapter 7 protection, the Fund

filed a complaint in the bankruptcy court seeking a declaration

that Hyde's debt to the Fund was non-dischargeable under the

Bankruptcy Code. The bankruptcy court granted the Fund's motion,

1
11 U.S.C. § 522(b)(3)(A) extends federal bankruptcy
protection to certain property exempt under state law, thereby
incorporating the Massachusetts homestead exemption, which provides
as follows:

An estate of homestead to the extent of
$500,000 in the land and buildings may be
acquired pursuant to this chapter by an owner
or owners of a home or one or all who
rightfully possess the premise by lease or
otherwise and who occupy or intend to occupy
said home as a principal residence. Said
estate shall be exempt from the laws of
conveyance, descent, devise, attachment, levy
on execution and sale for payment of debts or
legacies except [in certain listed
exceptions].

Mass. Gen. Laws ch. 188, § 1.

-3-
entering judgment in favor of the Fund for $317,678.16 plus pre-

judgment and post-judgment interest. At about the same time, Hyde

filed a motion in the bankruptcy court to avoid the Fund's lien on

his home pursuant to 11 U.S.C. § 522(f), which allows a debtor to

avoid the attachment of a lien on property protected by the

homestead exemption.2 The Fund opposed the motion, but the

bankruptcy court ruled in Hyde's favor in June 2004.

Meanwhile, on March 18, 2004 – roughly nine months after

he filed for bankruptcy – Hyde was indicted on mail fraud charges

stemming from his deception of the Fund. Hyde entered into a plea

agreement and was sentenced to one year and one day in prison to be

followed by two years of supervised release; he was also ordered to

pay restitution in the amount of $317,678.68 pursuant to the MVRA.

Although this sum was to be remitted to the government, the

government would then transfer the money to the Fund. The plea

agreement also required Hyde to alert the U.S. Attorney to "any

material change in [his] economic circumstances," and it barred

2
In pertinent part, this section provides:

[T]he debtor may avoid the fixing of a lien on an
interest of the debtor in property to the extent that
such lien impairs an exemption to which the debtor would
have been entitled under subsection (b) of this section,
if such lien is--
(A) a judicial lien, other than a judicial lien that
secures a debt of a kind that is specified in section
523(a)(5) [for a domestic support obligation.]

11 U.S.C. § 522(f)(1).

-4-
Hyde from transferring any assets without the U.S. Attorney's

express written consent.

A few months after he was sentenced and after the

bankruptcy court discharged all dischargeable debts (which did not

include his debt to the Fund), Hyde sold his residence for $575,000

in August 2005, without providing notice to the U.S. Attorney's

office or the Fund. After settling various fees and voluntarily

distributing some of the proceeds to other creditors, Hyde netted

roughly $122,000.

Upon learning of the sale, both the Fund and the United

States took action. The Fund petitioned the Middlesex County

Superior Court, seeking to enjoin the transfer of any proceeds to

Hyde and requesting a "trustee process attachment" on the funds.

The court granted both the injunction and the attachment. The

United States filed a motion in federal district court seeking a

writ of garnishment in an attempt to obtain the sale proceeds in

partial satisfaction of Hyde's restitution obligation. The writ

was issued.

Hyde then took steps to preserve his homestead exemption.

He filed a motion with the bankruptcy court seeking a declaration

that the sale proceeds were exempt. In addition, he filed a claim

of exemption in the district court and requested that it suspend

action until the bankruptcy court issued its ruling. The United

States opposed this claim, arguing that, under the MVRA, the

-5-
restitution order could be enforced against Hyde's property

regardless of how the bankruptcy court ruled on the homestead

exemption because: (1) the MVRA supersedes the homestead exemption

embedded within the Bankruptcy Code; and (2) even if it did not,

the restitution order arose after Hyde filed for bankruptcy, thus

removing it from the protection afforded by 11 U.S.C. § 522(c),

which only protects pre-petition debts.

Instead of the district court deferring to the bankruptcy

court, as Hyde had requested, the bankruptcy court deferred to the

district court. The bankruptcy court noted that even if it ruled,

as a matter of Massachusetts law, that the homestead exemption

extended to proceeds of the sale of the home, this ruling would be

pointless if the district court determined that the restitution

order is a post-petition order unaffected by 11 U.S.C. § 522(c) and

that the United States may enforce that order by garnishing the

sale proceeds.

