Opinion
CV-98-3359 (ETB)
January 30, 2004
Before the court is a motion by the Secretary of Labor ("Secretary"), for an installment payment order pursuant to the Federal Debt Collection Procedures Act of 1990 ("FDCPA"), 28 U.S.C. § 3204. The Secretary seeks an order compelling the judgment debtors in this action, Vidtape, Inc., Mohinder Singh Anand, and Satinder Singh Anand (collectively referred to as "defendants"), to make monthly installment payments in the amount of $19,693.64 to the Secretary until the outstanding judgment debt plus the accrued post-judgment interest and costs, in the amount of $236,323.62, have been satisfied. The defendants oppose this motion and assert that they are only financially capable of making payments in the amount of $3,500.00 per month. For the following reasons, the Secretary's motion is granted.
FACTS
The Secretary commenced this action on May 1, 1998, alleging that the defendants, Vidtape, Inc., Inventive Technology Systems, Inc., Mohinder Singh Anand, Arjan Singh Anand, and Satinder Singh Anand, had engaged in numerous violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. See Chao v. Vidtape, Inc., 196 F. Supp.2d 281, 284 (E.D.N.Y. 2002). Specifically, the Secretary alleged that defendants: (1) failed to pay minimum wages; (2) failed to pay overtime wages; (3) employed a child; (4) violated the "hot goods" provision of the FLSA by putting into the stream of commerce goods produced in violation of the FLSA; and (5) violated the FLSA's record-keeping provisions. See id. The Secretary sought injunctive relief, back-pay, liquidated damages and costs on behalf of 67 employees. See id.A bench trial was held and the court found that defendants had wilfully violated the FLSA's minimum wage, overtime, child labor, "hot goods," and record-keeping provisions. See id. at 292-97. Accordingly, the court ordered: (1) all defendants permanently enjoined from violating the various provisions of the FLSA; (2) all defendants, with the exception of Arjan Singh Anand, liable for $119,853.58 in back wages and $119,853.50 in liquidated damages; and (3) costs to be awarded to the Secretary. See id. at 298-300.
Upon appeal to the Circuit, the decision of the district court was modified and affirmed. See Chao v. Vidtape, Inc., 66 Fed. Appx. 261, 262 (2d Cir. 2003). The Circuit held that defendant Inventive Technology Systems, Inc. should not have been held liable for back wages and reduced the award of back pay and liquidated damages against Vidtape, Mohinder Singh Anand and Satinder Singh Anand by $3,383.46, modifying the final judgment to $236,323.62 plus post-judgment interest.
The Secretary brings the instant motion on the grounds that the defendants have failed to make any payments since the judgment was entered and affirmed by the Court of Appeals. The Secretary alleges that the individual defendants — brothers — transferred assets to evade having to pay the debt they were adjudged by the court to owe and that conventional debt collection practices would be fufile in this action. The defendants contend that they have done nothing improper and that they are financially incapable of making payments in an amount greater than $3,500.00 per month.
DISCUSSION
I. Legal Standard
The Federal Debt Collection Procedures Act ("FDCPA"), 28 U.S.C. § 3001 et seq., "provides the exclusive civil procedures for the United States . . . to recover a judgment on a debt." 28 U.S.C. § 3001 (a)(1). One such civil procedure is the installment payment order, as described in 28 U.S.C. § 3204.
Section 3204 authorizes courts to issue installment payment orders: [I] fit is shown that the judgment debtor —
(1) is receiving or will receive substantial nonexempt disposable earnings from self employment that are not subject to garnishment; or (2) is diverting or concealing substantial earnings from any source, or property received in lieu of earnings.28 U.S.C. § 3204(a). The Secretary contends that the testimony and documents introduced at the evidentiary hearing held before the undersigned on October 20, 2003, and continued on October 30, 2003, satisfy both criteria of Section 3204 and that she is therefore entitled to an installment payment order against the defendants.
