SEC v. Fonecash Inc

• Court: District Court, District of Columbia
• Decided: July 6, 2011
• Docket: Civil Action No. 2002-0651
• Status: Published

Opinion

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

-2- 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.

-3- 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.

-4- 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

-5- 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.

-6- 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

-7- 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.

-8- 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

-9-