United States v. Sushil Sheth , 759 F.3d 711 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 13-2040, 14-1824, & 14-1980
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
SUSHIL A. SHETH,
Defendant-Appellant.
Appeals from the United States District Court for the
Northern District District of Illinois, Eastern Division.
No. 09 CR 69-1 — Rebecca R. Pallmeyer, Judge.
SUBMITTED APRIL 8, 2014* — DECIDED JULY 18, 2014
Before EASTERBROOK, ROVNER, and WILLIAMS, Circuit Judges.
PER CURIAM. Sushil Sheth, a cardiologist, pled guilty in 2009
to an information charging a single count of healthcare fraud.
See 18 U.S.C. § 1347. As agreed by Sheth, the district court
entered an order of criminal forfeiture for cash and investment
*
We have consolidated Sheth’s various appeals in this matter for our
review. After examining the briefs and the record, we have concluded that
oral argument is unnecessary. Thus the appeals are submitted on the briefs
and the record. See FED. R. APP. P. 34(a)(2)(C).
2 Nos. 13-2040, 14-1824, & 14-1980
accounts then valued at roughly $13 million plus real estate
and a vehicle. The government represented that the forfeited
assets represented the proceeds of Sheth’s fraud, which the
parties had calculated to be approximately $13 million. Sheth’s
plea agreement specifies that forfeited assets would be credited
against the amount of restitution, which the district court had
determined to be $12,376,310. In September 2012, however,
before the government had liquidated all of the forfeited assets
or disbursed any of the proceeds to the victims, it sought more
of Sheth’s assets to apply to restitution. Sheth objected, arguing
that the forfeited assets in the government’s possession were
enough to satisfy the order of restitution. Without resolving the
parties’ factual dispute, the district court ordered turnover of
the assets, which were held by third parties. Sheth filed an
appeal of that ruling, which was docketed as No. 13-2040. We
conclude that the court erred by ordering turnover of the assets
without first allowing for discovery and holding an evidentiary
hearing. We therefore vacate the court’s turnover orders and
remand for further proceedings. Sheth also has filed two more
appeals from later related rulings. Those appeals have been
docketed as Nos. 14-1824 and 14-1980, and consolidated with
the first appeal. On remand, the district court also should
address any properly raised issues related to those appeals.
The government learned of Sheth’s fraud in 2006, when one
of his colleagues brought a qui tam suit against him under the
False Claims Act, see 31 U.S.C. § 3730(b), and Illinois’s Whistle-
blower Reward and Protection Act, see 740 ILCS § 175/4(b). The
United States intervened in the suit and also initiated a
criminal investigation. Sheth’s plea agreement lists the prop-
Nos. 13-2040, 14-1824, & 14-1980 3
erty subject to forfeiture and provides “that any payments
made in satisfaction of the forfeiture judgment shall be credited
to any outstanding restitution judgment.” Contemporaneously
with Sheth’s sentencing in August 2010, a $20 million consent
judgment in favor of the United States was entered in the civil
suit. One of the terms of the civil settlement is that “[a]ny
amounts paid to the United States as criminal restitution in the
criminal case … against Sheth shall be credited against the”
$20 million civil judgment.
Six months after Sheth’s sentencing, the government had
not liquidated all of Sheth’s forfeited assets, and neither had
the government distributed any proceeds of liquidated assets
to the victims. Nonetheless, the government began
postjudgment proceedings under the existing criminal docket
number to discover other assets belonging to Sheth and to
collect those assets in satisfaction of the restitution amount.
See United States v. Lee, 659 F.3d 619, 620 (7th Cir. 2011) (ex-
plaining that district courts may entertain postjudgment
collection proceedings within underlying criminal case). The
government elected to use state collection procedures, as
permitted by federal law when collecting restitution. See 18
U.S.C. §§ 3664(m)(1)(A)(I), 3613(a), (f); United States v. Resnick,
594 F.3d 562, 565 (7th Cir. 2010). It served citations on ten
financial-services companies, see 735 ILCS § 5/2-1402(a),
informing those third parties about the order of restitution and
stating that $12,395,563 remained unpaid. (This is $19,253 more
than Sheth was ordered to pay in the restitution order.) The
service of such citations initiates supplementary proceedings
during which the court may compel a third party in possession
4 Nos. 13-2040, 14-1824, & 14-1980
of the judgment debtor’s assets to turn over the assets to the
judgment creditor to satisfy an unpaid judgment. See 735 ILCS
§ 5/2-1402(a)–(c); ILL. S. CT. R. 277(b); Dexia Crédit Local v.