The types of debtors for which installment payment orders may be obtained is limited under Section 3204. See Hon. James J. Brown, Judgment Enforcement § 5.03[D] at 5-15 (2d ed. 1999).
The debtor must be self-employed like doctors, accountants, and lawyers. The types of debtors would also include the debtor who controls a family business through a corporation to which the debtor provides important services, but who may be paid no salary to prevent creditors from garnishing the same. In turn, the corporation pays for the debtor's expenses, such as medical, insurance, car, and other types of support expenses.Id.
Section 3204 sets forth the procedure by which a court may issue an installment payment order. After the motion is made and notice is provided to the debtor, a hearing must be held to determine the appropriateness of the relief requested. In setting the payment amount, "the court shall take into consideration . . . the income, resources and reasonable requirements of the judgment debtor and the judgment debtor's dependents, any other payments to be made in satisfaction of judgments against the judgment debtor, and the amount due on the judgment in favor of the United States." 28 U.S.C. § 3204(a).
II. The Secretary is Entitled to An Installment Payment Order
Based on the testimony elicited at the evidentiary hearing as well as the exhibits introduced into evidence, I find that an installment payment order is appropriate in this action.
A. The Individual Judgment Debtors are Self-Employed Within the Meaning of 28 U.S.C. S 3204
Mohinder Singh Anand ("Mohinder") is the President of Vidtape, Inc. (Tr. 15.) Satinder Singh Anand ("Satinder"), Mohinder's brother, is the President of Inventive Technology Systems ("Inventive"). (Tr. 17, 19-20.) As the presidents of their respective corporate entities, both defendants determine their own salaries. (Tr. 26, 122.) Both Mohinder and Satinder have complete control with respect to how much income they derive from Vidtape and Inventive.
The two corporations are responsible for many of Mohinder's and Satinder's expenses. Vidtape leases the 2001 Mercedes S-500 that Mohinder drives, at a cost of approximately $1,200.00 per month. (Tr. 23; Dep. of Mohinder Singh Anand, annexed as Pl Exh. E, at 67 (hereinafter "Mohinder Dep.")). Satinder drives a 2000 Acura, which is financed by Inventive for approximately $650.00 per month, and also operates a 1996 Nissan that was purchased by Inventive. (Tr. 124-26; Dep. of Satinder Singh Anand, annexed as Pl Exh. F, at 29-32 (hereinafter "Satinder Dep.")) At his deposition, Satinder testified that Inventive also pays the insurance for both of his automobiles. (Satinder Dep. at 54.) Mohinder stated at the evidentiary hearing that he uses the same credit cards for both personal and business expenses. (Tr. 32.) All of the credit card bills are paid out of Vidtape's checking account. (Dep. of Mohinder Singh Anand, annexed as Pl Exh. E, at 62-65 (hereinafter "Mohinder Dep.")) In addition, Inventive is responsible for the premiums on Satinder's life insurance policy. (Id. at 60-61.)
Accordingly, I find that the individual defendants are self-employed within the meaning of 28 U.S.C. § 3204 and that there are substantial non-exempt earnings that they derive, which are not practically subject to garnishment.
B. Defendants are Concealing Assets
Based on the evidence and testimony introduced at the evidentiary hearing, the court finds that the defendants are concealing assets to avoid paying the outstanding judgment debt.
1. The Residence at 910 Thompson Drive
The defendants reside at 910 Thompson Drive, Bay Shore, New York. (Tr. 19, 126.) The house has five bedrooms and a two car garage and sits on one acre of property. (Tr. 20.) Mohinder estimates the fair market value of the property to be about $700,000.00. (Tr.20.)