Shortly thereafter, the district court ruled that: (1)

the restitution order resulting from the criminal case "creates an

entirely new obligation owed to the United States unaffected by the

Debtor's homestead exemption and 11 U.S.C. 522(c)"; and (2) the

United States could enforce the garnishment order.

On appeal, Hyde argues that he retains the right to a

homestead exemption even after converting his home to cash, and he

further contends that the exemption trumps the government's

-6-
authority to garnish the sale proceeds of his home to satisfy his

obligation under the MVRA.

II.

Because the only question posed by this case is a

question of law concerning the interplay between the Massachusetts

homestead exemption, the Bankruptcy Code and the MVRA, our review

is plenary. United States v. Stearns, 387 F.3d 104, 108 (1st Cir.

2004). Hyde argues that the district court committed a legal error

in allowing the government to garnish the sale proceeds from his

home. He contends that the protection from creditors afforded by

the Massachusetts homestead exemption makes those funds unreachable

for restitution under the MVRA.

We note at the outset that there is reason to doubt that

the proceeds at issue are covered by the Massachusetts homestead

exemption. Whether the protection extends beyond ownership of the

residence itself to the proceeds upon sale is unresolved in

Massachusetts case law.3 That issue, in turn, may depend upon

whether the sale – which occurred two days before a scheduled

foreclosure proceeding – would be deemed voluntary or involuntary.4

3
Although the parties cite some competing authorities, they
agree that no Massachusetts court has yet ruled squarely on this
issue.
4
While Massachusetts courts have not ruled on this issue, the
parties cite cases suggesting that states that extend homestead
exemption to sale proceeds often limit that extension to
involuntary sales. Compare, e.g., In re Miller, 246 B.R. 564, 566
(Bankr. E.D. Tenn. 2000) (explaining that the homestead exemption

-7-
We need not explore the reach of the exemption, however, because

the sale proceeds are not protected from a restitution order issued

under the MVRA whether or not the exemption applies.5

The MVRA specifically provides:

The United States may enforce a judgment
imposing a fine in accordance with the
practices and procedures for the enforcement
of a civil judgment under Federal law or State
law. Notwithstanding any other Federal law
(including section 207 of the Social Security
Act [42 U.S.C. § 407]), a judgment imposing a
fine may be enforced against all property or
rights to property of the person fined.
***
In accordance with section 3664(m)(1)(A) of
this title . . . all provisions of this
section are available to the United States for
the enforcement of an order of restitution.

18 U.S.C. § 3613(a), (f).6

under Tennessee law extends to sale proceeds of an involuntary
conversion of property), with In re Englander, 95 F.3d 1028, 1032
(11th Cir. 1996) (noting that Florida law extends homestead
exemption to proceeds of a voluntary sale if reinvestment in a new
homestead is intended).
5
As we have noted, the district court ruled against Hyde
because the restitution order resulting from the criminal case
"creates an entirely new obligation owed to the United States
unaffected by the Debtor's homestead exemption and 11 U.S.C. §
522(c)." By choosing to base our ruling on the scope of the MVRA
rather than the ground relied on by the district court, we are not
suggesting that the ground for decision in the district court was
erroneous. We simply prefer to base our ruling on this alternative
ground.
6
The law contains three exceptions which Hyde concedes do not
apply to his case. See 18 U.S.C. § 3613(a).

-8-
 Read together, these sections allow the government to

enforce a judgment that includes restitution against "all property

or rights to property of the person fined." In addition, § 3613(c)

specifies that "an order of restitution . . . is a lien in favor of

the United States on all property and rights to property of the

person fined as if the liability . . . were a liability for a tax

assessed under the Internal Revenue Code of 1986."

In effect, then, the government possessed a tax lien

against appellant's property, triggering one of the explicit

exceptions to the Bankruptcy Code's protection afforded to a

homestead exemption. See 11 U.S.C. § 522(c)(2)(B). Hyde does not

argue that the state exemption prevails over federal law and,

indeed, such a claim would be unavailing.7 However, Hyde attempts

to cloak the state exemption in federal bankruptcy policy, claiming

that the MVRA must yield to the "fresh start" policy behind the

Bankruptcy Code.