Rogan, 629 F.3d 612, 622 (7th Cir. 2010); Workforce Solutions v.
Urban Servs. of Am., Inc., 977 N.E.2d 267, 275 (Ill. App. Ct. 2012).
The government received written answers from the third
parties and learned that five of them held assets belonging to
Sheth—four brokerage accounts and one 401(k) plan. At the
time the citations were served (April and May of 2011), the
total value of these assets was $281,102.
In September 2012—18 months after learning of these
accounts—the government asked the district court to order the
third parties to liquidate Sheth’s investments and turn over the
proceeds to the clerk of the court. The government stated in its
motion that Sheth owed $12,203,370 in restitution, with interest
accruing. (This amount is $192,193 less than the balance listed
on the citations and $172,940 less than the amount in the order
of restitution. These discrepancies are puzzling, since the
government had not yet distributed any funds to the victims.)
At a hearing in September 2012, Sheth’s lawyer requested that
the government provide an accounting of the assets that had
been forfeited. The government responded that it could say
“with some surety [sic]” that the United States Marshals
Service was holding $9 million in forfeited assets. The govern-
ment also stated that it intended to distribute that money to the
victims but that it wanted Sheth’s additional assets turned over
so that it could “know exactly how much money” it had before
distributing any funds to the victims. The court set a briefing
Nos. 13-2040, 14-1824, & 14-1980 5
schedule and ordered the government to provide an account-
ing of the forfeiture proceeds.
In January 2013 the government sent Sheth a two-page list
of the forfeited assets. The government’s lawyer asserted in an
e-mail to Sheth’s lawyer that the government held $9,989,320
of liquidated assets and additional, unliquidated assets that it
estimated to be worth $1.3 million—a total of approximately
$11.3 million. The government’s lawyer added, however, that
the unliquidated assets might actually be worth “substantially
less,” but he offered no basis for this conclusion or for the
stated valuation. The government’s lawyer further represented
in his e-mail that “the $12.2 million judgment remain[ed]
completely unsatisfied” because, “for some complicated
reason” that counsel did not articulate, the forfeited funds
could not be distributed to the victims before the turnover
orders were issued.
After receiving the government’s list of assets, Sheth
objected to the turnover motion. He argued that the govern-
ment’s valuation was incomplete and inaccurate because it did
not credit him for earnings on liquid assets (the government
had taken possession six years earlier of bank accounts valued
at $6.5 million) and did not include a valuation for several
forfeited assets. Sheth also insisted that he was entitled to a
detailed accounting and to documentation of the government’s
sale of certain assets, including real estate. Last, he contended
that, if the government’s valuation was correct, the government
held almost $10 million in assets, and his current restitution
balance was therefore approximately $2.5 million, not
$12.2 million as the government maintained.
6 Nos. 13-2040, 14-1824, & 14-1980
The government replied that Sheth’s arguments were
“merely speculation” and reassured the district court that it
should not be troubled by the possibility of over-collection
because any surplus would be applied to the $20 million civil
judgment. And, the government maintained, even if Sheth
satisfied the order of restitution and the civil judgment, the
government “could apply any further surplus to the defen-
dant’s $13 million forfeiture judgment, which remains unsatis-
fied because all the assets seized pursuant to the forfeiture
warrant in this case were applied to the restitution judgment.”
The government’s lawyer, though, did not identify what legal
authority would permit collecting the $13 million forfeiture
judgment twice, or how this collection argument could be
reconciled with the promise made in the plea agreement to
credit “any payments made in satisfaction of the forfeiture
judgment” against the order of restitution, which never
exceeded $12.4 million. Neither did the government’s lawyer
identify legal authority for his proposal to apply any surplus
against the civil judgment. The government did not deny that
the funds in its possession were accruing earnings but asserted,
again without citing authority, that it was not required to
credit any earnings to Sheth and that, in any event, “the issue
is not germane to the present motion.” The government also
stated that Sheth could not be credited the value of the
unliquidated assets and that—regardless of the total value of
the assets that the government was holding—the balance due
on the order of restitution would remain the full amount until
the government transferred the funds to the clerk of the court,
which it would not do until the resolution of the turnover
motion.