At the evidentiary hearing, Mohinder testified that he purchased the house in his name alone in 1994. (Tr. 20.) However, sometime in 1997, Mohinder transferred ownership of the house to his wife, his children, Satinder, Satinder's wife and children, and his father. (Tr. 21-22.) Mohinder could not provide an exact date as to when the transfer of ownership took place but he stated that it was around the time that he became ill and began divesting himself of assets as part of his estate planning. (Tr. 21-22, 30, 61-63.) I do not credit this testimony. Since the exact transfer date is exclusively within the knowledge and control of the defendant Mohinder, and since he has failed to produce evidence with respect to the transfer, I draw the unfavorable inference that this date would have been on or about June 10, 1997, the date on which the Department of Labor began its investigation of Vidtape, and that the transfer was accomplished to avoid any potential judgment that might arise from the Secretary's investigation. See Bank of Crete v. Koskotas, 733 F. Supp. 648, 654 (S.D.N.Y. 1990) ("The general evidentiary rule is that a party's failure to provide relevant evidence within its control supports an inference that the evidence would be harmful to the party's cause.") (citing United States v. Philatelic Leasing, Ltd., 601 F. Supp. 1554, 1565-66 (S.D.N.Y. 1985), aff'd, 794 F.2d 781 (2d Cir. 1986); Consol. Rail Corp. v. Nevins-Petrillo Warehouse Distribution Sys., Inc., 619 F. Supp. 900, 906 (S.D.N.Y. 1983)).
Satinder's name has since been removed from the deed as well. According to Satinder, his name was withdrawn approximately six months before the evidentiary hearing so that the family could refinance the mortgage. (Tr. 126-27.)
Mohinder testified that aside from nominal consideration of $10.00, none of the family members to whom he transferred ownership paid any money for the residence at 910 Thompson Drive. (Tr. 21-22.) Moreover, even though the house is no longer in Mohinder's name, he still continues to make the mortgage payments of approximately $2,500.00 per month, which he testified are paid out of his personal income. (Tr. 64; Mohinder Dep. at 16.) Although Satinder also resides there with his wife and two children, he does not contribute to the mortgage payments or the property taxes. (Tr. 131.) Nor does Satinder pay rent. (Tr. 131.) Satinder essentially lives in the house for free, with the exception of his share of the household expenses, such as utilities and food, in an unspecified amount. (Satinder Dep. at 28.)
2. The Integrated Operations of Vidtape and Inventive
Defendant Vidtape is a New York corporation, which was incorporated in January of 1988. See Chao, 196 F. Supp.2d at 284. On June 18, 1997, Inventive Technology Systems was created, just days after the Department of Labor commenced its investigation of Vidtape. See id. at 285. On February 26, 1998, during the course of the Department of Labor's investigation, Vidtape sold its manufacturing operation to Inventive and those employees who were employed by Vidtape for manufacturing purposes were terminated and hired by Inventive. See id. at 284; Tr. 16-17. On April 30, 1998, one day before the Secretary filed the within action, Inventive began manufacturing videotapes. See Chao, 196 F. Supp.2d at 285.
Vidtape and Inventive are dependent on one another for the majority of their respective businesses. Inventive manufactures the products that Vidtape then markets, namely CD's, DVD's and videocassettes. (Tr. 19, 84.) Vidtape purchases approximately 90% of its product from Inventive.See Chao, 196 F. Supp.2d at 286; Tr. 19. Vidtape also purchases product from another manufacturing entity known as Long Island Disk. (Tr. 41.) Long Island Disk is owned by Arjan Singh Anand, Mohinder and Satinder's father. (Tr. 39.) In 2002 alone, Vidtape purchased $2,218,933 worth of product with more than half of those purchases made from either Inventive or Long Island Disk. (Tr. 99-100, 108-09; Def. Exh. 14.)
Vidtape and Inventive also occupy the same office and warehousing space, located at 340 and 360 Eastern Parkway, Farmingdale, New York. (Tr. 17-18.) The owner of the property is Parkway Properties, a corporation owned by Amrit Kaur Anand, Mohinder and Satinder's mother. (Tr. 18-19.) Parkway Properties leases the business property at Eastern Parkway to Inventive, who in turn subleases space to Vidtape. (Tr. 18.) Vidtape pays $7,000.00 per month to Inventive in rent. (Tr. 32-33.)
