The opinion of the court was delivered by: Monti L. Belot United States District Judge
The following are before the court: Motion to Quash by Garnishee (Doc. 292); Report and Recommendation of U.S. Magistrate Judge (Doc. 319); Defendant Rodney Jones' Motion for Reconsideration of Defendant's Objection to Garnishment (Doc. 332); United States' Response (Doc. 334); and Defendant's Reply (Doc. 335).
This matter involves a writ of garnishment directed to defendant's former spouse, Alanna Jones (hereinafter "Garnishee"). The dispute turns on whether at the time of garnishment defendant retained an interest in $80,000 he previously transferred to Garnishee. The funds were intended as pre-payment of defendant's child support obligations. Defendant objected to the garnishment on that basis.
The matter was referred to U.S. Magistrate Judge Kenneth G. Gale, who issued a report recommending that the court overrule defendant's objection and enter judgment against the garnishee for $80,000. Defendant now moves for "reconsideration," which the court construes as a timely objection to the Magistrate's Report and Recommendation.*fn1 I Summary of Report and Recommendation
Defendant and Garnishee were divorced in 2006. The divorce decree obligated defendant to pay monthly child support of $1,363 for the benefit of the couple's minor child.
In early 2010, defendant learned that he was under criminal investigation relating to improper sales of athletic tickets at the University of Kansas. Defendant and Garnishee became concerned about defendant's future ability to work and pay child support. As a result, on July 12, 2010, defendant transferred to Garnishee the sum of $70,000 by personal check. On December 9, 2010, he transferred an additional $27,000. The money was taken out of defendant's employment-related individual retirement account. Defendant and Garnishee considered $96,000 of this sum to be a prepayment of child support for eight years (the anticipated length of defendant's child support obligation) at $1,000 per month. The remaining $1,000 was a gift from defendant's parents to the minor child.
Defendant and Garnishee submitted an agreed journal entry to the Johnson County District Court, the court with jurisdiction over their divorce proceeding. The journal entry cited the "looming uncertainties" in defendant's future and provided that, as of August 1, 2010, the parties agreed to modify child support to payments of $1,000 per month, with a prepaid lump sum of $70,000 to be made by defendant and credited against his obligation. The order was entered by a Johnson County District Court judge on December 21, 2010. (Garnishee contends she and defendant's attorney signed the journal entry in August of 2010; she says it is unclear why it was not signed by the judge until December 2010.) Total payments of $96,000 were processed through the state court as child support by Garnishee.*fn2
Defendant was indicted on November 17, 2010. The indictment included a forfeiture allegation seeking a money judgment of between $3 million and $5 million. Defendant pled guilty and executed a plea agreement on January 14, 2011. The agreement required him to cooperate with the United States in the disclosure of assets and to not transfer or dispose of assets without approval of the U.S. Attorney's Office. A forfeiture judgment was entered against defendant for $2 million on February 10, 2011. (Doc. 62). Criminal judgment was entered on April 5, 2011, and was amended on May 20, 2011 (Docs. 86, 138). Restitution was ordered in excess of $1.3 million in addition to the forfeiture judgment. As of April 5, 2012, there was due and owing the sum of $1,111,406.02 on the restitution judgment.
An Assistant U.S. Attorney subsequently advised Garnishee's attorney that the United States believed the payments to Garnishee were "fraudulent transfers" within the meaning of the law and were subject to being voided and applied to defendant's restitution obligation. Following negotiations, Garnishee determined she would settle the matter with the United States.
As a result, on November 14, 2011, Garnishee filed a motion asking the Johnson County District Court to vacate its December 21, 2010 order for pre-payment of child support. The motion explained the situation with the U.S. Attorney's Office and its contention that the payments were fraudulent transfers. A certificate of service stated that the motion was served on defendant's attorney by email. A hearing was held on November 17, 2011, attended by Garnishee and her attorney. The state court granted the motion, entering an order vacating the December 21, 2010 order and reinstating defendant's prior child support obligation. The order included a statement that defendant did not appear at the hearing but had been given notice of the motion and hearing through his former counsel prior to counsel's withdrawal from the case. (Doc. 272-13).
Judge Gale found from evidence presented to him "that Garnishee attempted to serve [defendant's] attorney, but that [defendant] did not receive actual notice of the motion or the November 17, 2011, hearing." (Doc. 272 at 5).
Once the state court vacated its December 21, 2010 order, Garnishee notified the United States that in her opinion the funds belonged to defendant. The United States accordingly applied for and was issued the writ of garnishment, which was served on December 14, 2011. Garnishee answered on December 22, 2011, stating that she had custody or control of $80,000*fn3 belonging to defendant.
Defendant filed a pro se letter on January 9, 2012, objecting to the garnishment and requesting a hearing. He stated that the funds in question had been paid to Garnishee as child support.
On March 5, 2012, Garnishee filed an amended motion asking the Johnson County District Court to (again) vacate its December 21, 2010 order for pre-payment of child support. This amended motion was prompted by defendant's claim in the instant proceeding that he never received ...