Nos. 13-2040, 14-1824, & 14-1980 7
The district court conducted another hearing on the
turnover motion in March 2013. Sheth’s lawyer requested that
the government be required to produce evidence to “back up”
its valuation. He argued that it was unfair for the government
to hold the assets for years while asserting that interest was
accruing on the entire amount of restitution. The government’s
response was that its two-page list of assets was an “extensive”
inventory and that Sheth’s arguments were irrelevant because,
but for the plea agreement, the government would not have
had to credit Sheth’s forfeited assets toward restitution and,
thus, Sheth could have been criminally liable for a total of more
than $25 million. The Illinois procedures governing these
supplementary proceedings require a court to resolve parties’
factual disputes through discovery and an evidentiary hearing.
See ILL. S. CT. R. 277(e) (stating that in proceedings under 735
ILCS § 5/2-1402, “[a]ny interested party may subpoena
witnesses and adduce evidence as upon the trial of any civil
action”); Dexia Crédit, 629 F.3d at 618–19; Workforce Solutions,
977 N.E.2d at 275–77. Instead, the judge ordered supplemental
briefing.
The government then gave Sheth documentation of the sale
of forfeited land in Arizona but provided no further evidence
in support of its valuation. Later, the government’s lawyer sent
Sheth’s lawyer another e-mail. The government had recently
liquidated some of the assets and, according to its lawyer, “the
most optimistic view” of the total value of the assets in the
government’s possession was now roughly $11.15 mil-
lion—$1.16 million more than the valuation the government
had provided only six months earlier. This total included two
8 Nos. 13-2040, 14-1824, & 14-1980
investments that Sheth had purchased for $550,000, which the
e-mail valued at the purchase price. The e-mail also showed
another investment that Sheth had purchased for $250,000,
which the e-mail valued at zero because, the government’s
lawyer asserted, that investment had “been deemed worth-
less.”
At the final hearing on the turnover motion, Sheth’s lawyer
again argued that the government’s valuation was “haphaz-
ard” and that still the government had not supplied substantia-
tion for its numbers. Sheth’s counsel also maintained that the
$20 million civil judgment was irrelevant because the govern-
ment had moved to collect under the Mandatory Victims
Restitution Act, see 18 U.S.C. § 3613(a), and thus the govern-
ment and the court had no right to bring the $20 million civil
judgment “into play.” The government responded that Sheth
was “only” losing $200,000 because this was “the only money
that the government found that wasn’t linked to his fraud.”
The judge granted the motion for turnover, concluding that she
had not “heard any basis upon which to sustain an objection”
to the motion. The judge reasoned that there was no point in
having another hearing because all of the money would
ultimately be “scooped up by the government” to satisfy the
$20 million civil judgment.
Three weeks later, Sheth filed a timely notice of appeal. See
FED. R. APP. P. 4(a)(1); Lee, 659 F.3d at 620–21. He then moved
for a stay of the turnover orders pending appeal, but by then
the third parties had liquidated and transferred the funds to
the clerk of the district court. The government agreed not to
distribute those funds—totaling $300,738 (approximately
Nos. 13-2040, 14-1824, & 14-1980 9
$20,000 more than when the government discovered the assets
two years earlier)—pending appeal. The government did,
however, move to transfer the funds it had obtained thus far
by liquidating the forfeited assets, $10,371,661 “plus any
interest that has accrued,” to the clerk for distribution to the
victims. (The government did not explain why it was now
requesting that the accrued interest be distributed to the
victims when previously it had maintained that the interest
earned would not be credited toward Sheth’s order of restitu-
tion.) The government attached an updated list of assets to its
motion, this time valuing the investments that Sheth had
purchased for $550,000—which the government still had not
liquidated—at zero. The court granted the motion.
On appeal, Sheth repeats the arguments he made below,
challenging the district court’s conclusion that there was no
point in resolving the parties’ factual dispute because his assets
not subject to forfeiture would eventually end up in the hands
of the government anyway. The government continues to insist
that Sheth’s objections to the turnover motion are baseless
because any amount it collects to satisfy the order of restitution
may be applied to either the $20 million civil judgment or the
$13 million forfeiture judgment.
The government’s contention—relied on by the district
court—that it can collect the $20 million civil judgment through
the provisions of the Mandatory Victims Restitution Act is
incorrect. In general, the Federal Debt Collection Procedures
Act “provides the exclusive civil procedures for the United
States … to recover a judgment on a debt.” 28 U.S.C. § 3001(a).