As presidents of their respective corporations, Mohinder and Satinder control the movement of funds through each of their companies. For example, Mohinder testified at the evidentiary hearing that he has made shareholder loans to Vidtape in the past and has taken repayment loans from the corporation in previous years. (Tr. 44.) Mohinder also has signatory authority over the Vidtape checking accounts, (Dep. of Vidtape, Inc., annexed as Pl Exh. G, at 27), and Satinder has signatory authority over the Inventive checking account. (Satinder Dep. at 54.) Moreover, Vidtape guarantees Inventive's debts and Inventive guarantees Vidtape's debts. (Tr. 122-23.)
Mohinder also transferred $10,000.00 of his personal savings into a trust known as the Nihang Niwas Trust sometime in 2001. (Tr. 28, 60-61) This trust was set up in 1997 and is the sole shareholder of Inventive Technology Systems. (Tr. 28, 60.) Arjan Singh Anand, Mohinder and Satinder's father, is the trustee of the Niwas trust, but Mohinder is not a beneficiary. (Tr. 27-29.) The beneficiaries include Mohinder's wife and children, Mohinder and Satinder's mother, and Satinder. (Tr. 29.)
Mohinder also testified that in order to create Vidtape, he invested $200,000.00 of his personal savings into the corporation and has made various shareholder loans to Vidtape in previous years. (Tr. 44-45.)
3. The Defendants are Able to More than Meet Their Personal and Business Expenses
There is no evidence that the judgment debtors are in any financial distress. Mohinder testified at the evidentiary hearing that Vidtape is not in arrears on any of its obligations. (Tr. 42.) In fact, based on the tax returns submitted into evidence, Vidtape appears to have posted a profit each year since the inception of this action. (PL Exs. G(1)-(3), G(5)-(6); Def. Exh. 14.) Satinder testified that Inventive is current on all of its obligations as well. (Tr. 123.).
In addition, the individual defendants do not appear to be having any difficulty meeting their personal expenses. Mohinder makes the mortgage payments of approximately $2,500.00 per month on the residence at 910 Thompson Drive. Both Mohinder and Satinder send their children to a private school, St. Peter's by the Sea, located in Bay Shore, New York, which costs approximately $1,300.00 per month for Mohinder's two children and $600.00 per month for Satinder's child. (Tr. 47-48, 124.) Moreover, both defendants took their families on vacation to Florida recently. (Tr. 48-49, 129-30.) Finally, both Mohinder and Satinder were able to make charitable donations in 2002, with Mohinder donating approximately $5,000.00 to $7,000.00 to his local Sikh temple and Satinder donating several hundred dollars to unnamed charities. (Mohinder Dep. at 99-100; Satinder Dep. at 42-43.)
The foregoing evidence establishes that defendants are concealing assets through both the integrated business dealings of Vidtape and Inventive and by placing assets in various family members' names. The structure and practice of the two corporations is such that the defendants are capable of funneling assets and income out of Vidtape, the corporate judgment debtor in this action, and into Inventive, who was not found to be liable in the underlying action for back wages, such that they are able to shield the assets from collection. Other tangible assets, such as the primary residence of the individual judgment debtors and personal savings — the $10,000.00 in cash in the Niwas trust — have been sufficiently removed from the Secretary's reach by placing these assets in family members' names, who are not parties to this action, or in entities in which the individual judgment debtors are not beneficiaries.
CONCLUSION
For the foregoing reasons, the Secretary's request for an installment payment order is granted. Defendants are directed to make payments in the sum of $19,693.64 on a monthly basis until the outstanding judgment, costs, and the accrued post-judgment interest have been satisfied.
SO ORDERED.