SEC v. Fonecash Inc ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
SECURITIES AND EXCHANGE )
COMMISSION, )
)
Plaintiff, )
)
v. ) Civil Action No. 02-cv-651 (RMC)
)
FONECASH, INC. & DANIEL E. )
CHARBONEAU, )
)
Defendants. )
)
MEMORANDUM OPINION
The Securities and Exchange Commission, through the Department of Treasury and
Pioneer Credit Recovery, Inc., a private collection agency, is attempting to collect $20,635.43 from
Daniel E. Charboneau, which is the current value of a civil monetary penalty imposed in 2004 as a
result of securities violations to which he admitted. Mr. Charboneau, proceeding pro se, asks the
Court to review the Commission’s collection action under the jurisdiction the Court retained “for
all purposes.”1 Mr. Charboneau seeks the elimination or reduction of the civil penalty as well as the
elimination or reduction of interest on the penalty. The Commission responds that he cannot now
modify or amend the judgment against him and that the post judgment interest is mandatory. While
the Commission is correct on these points, it did not provide Mr. Charboneau adequate notice of its
intent to use the Department of Treasury Offset Program (“TOP”) to obtain payment. While the
Commission asserts that it sent notice to Mr. Charboneau’s last known address, he had updated the
1
The Court retained jurisdiction over the settlement in this case. See Order [Dkt. # 59].
docket with a new address, which the Commission ignored. The notice was, therefore, infirm and
cannot be relied upon by the Commission.
I. FACTS
This Court entered summary judgment in favor of the Securities and Exchange
Commission and against Mr. Charboneau on November 15, 2004, finding that he engaged in
securities fraud. See Mem. Op. [Dkt. # 60]. The accompanying order assessed a penalty in the
amount of $10,470.30. See Order [Dkt. # 59]. By Revised Order dated December 20, 2004, the
Court denied the Commission’s motion for a disgorgement remedy because Mr. Charboneau has
already been ordered “to pay a fine equal to that which would be disgorged and that, in his penurious
circumstances, ordering the equitable remedy of disgorgement on top of the fine and injunctions is
not necessary or appropriate.” Revised Order [Dkt. # 64]. The Revised Order, which was the final
order of judgment in this case, indicated that the monetary penalty was payable within 45 days after
the Revised Order was issue. Id. at 4. The Court noted that Mr. Charboneau was then “a prisoner
at the Federal Correction institution in Otisville, where he [was] serving a sentence for securities
fraud.” Id. at 2.
Mr. Charboneau filed a Motion for Review on February 22, 2011, asking the Court
to review the Revised Order, the final order of judgment in this case. See Mot. for Review [Dkt.
# 67]. He explained that he was serving a prison sentence between January 20, 2004 — when the
penalty became due under the Court’s order — and November 14, 2005. While in prison, he earned
only a prison salary of $89 per month. By the time he was released, his family had moved from
White Plains, New York to Watertown, Massachusetts. After leaving prison, Mr. Charboneau began
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receiving Social Security benefits2 and began working. He was laid off in 2006, and he has been
unable to obtain a job since then. His unemployment benefits expired in March of 2010. In
December of 2010, Mr. Charboneau received a collection letter from Pioneer, attempting to collect
the penalty of $10,470.30 plus post judgment interest — in the total amount of $20,635.43.
Mr. Charboneau sent a letter to Pioneer challenging the interest calculation and
asserting that repayment of the penalty and interest was impossible due to his lack of income and
assets. Pioneer responded, indicating that it needed a financial statement in order to present Mr.
Charboneau’s plea for reduction or elimination of the debt. Mr. Charboneau sent the statement, but
Pioneer rejected it because it was not signed by Mr. Charboneau’s spouse. Mr. Charboneau has not
paid Pioneer. It does not appear that Pioneer has presented any request for deferment or reduction
on Mr. Charboneau’s behalf.
Then, starting on February 4, 2011, the Commission used TOP to reduce the Social
Security benefits deposited into Mr. Charboneau’s account. Mr. Charboneau’s monthly benefit was
reduced by $159 for repayment of the penalty and interest due in this case. The Commission had
sent Mr. Charboneau notice on July 14, 2006, regarding its right to collect the debt through TOP.
See Mot. for Review [Dkt. #67], Att. E (Letter from Commission). The letter warned that the
Commission could collect the debt by offsetting a percentage of any federal payments to Mr.
Charboneau, including social security benefits. Id. at 1-2. The notice stated that Mr. Charboneau
had the right to pay the debt in full, agree to a payment plan, or request a review of the amounts
owed. Id. at 2-3. It also notified Mr. Charboneau that post judgment interest could be charged
pursuant to 28 U.S.C. 1961(a). Id. at 4.
