Opinion
Case No. 3:11-cr-183
01-09-2018
UNITED STATES OF AMERICA, Plaintiff, v. PAUL DAVID MUSGRAVE, Defendant.
District Judge Timothy S. Black
SUPPLEMENTAL REPORT AND RECOMMENDATIONS ON RESTITUTION
This criminal case is before the Court on Objections by the United States (ECF No. 283) to the Report and Recommendations on Restitution ("Report," ECF No. 282). District Judge Black has recommitted the matter for reconsideration under Fed. R. Crim. P. 59(b)(2). Defendant Paul David Musgrave and Intervenor Barbara Musgrave have responded to those Objections (ECF Nos. 286, 287), making the Objections ripe for consideration.
The Sixth Circuit remanded this case with an order that this Court "hold an evidentiary hearing to determine which assets the United States can reach to enforce the order of restitution." United States v. Musgrave, Case No. 15-3388, 664 Fed. Appx. 540 (6 Cir. Nov. 30, 2016)(unpublished; copy at ECF No. 238). The Sixth Circuit also set out the legal standard to be applied to the question on remand. Id. at 542-43, principally relying on Drye v. United States, 528 U.S. 49 (1999), and United States v. Craft, 535 U.S. 274 (2002).
The remanded question was referred to the undersigned to conduct the required evidentiary hearing and file a report and recommendations with proposed findings of fact and conclusions of law (Order of Referral, ECF No. 240, PageID 4487). Although the Order of Referral mentions only Fed. R. Crim. P. 59, 18 U.S.C. § 3664(d)(6) expressly authorizes reference to a Magistrate Judge "for proposed findings of fact and recommendations as to disposition, subject to a de novo determination of the issue by the court."
Proposed Findings of Fact
After evidence was presented, the Magistrate Judge ordered that the exhibits be filed and that each party also file "proposed findings of fact and conclusions of law in the form required by Fed. R. Civ. P. 52 and Fed. R. Crim. P. 59(b)(1) . . . . Proposed findings of fact shall reference with PageID numbers the place or places in the record that support the proposed finding" (Order for Post-Hearing Briefing, ECF No. 251, PageID 4532).
The Government's Post-Hearing Brief (ECF No. 276) and its Reply Brief fail utterly to comply; there is not a single PageID reference anywhere in either one of them. The Government's opening Brief contains sixty-three proposed findings of fact in numbered paragraphs, none of which has a PageID reference (ECF No. 276, PageID 6344-51).
In preparing the Report, the Magistrate Judge offered proposed findings of fact in narrative form rather than in numbered paragraphs (Report, ECF No. 282, PageID 6411-19). This manner of complying with Fed. R. Civ. P. 52 is a common practice in this Court. See, e.g., In re: Ohio Execution Protocol Litigation (McGuire), 994 F.Supp.2d 906 (S.D. Ohio Jan. 13, 2014); In re: Ohio Execution Protocol Litigation (Lorraine), 840 F.Supp.2d 1044 (S.D. Ohio Dec. 23, 2013). Because the parties proffered proposed findings of fact which the Magistrate Judge ultimately found not material, the proposed findings of fact in the Report are prefaced with this language:
In constructing this set of factual findings, the Magistrate Judge has included every finding proposed by any of the parties which is appropriately supported by evidence without attempting to decide its relevance or materiality; those questions are reserved for the analysis section below.(Report, ECF No. 282, PageID 6411.)
In its Objections, the Government criticizes the Report for not having adopted its proposed findings of fact numbered 18, 19, 25, 27, 28, 31, 32, 33, 45, 52, 53, 59, and 62 (Objections, ECF No. 283, PageID 6432-34). The following table sets forth the Government's proposed findings assertedly omitted from the Report and the treatment of that proposed finding in the Report.