That Act states that other collection procedures may apply if
10 Nos. 13-2040, 14-1824, & 14-1980
“another Federal law supplies procedures for recovering on a
claim or a judgment for a debt arising under such law,” id.§ 3001(b), but the government has identified no other federal
law that governs the collection of the civil judgment in this
case. Sheth maintains that the disputed accounts cannot be
collected in satisfaction of the civil judgment because they are
retirement accounts that are protected by ERISA’s anti-alien-
ation provision. See 29 U.S.C. § 1056(d). The government
responds by stating that “‘retirement funds’ are not exempt
from a criminal judgment” (emphasis added). This statement is
correct but irrelevant. While we have recognized that the
Mandatory Victims Restitution Act supersedes anti-alienation
provisions so that retirement accounts may be used “as a
source of funds to provide restitution,” United States v. Hosking,
567 F.3d 329, 334 (7th Cir. 2009) (emphasis added), we did so
because the Act itself provides that, “[n]otwithstanding any
other Federal law … , a judgment imposing a fine may be
enforced against all property or rights to property of the
person fined,” 18 U.S.C. § 3613(a). The government provides
no legal authority stating that the civil judgment in favor of the
government can be collected notwithstanding ERISA’s anti-
alienation provision.
The government’s assertion that it could have seized the
five accounts in satisfaction of the $13 million forfeiture
judgment also is unconvincing. The five accounts at issue are
not listed in the forfeiture order. See 18 U.S.C. § 982(b)(1); 21
U.S.C. § 853(g). True, the sentencing judge is allowed “to make
the forfeiture order in personam rather than in rem, so that it
is a personal judgment against the defendant rather than a
Nos. 13-2040, 14-1824, & 14-1980 11
claim to specified assets.” United States v. Navarette, 667 F.3d
886, 887 (7th Cir. 2012); see United States v. Newman, 659 F.3d
1235, 1242–43 (9th Cir. 2011) (explaining that “a money
judgment is a proper form of criminal forfeiture”). But the
government identifies no authority that permits the use of the
Mandatory Victims Restitution Act to collect the balance due
on such a forfeiture judgment, and “[i]t is not the court’s
responsibility to research the law and construct the parties’
arguments for them.” Econ. Folding Box Corp. v. Anchor Frozen
Foods Corp., 515 F.3d 718, 721 (7th Cir. 2008). Perhaps the
government believes that the five accounts qualify as substitute
property, see id. § 853(p), but, if so, the government must obtain
an order of forfeiture or amend an existing order of forfeiture
to include the accounts. See FED. R. CRIM. P. 32.2(e); United
States v. Gordon, 710 F.3d 1124, 1165–66 (10th Cir. 2013); United
States v. Duboc, 694 F.3d 1223, 1226–27 (11th Cir. 2012).
The government also argues that the plea agreement is
silent about how Sheth’s property is to be divided between
restitution, forfeiture, and the civil judgment, and thus it is free
to first collect and apply other assets to the order of restitution
and only then pay off the balance due with forfeited assets.
What the government means by this, as far as we can tell, is
that honoring its plea agreement with Sheth is optional. “[W]e
interpret a plea agreement based on the parties’ reasonable
expectations and construe ambiguities against the government
as the drafter.” United States v. Munoz, 718 F.3d 726, 729 (7th
Cir. 2013). By the government’s logic, if the five accounts it
sought from the third parties had been worth $12.4 million
rather than approximately $300,000, the government could
12 Nos. 13-2040, 14-1824, & 14-1980
have seized those accounts, liquidated them, used the
$12.4 million to completely pay off the restitution judgment,
and simply kept the more than $10 million in proceeds from
forfeited assets. Rather than being a reasonable reading of its
plea agreement with Sheth, the government’s argument reads
out of the agreement its unambiguous promise “that any
payments made in satisfaction of the forfeiture judgment shall
be credited to any outstanding restitution judgment” (emphasis
added). Furthermore, the government’s contention that it
could hold the forfeited funds indefinitely until all of Sheth’s
other assets were collected is inconsistent with the right of
victims to “full and timely restitution as provided by law.” 18
U.S.C. § 3771(a)(6) (emphasis added); see U.S. DEP’T OF JUSTICE,
ATTORNEY GENERAL GUIDELINES FOR VICTIM AND WITNESS
ASSISTANCE 42 (2011).