2
As of January 2011, Mr. Charboneau was 79 years old.
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However, Mr. Charboneau did not receive the notice in 2006. The Commission sent
it to his White Plains address, despite the fact that in 2004, Mr. Charboneau had filed a notice of
change of address with the Court, providing his address in prison. See Notice of Change of Address
[Dkt. # 45]. In 2006, Mr. Charboneau was no longer in prison, but he also no longer lived in White
Plains. He and his family had moved from White Plains to Watertown.
Mr. Charboneau now requests that the Court review the judgment, as he seeks
elimination or reduction of the monetary penalty and post judgment interest.3
II. STANDARD OF REVIEW
Federal Rule of Civil Procedure 60(b) provides for motions for relief from a judgment
or order due to: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered
evidence; (3) fraud, misrepresentation, or other misconduct; (4) void judgment; (5) satisfied,
released, or discharged judgment; or (6) “any other reason justifying relief from the operation of the
judgment.” Fed. R. Civ. P. 60(b). Motions under Rule 60(b) must be filed within a reasonable time,
and for reasons (1), (2), and (3), no more than one year after entry of the judgment.
The catch-all provision, Rule 60(b)(6), gives courts discretion to vacate or modify
judgments when it is “appropriate to accomplish justice,” Klapprott v. United States, 335 U.S. 601,
614-15 (1949), but it should be applied only in extraordinary circumstances, Kramer v. Gates, 481
F.3d 788, 791 (D.C. Cir. 2007) (citing Ackermann v. United States, 340 U.S. 193, 199 (1950)).
“Rule 60(b)(6) ‘should be only sparingly used’ and may not ‘be employed simply to rescue a litigant
3
Mr. Charboneau also moved to amend his motion to alter judgment and moved to join
additional parties in this case. See Mot. to Amend Mot. to Alter J. and for Joinder [Dkt. # 70]. The
request to amend the motion to alter judgment will be granted. The motion to join additional parties
will be denied as moot, because Mr. Charboneau later withdrew the motion for joinder. See Def.’s
Reply [Dkt. # 73] at 1-2.
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from strategic choices that later turn out to be improvident.’” Kramer, 481 F.3d 792 (quoting Good
Luck Nursing Home, Inc. v. Harris, 636 F.2d 572, 577 (D.C. Cir. 1980)). Relief under Rule 60(b)(6)
“is not available unless the other clauses, (1) through (5), are inapplicable.” Goland v. CIA, 607 F.2d
339, 372-73 (D.C. Cir. 1979). The party seeking relief from judgment bears the burden of proof.
Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 383-84 (1992); accord Mazengo v. Mzengi, 542
F. Supp. 2d 96, 100 n.3 (D.D.C. 2008).
III. ANALYSIS
While Mr. Charboneau does not allege that Rule 60(b) applies, he seeks to alter the
judgment and Rule 60(b) serves as the means for doing so. Even so, Mr. Charboneau has not borne
his burden of proof. He has not shown mistake; newly discovered evidence; fraud,
misrepresentation, or other misconduct; that the judgment is void, satisfied, released, or discharged;
or that there is any other extraordinary reason to justify relief from the operation of the judgment.
Moreover, the motion for review is untimely under Rule 60(b). Mr. Charboneau filed his motion
for review in 2011 — more than six years after the 2004 Revised Order was entered — which is an
unreasonably long time after the entry of the judgment. The monetary penalty will not be reduced
or eliminated, and the motion to alter the judgment will be denied.
With regard to post judgment interest, Mr. Charboneau complains that he was not
previously notified that post judgment interest could be assessed. However, Mr. Charboneau has
been on notice of the penalty since the Revised Order was entered on December 20, 2004, and the
Commission is entitled to post judgment interest as a matter of law. 28 U.S.C. 1961(a) provides that
“interest shall be allowed on any money judgment in a civil case recovered in district court.” Thus,
civil litigants who win money judgments are entitled to post judgment interest. “This statute has
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been interpreted to mean that once a judgment is obtained, interest thereon is mandatory without
regard to the elements of which that judgment is composed.” Laffey v. Northwest Airlines, Inc., 740
F.2d 1071, 1103 (D.C. Cir. 1984) (citing Perkins v. Standard Oil Co., 487 F. 2d 672, 675 (9th Cir.
1973)). Ignorance of the law does not excuse Mr. Charboneau of his obligation to pay the legally
mandated post judgment interest. See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA,
130 S. Ct. 1605, 1611 (2010) (mistake or ignorance of law is no defense); see also Mitchell v. C.I.R.,
292 F.3d 800, 803-04 (D.C. Cir. 2002) (taxpayer’s ignorance of the tax consequences of income
received is no defense to the obligation to pay taxes). The Commission is entitled to collect post
judgment interest.