| Government Proposed Finding | Related proposed finding in theReport |
|---|---|
| No. 18 In conjunction with opening saidaccounts, Mrs. Musgrave executed a limitedpower of attorney form, authorizing thedefendant to serve as her "attorney-in-fact" oneach of the three said TD Ameritrade accounts. | On May 26, 2011, Barbara Musgrave gaveDavid a limited power of attorney for her threeTD Ameritrade accounts. (Report, ECF No.282, PageID 6415.) |
| No. 19 This limited power of attorneyspecifically authorized the defendant to act asher attorney-in-fact, to wit: to act as her agent"to buy, sell, and trade stocks, bonds, and anyother securities and/or contracts relating to thesame on margin or otherwise in accordancewith your terms and conditions for (Mrs.Musgraves's) account . . . . In all suchpurchases, sales or trades (TD Ameritrade)[is] authorized to follow the instructions of myAgent in every respect concerning my accountwith you; and my Agent is authorized to act for | David Musgrave's authority under this POA islimited to the purchase and sale of securities asBarbara Musgrave's agent; he has no authorityto make any transfers to himself or otherwiseengage in self-dealing. Barbara Musgrave didnot execute the section of this form POApermitting David Musgrave to receive a feefrom the account and no evidence waspresented at the hearing that he had everwithdrawn any funds from any of theseaccounts or had any portion of them transferredto himself. (Report, ECF No. 282, PageID |
| me and on my behalf in the same manner andwith the same force and effect as I might orcould do with respect to such purchases, salesor trade . . . ." | 6415-16.) |
|---|---|
| No. 25 The defendant has continually enjoyedthe right to exclude third parties from saidpremises. | Nothing in the cited testimony supports thisproposed finding of fact except for theconclusory opinion of Susan Sigler that Mr.Musgrave had then apparent right to excludeothers from the residential property. (Tr. ECFNo. 264, PageID 6216.) That is a subject onwhich she was not competent to testify. Therewas no testimony that Mr. Musgrave everactually excluded anyone. |
| No. 27 The defendant has never entered intohad any rental agreement with his spouse norpaid her rent in order to continue to occupy thisresidence. | While Mr. Musgrave admitted on cross-examination that he does not pay his wife rentto live in their marital home (Tr., ECF No. 263,PageID 5869-70), this fact is immaterial. |
| No. 28 The residence's natural gas utilityaccount has always remained in thedefendant's name. | This proposed finding is supported theevidence and is hereby adopted. |
| No. 31 On or about November 16, 2016, thecouple jointly purchased a homeowner'sinsurance policy from Auto-Owners InsuranceCo. for said residence. | This proposed finding is supported theevidence and is hereby adopted. |
| No. 32 The defendant has routinely paid hiswife $2,600 a month from his Wright-PattCredit Union (WPCU) personal checkingaccount to help defray monthly residentialmaintenance expenses. | After paying his credit card and monthlyrestitution amounts, David Musgravecontributes approximately $2,600 per monthtoward the $13,000 total. The money is paid bycheck drawn on David Musgrave's Wright-PattCredit Union account and deposited intoBarbara Musgrave's Charlotte Metro CreditUnion account. After deduction of the amountspaid separately by David Musgrave (monthlyrestitution and credit card payment) and theamounts paid separately by Barbara Musgrave(mortgage, real estate taxes, propertyinsurance, homeowner's association fee, carloan, and legal fees), the Musgrave'sconsolidated monthly expenses totalapproximately $5,200. (Report, ECF No. 282,PageID 6417.) |
| No. 33 This $2,600 monthly payment isdeposited into Mrs. Musgrave's CharlotteMetro Credit Union (CMCU) checking accountfrom which she pays the residence's monthlyhousehold bills along with the $1,913.79 | Id. |
| monthly mortgage payment to Wells FargoBank. | |
| No. 34 On or about January 13, 2010, Mrs.Musgrave purchased and titled in her name a2008 Harley Davidson Model FLTRmotorcycle. | On January 13, 2010, Barbara Musgravepurchased and titled in her name a 2008 HarleyDavidson Model FLTR motorcycle. (Report,ECF No. 282, PageID 6417.) |
|---|---|
| No. 45 The couple jointly hold a motor vehicleinsurance policy on said vehicle from Auto-Owners Insurance Co. | The evidence supports a finding that both Pauland Barbara Musgrave are listed as insureds onthis policy (Tr. ECF No. 263, PageID 5879).Mr. Musgrave was unsure whether hecontributed to the premiums or not. Id. |
| No. 52 As of May 2017, the defendant iseligible to draw $1,140.70 in monthly socialsecurity retirement benefits. The defendanttestified he has no present intention of filingfor these benefits prior to turning 70 years ofage. | As of May 2017, David Musgrave is eligible todraw $1,140.70 in Social Security retirementbenefits, but testified he does not intend toapply for such benefits until reaching seventyyears of age. (Report, ECF No. 282, PageID6418.) |