Perhaps the government was worried that, if it did not seize
Sheth’s other assets as quickly as possible, he would attempt to
move them out of its reach. But this concern is easily ad-
dressed. The Illinois statute that the government used in its
collection efforts empowers the judgment creditor and the
court to prevent—by citation or injunction—a third party in
possession of the judgment debtor’s assets “from making or
allowing any transfer” or disposing of the assets. See 735 ILCS
§ 5/2-1402(f). Thus, the assets can be frozen until further order
of the court or the termination of the proceeding, whichever
occurs first. The proceedings do terminate automatically, but
the court can “grant extensions … as justice may require.” ILL.
S. CT. R. 277(f). Therefore, once the government initiated
Nos. 13-2040, 14-1824, & 14-1980 13
supplementary proceedings, it easily could have ensured that
Sheth’s assets stayed put.
The government also argues that, for purposes of determin-
ing the balance due on Sheth’s restitution judgment, the value
of Sheth’s unliquidated forfeited assets is irrelevant. The
government relies on United States v. Robers, 698 F.3d 937 (7th
Cir. 2013), aff’d, --- S. Ct. ---, 2014 WL 1757835 (May 5, 2014), in
which a defendant argued that the sentencing court was
required to reduce the amount of his criminal restitution order
by the fair market value of real estate collateral that he had
given to the victims. Id. at 939. We rejected that argument,
stating that “what matters is when at least part of the cash was
returned to the victims.” Id. at 942. But Robers dealt with 18
U.S.C. § 3663A(b)(1), which provides the method for calculat-
ing the victims’ loss at sentencing. Thus, our conclusion in that
case was based on the “plain language of the statute.” Robers,
698 F.3d at 942. We said nothing about how properly to
determine the balance due on an order of restitution when, as
here, a defendant asserts during postjudgment proceedings
that the government is over-collecting. The other case that the
government relies on, United States v. Shah, 665 F.3d 827, 837
(7th Cir. 2011), also deals with defendants who disputed “that
restitution was computed correctly at the time their sentences
were imposed.” In that case, we determined that the stocks the
defendant had given to the government before judgment were
security—not payment—for his undetermined restitution
obligation and thus the defendant bore the loss for the securi-
ties’ decline in value. The government does not explain why
Robers and Shah are relevant here.
14 Nos. 13-2040, 14-1824, & 14-1980
Nor can we rely on the government’s assurances that Sheth
was not harmed because the forfeited assets are $2 million
short of satisfying his restitution obligation. The government
still holds unliquidated investments of undetermined value. It
could be that these investments are, as the government asserts,
worth far less than $2 million. But the list of assets provided by
the government shows that some of Sheth’s investments were
liquidated at five times what Sheth paid for them. Even credit-
ing the government’s assertion that one of Sheth’s unliquidated
investments is a total loss, the government is still in possession
of investments that Sheth purchased for $550,000. It is at least
possible that these investments are worth substantially more
than what he paid.
But this is a factual dispute that the district court, after
allowing for discovery, should have resolved before ruling on
the turnover motion. The government elected to enforce the
restitution judgment in accordance with Illinois law. See 18
U.S.C. § 3613(a). And under Illinois law, Sheth was entitled to
discovery and an evidentiary hearing when he asserted a
defense to the government’s collection effort. See ILL. S. CT. R.
277(e); Dexia Crédit, 629 F.3d at 618–19; Workforce Solutions, 977
N.E.2d at 275–77. Sheth did not stipulate to the facts or waive
his right to discovery or an evidentiary hearing. See Workforce
Solutions, 977 N.E.2d at 277. To the contrary, at every stage of
the supplemental proceedings, he demanded more evidence
and insisted that the government could not back up its valua-
tion. Thus, the district court erred by resolving these disputes
on the briefs.
Nos. 13-2040, 14-1824, & 14-1980 15
Accordingly, we VACATE the turnover orders and RE-
MAND to the district court for further proceedings consistent
with this opinion. The disputed funds must remain with the
clerk of the court until the district court resolves the parties’
factual disputes and determines whether Sheth is entitled to
any further relief. We withhold judgment on the other issues
that Sheth has raised in his consolidated appeals, including the
denial of his motion requesting appointed counsel and the
district court’s grant of a judicial deed to Anita Sheth. We
return the entire matter to the district court, noting that it also
should address any further issues that Sheth has properly
raised.