While the motion to alter the judgment (and the corresponding obligation to pay the
penalty and interest) lacks merit, Mr. Charboneau did not receive proper notice of the Commission’s
intent to utilize TOP to collect the debt. The statute that governs TOP requires prior notice to the
debtor:
(a) After trying to collect from a person under [31 U.S.C. § 3711], the
head of an . . . agency may collect the claim by administrative offset.
The head of the agency may collect by administrative offset only after
giving the debtor –
(1) written notice of the type and amount of the claim, the intention
of the head of the agency to collect the claim by administrative offset,
and an explanation of the rights of the debtor under this section;
(2) an opportunity to inspect and copy the records of the agency
related to the claim;
(3) an opportunity for a review within the agency of the decision of
the agency related to the claim; and
(4) an opportunity to make a written agreement with the head of the
agency to repay the amount of the claim.
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31 U.S.C. § 3716(a); see also 17 C.F.R. § 204.4. On July 14, 2006, the Commission sent the notice
indicating that it intended to seek collection of the judgment through TOP, but it sent the notice to
Mr. Charboneau at his address in White Plains, ignoring the change of address that Mr. Charboneau
had filed on this docket in 2004. See Notice of Change of Address [Dkt. # 45]. The Commission
argues that it complied with the notice requirement by sending the notice to Mr. Charboneau’s last
known address. See Omegbu v. Dep’t of Treasury, 118 Fed. Appx. 989, 991 (7th Cir. 2004) (notice
of the intent to collect a debt via the reduction of social security payments through TOP was
sufficient when it was mailed to the debtor’s last know address). However, Mr. Charboneau had
filed a change of address with the Court, providing his address in prison. Thus, the White Plains
address was not Mr. Charboneau’s last known address, and the Commission’s notice regarding TOP
was insufficient and not in accord with the statute or regulations. The Commission will be required
to cease its utilization of TOP and, within 60 days of the Court’s Order, reimburse Mr. Charboneau
for monies wrongfully seized. If the Commission wishes to utilize TOP, it will have to start anew
with proper notice to Mr. Charboneau.
Mr. Charboneau also complains that the outstanding obligation to pay penalty and
interest is simply unfair because he lacks sufficient means to pay the debt. 31 U.S.C. 3711(a)
permits the head of an agency to compromise or suspend collection of a debt as follows:
The head of an . . . agency –
(1) shall try to collect a claim of the United States Government for
money or property arising out of the activities of, or referred to, the
agency;
(2) may compromise a claim of the Government of not more than
$100,000 (excluding interest) or such higher amount as the Attorney
General may from time to time prescribe that has not been referred to
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another executive or legislative agency for further collection action,
...;
(3) may suspend or end collection action on a claim referred to in
clause (2) of this subsection when it appears that no person liable on
the claim has the present or prospective ability to pay a significant
amount of the claim or the cost of collecting the claim is likely to be
more than the amount recovered.
31 U.S.C. § 3711(a).4 Mr. Charboneau says that the Commission has been unable to collect from
him because he has no ability to pay. The Commission has failed to respond to this allegation.
Accordingly, the Commission will be required to file a notice setting forth the procedures for
requesting a compromise, suspension, or end to debt collection due to inability to pay.
IV. CONCLUSION
Mr. Charboneau’s motion for review [Dkt. # 67], seeking to alter or amend the
judgment and post judgment interest, will be denied. However, because the Commission failed to
provide proper notice of its intent to utilize TOP, the offset of Mr. Charboneau’s social security
4
The corresponding regulation similarly provides that an agency may terminate collection
activity when:
(1) The agency is unable to collect any substantial amount through its
own efforts or through the efforts of others;
(2) The agency is unable to locate the debtor;
(3) Costs of collection are anticipated to exceed the amount
recoverable;
(4) The debt is legally without merit or enforcement of the debt is
barred by any applicable statute of limitations;
(5) The debt cannot be substantiated; or
(6) The debt against the debtor has been discharged in bankruptcy.
31 C.F.R. § 903.3.
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benefits shall cease immediately, and, within 60 days of the Order that accompanies this Opinion,
the Commission shall reimburse Mr. Charboneau for monies wrongfully seized. Further, no later
than July 27, 2011, the Commission shall file a notice setting forth the procedures that a debtor must
follow to request a compromise, suspension, or end to debt collection due to alleged inability to pay.
A memorializing Order accompanies this Memorandum Opinion.
Dated: July 6, 2011 /s/
ROSEMARY M. COLLYER
United States District Judge
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