| No. 53 The defendant further testified he isunwilling to contribute anything more than theminimum required amount of said benefitstoward restitution. | Defendant testified that he was willing to haveany Social Security benefits he may receiveincluded in the calculation of his income, butnot to contribute more of them towardrestitution than required by law because "Ihave to live." (Tr. ECF No. 264, PageID 5910.) |
| No. 59 Mrs. Musgrave's present version of herLast Will and Testament provides in a trustprovision, that her estate assets will be madeavailable to the defendant following her death. | "On April 17, 2017, Barbara Musgravechanged the listed beneficiary on her lifeinsurance policy from David Musgrave to herthree adult children. Soon thereafter David andBarbara Musgrave executed new wills withaccompanying irrevocable trusts. BarbaraMusgrave's will lists her three adult children asprimary beneficiaries of her estate." (Report,ECF No. 282, PageID 6418.) Susan Siglertestified that it was her understanding of theestate documents that, after Mrs. Musgrave'sdeath, Defendant would have her assetsavailable to him as well as any income thoseassets generated. (Tr., ECF No. 264, PageID6121.) |
| No. 62 Between 2013 and 2017, the defendantsignificantly reduced his pro rata portionof secured liabilities associated with his closelyheld businesses GMD Industries and M&MInvestments by in excess of $406,000. | This finding is supported by Ms. Sigler'stestimony and is hereby adopted. (See Tr.,ECF No. 264, PageID 6214.) |
Proposed Conclusions of Law
The parties were also ordered to file proposed conclusions of law. The Report states "the Magistrate Judge has included every proposition of law requested by any party which is supported by appropriate authority, without implication about their applicability." (ECF No. 282, PageID 6418-19.) The Government objects and seeks the inclusion in this Supplemental Report of its proposed conclusions of law 1, 6, 10, 12, 14, 16, 26, and 27 (Objections, ECF No. 283, PageID 6436). Rather than attempting to decide whether these eight abstract propositions of law are accurate, this Supplemental Report will analyze the parties' proposed applications of the law in the context of this case.
Analysis
At the time of the evidentiary hearing, the Government relied heavily on a "nominee" theory, to wit, that Barbara Musgrave held the assets the Government seeks to reach as David Musgrave's nominee, much as drug dealers' mothers and girlfriends hold title to their cars to prevent seizure (Post-Hearing Brief, ECF No. 278, passim). The Report rejected that theory, relying on Judge Marbley's analysis in United States v. Toler, 666 F.Supp.2d 872, 883 (S.D. Ohio 2009). In its Objections, the Government makes no attempt to resurrect the nominee theory, but switches to a claim that David Musgrave is the equitable owner of the assets in his spouse's name.
The Government's Objections begin with the historical distinction of courts of law and court of equity and contend "[t]he historical distinction between "law" and "equity" remains important today when the case involves such issues as "legal title" and an "equitable title," and these two groups of ownership rights may be held by different people." (Objections, ECF No. 283, PageID 6436.)
It follows this assertion by noting that in equity judges are the triers of fact. Id. But it also claims that the evidentiary hearing here is an equity proceeding, citing Drye, supra, and Willard v. Tayloe, 75 U.S. 557 (1869); McPherson v. Buick Motor Co., 217 N.Y. 382 (1916)(Cardozo, J.), and Judith Resnik, "Constricting Remedies: The Rehnquist Judiciary, Congress and Federal Power," Indiana Law Journal, Winter/Spring 2003, p. 250, note 139 (Objections, ECF No. 283, PageID 6437).
The cited authorities do not support the equitable ownership theory. In Drye the Supreme Court decided that, while state law allowed a person to disclaim an inheritance, federal law would determine whether that inheritance was "property" or a "right to property" within the meaning of the federal tax lien statute, 26 U.S.C. § 6321. Nothing in Drye suggests that the exercise of making that determination is one in equity; the word "equity" does not occur in the opinion.
Willard v. Tayloe stands for the unexceptionable proposition that the remedy of specific performance for breach of contract "is not a matter of absolute right to either party; it is a matter resting in the discretion of the court, . . . ." 75 U.S. at 565. But there is no breach of contract issue in this case. David Musgrave could not obtain a decree in equity forcing his spouse to transfer title to the marital residence to him. If the parties were to divorce, a domestic relations court, whose jurisdiction derives remotely from English Chancery, might compel some division of the value of the residence, but only on the basis of the marital relationship.