Although Hyde is correct that we must look to

congressional intent in the face of an apparent conflict between

two federal statutes, see, e.g., Bank of New Eng. Old Colony, N.A.

7
It is well established that the Supremacy Clause "provides
the underpinning for the Federal Government's right to sweep aside
state-created exemptions" in the face of a tax liability. United
States v. Rodgers, 461 U.S. 677, 701 (1983); see also Herndon v.
United States, 501 F.2d 1219, 1222 (8th Cir. 1974); United States
v. Heffron, 158 F.2d 657, 659 (9th Cir. 1947); Shambaugh v.
Scofield, 132 F.2d 345, 346 (5th Cir. 1942).

-9-
v. Clark, 986 F.2d 600, 603 (1st Cir. 1993), he is mistaken in his

contention that Congress has not already spoken to the issue. The

MVRA's language is unambiguous: the MVRA's provisions apply

"[n]otwithstanding any other Federal law." 18 U.S.C. § 3613(a).

See Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993) ("[I]n

construing statutes, the use of such a 'notwithstanding' clause

clearly signals the drafter's intention that the provisions of the

'notwithstanding' section override conflicting provisions of any

other section.") (collecting circuit court cases). Other courts

have also interpreted the MVRA's "notwithstanding" clause to

supersede conflicting federal statutes. See, e.g., United States

v. Novak, 476 F.3d 1041, 1047 (9th Cir. 2007) (en banc) (MVRA

provisions supersede the non-alienation provisions of ERISA);

United States v. Irving, 452 F.3d 110, 126 (2d Cir. 2006) (same).

Moreover, here the MVRA language invokes a Bankruptcy Code

exception by equating a restitution order under the MVRA to a tax

lien. Thus, neither Massachusetts law nor the Bankruptcy Code

restricts the reach of the MVRA's clear language.8

8
The only other courts to have considered the relationship
between the MVRA and a state homestead exemption agree. See United
States v. Lampien, 89 F.3d 1316, 1321 (7th Cir. 1996) ("[I]f the
Wisconsin homestead exemption applies to . . . prevent any part of
the proceeds from the sale of her home from being used to satisfy
her restitution obligation, the homestead exemption is void under
the Supremacy Clause."); United States v. Jaffe, 314 F. Supp. 2d
216, 227 (S.D.N.Y. 2004) ("Florida homestead law will not protect
him with respect to his duty to provide restitution to his victim
[under the MVRA]."). Lampien was decided under the Victim and
Witness Protection Act, 18 U.S.C. § 1033. The relevant sections of

-10-
 Hyde also argues for the first time on appeal that the

district court erred in allowing the government's writ of

garnishment because that garnishment runs expressly counter to the

criminal judgment against him. The judgment specifically provided

that Hyde pay "restitution on a schedule to be determined by the

probation department, during the supervised release period," while

the garnishment allows the government to reach these sale proceeds

before Hyde's supervised release begins. We generally review

arguments raised for the first time on appeal only for plain error

alone. See United States v. LeMoure, 474 F.3d 37, 43 (1st Cir.

2007). Error, let alone plain error, is wholly absent here, where

the court's statutory authority to adjust a defendant's payment

schedule is explicit:

A judgment for a fine which permits payments
in installments shall include a requirement
that the defendant will notify the court of
any material change in the defendant's
economic circumstances that might affect [his]
ability to pay the fine. Upon receipt of such
notice the court may . . . adjust the payment
schedule, or require immediate payment in
full, as the interests of justice require.

18 U.S.C. § 3572(d)(3).9

the two statutes are identical.
9
Although this statutory provision refers to a "fine" rather
than an order of restitution, the MVRA provides that "all
provisions of [§ 3664(m)(1)(A)] are available to the United States
for the enforcement of an order of restitution," 18 U.S.C.
§ 3613(f), and § 3664(m)(1)(A) provides that an order of
restitution may be enforced in the same manner as a fine.

-11-
 III.

For the reasons set forth above, we affirm the district

court's order that the United States may enforce its restitution

order by garnishing the proceeds from the sale of Hyde's residence.

So ordered.

-12-