McPherson is Justice Cardozo's famous innovation signaling the end of the privity of contract requirement in breach of warranty of manufactured goods, but has no application here. Professor Resnik's article criticizes the Rehnquist Court's restrictions on federal judicial power, but says nothing about orders of restitution in criminal cases.
The Government then clearly discloses the nature of its claim: "The Government's theory remains that the defendant enjoys a de facto equitable ownership and/or controlling interest in certain family assets which are legally titled in his wife's name." (Objections, ECF No. 283, PageID 6437.) It argues the key concept under the Mandatory Victim Restitution Act is whether any assets are "jointly controlled," as distinguished from "jointly owned" or "lawfully controlled." Id. at PageID 6438.
The Report quotes the relevant statutory language as follows:
In formulating a restitution order the Court is required to consider:(ECF No. 282, PageID 6419, quoting 18 U.S.C. § 3664(f)(2).) The Government cites no case authority interpreting the "jointly controlled" phrase as applying to property owned by a spouse in her name alone which she allows a defendant to use, even at will.
(A) the financial resources and other assets of the defendant including whether any of these assets are jointly controlled;
(B) projected earnings and other income of the defendant; and
(C) any financial obligations of the defendant, including obligations to dependents.
The Report cites United States v. Dann, 652 F.3d 1160 (9 Cir. 2011), for the proposition that a restitution order may be enforced only against property that is the defendant's under the relevant state law. Because of their residence in both Ohio and North Carolina at relevant times, the Report found both States' laws were applicable, but the result is the same: both States protect the right of a woman to hold property, real and personal, in her own name. All of the assets the Government seeks to reach -- the couple's residence in Waxhaw, North Carolina; the 2016 Honda automobile; and the three Ameritrade investment accounts - have always been in Barbara Musgrave's name. As an intervenor, she proved to the Magistrate Judge's satisfaction that she purchased those assets with money from sources (employment and inheritance) that had always been her personally and never her husband's.
The Report concluded by recommending that the Court order Mr. Musgrave to pay $2,000 per month toward the restitution balance. The Objections contend "[t]he Report provides absolutely no analysis or rational [sic] explaining why this amount is either appropriate or otherwise justified by the evidence. . . ." (ECF No. 283, PageID 6438.) But that is the amount the District Judge previously ordered Defendant to pay on a monthly basis, the amount he has been paying, and the amount he concedes he can continue to pay. No evidence was offered of any improvement in his financial situation since the prior order was entered.
The Government's Objections criticize the Report for "discount[ing] the unrebutted expert testimony of Ms. Sigler wherein she opines 'there is no way Barbara Musgrave could have amassed the assets in her name without contribution from her husband.'" (ECF No. 283 quoting Report, ECF No. 282 at PageID 6425.) The Objections then recite a page and a half of documents Ms. Sigler testified she reviewed. Id. at PageID 6439-40.
Relying on Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), the Magistrate Judge found Ms. Sigler's conclusion unpersuasive because she offered no explanation, scientific or otherwise, of how her conclusion follows from the evidence she examined. Part of what the Supreme Court aimed at in this line of cases is the practice of "qualifying" someone as an expert and then letting them give an opinion which is not shown to be related to the evidence in the case. Ms. Sigler has much experience as a mortgage fraud investigator, but she is not and did not pretend to be a forensic accountant.
Conclusion
Based on the foregoing analysis, the Magistrate Judge again respectfully recommends that the Court enter a restitution order requiring David Musgrave to pay $2,000 per month and that the supersedeas bond be dissolved and the cash returned to Barbara Musgrave who posted it. January 9, 2018.
s/ Michael R. Merz
United States Magistrate Judge
NOTICE REGARDING OBJECTIONS
Pursuant to Fed. R. Civ. P. 72(b), any party may serve and file specific, written objections to the proposed findings and recommendations within fourteen days after being served with this Report and Recommendations. Such objections shall specify the portions of the Report objected to and shall be accompanied by a memorandum of law in support of the objections. If the Report and Recommendations are based in whole or in part upon matters occurring of record at an oral hearing, the objecting party shall promptly arrange for the transcription of the record, or such portions of it as all parties may agree upon or the Magistrate Judge deems sufficient, unless the assigned District Judge otherwise directs. A party may respond to another party's objections within fourteen days after being served with a copy thereof. Failure to make objections in accordance with this procedure may forfeit rights on appeal. See United States v. Walters, 638 F.2d 947, 949-50 (6th Cir. 1981); Thomas v. Arn, 474 U.S. 140, 153-55 (1985).