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United States v. Henricks

United States Court of Appeals, Seventh Circuit

March 27, 2018

United States of America, Plaintiff-Appellee,
John E. Henricks, III, Defendant, Appeal of: Catherine Henricks.

          Argued February 8, 2018

          Appeal from the United States District Court for the Western District of Wisconsin. No. 13-cr-00083 - Barbara B. Crabb, Judge.

          Before Flaum, Easterbrook, and Manion, Circuit Judges.


         John Henricks (Henricks) pleaded guilty to mail fraud and was sentenced to imprisonment and ordered to pay restitution. Henricks's wife, Catherine, (Ms. Henricks) entered an appearance as an interested person in Henricks's criminal case. The district court determined the parties' interests in various property so that Henricks's property could be directed toward restitution to his victims. Ms. Henricks appeals, arguing that the district court did not have jurisdiction to decide the parties' property interests in Henricks's criminal case, violated her due process rights by not allowing her an opportunity to present her case, and improperly determined the parties' interests in particular property. In so far as the district court had jurisdiction to determine the parties' property interests in the criminal case and did not violate Ms. Henricks's due process rights, we affirm. How ever, because the district court relied upon post-judgment conduct instead of determining the parties' property interests as of the date of the judgment lien, we vacate the district court's property-interest determination and remand for further proceedings.

         I. Background

         John Henricks owned a towing business, an auto body shop (Custom Collision), and a recreational vehicle dealership. He used those businesses to defraud insurance companies by filing fraudulent claims. Henricks's wife, Catherine, worked at some of these companies sporadically and was an officer of two of them and a member of the other. Ms. Henricks also opened bank accounts, applied for credit cards, and signed loan documents on behalf of the companies.

         On August 14, 2013, Henricks pleaded guilty to one count of mail fraud. Instead of immediately beginning to make restitution as required by his plea agreement, Henricks began to hide assets. Because of these activities, the district court denied Henricks a sentencing reduction for acceptance of responsibility. On January 9, 2014, he was sentenced to 121 months' imprisonment and ordered to pay $1, 306, 608.72 in restitution. The judgment was entered the next day.[1] Less than two weeks later, Ms. Henricks filed for divorce.

         On May 2, 2014, a writ of execution was issued directing the U.S. Marshals Service to take possession of personal property at the couple's home and at AJ's Auto Body, a business that the couple set up in Ms. Henricks's name after Henricks was indicted. Four days later, Ms. Henricks filed a voluntary Chapter 7 bankruptcy petition. On May 7, the Marshals secured property associated with the Henrickses' businesses in accordance with the writ of execution.

         On May 20, Ms. Henricks filed an appearance as an interested person in her husband's criminal case because she claimed an interest in various property that was potentially subject to Henricks's restitution order. Ms. Henricks also filed a notice of the bankruptcy automatic stay, a response to the clerk's notice of execution, and a motion for a stay of execution. A little over two weeks later, the district court ordered the parties to brief whether the bankruptcy stay halted the government's restitution collection efforts, whether the marital estate had been unjustly enriched by Henricks's criminal activities, and, if so, whether Ms. Henricks was entitled to a full half of the marital assets.

         On November 20, 2014, the government filed a motion for a default finding for relief pursuant to 18 U.S.C. § 3613A and resentencing pursuant to 18 U.S.C. § 3614 on the grounds that Henricks willfully defaulted on his restitution payments. In its motion, the government requested that the district court order Henricks to pay restitution using various property, including the assets of AJ's Auto Body, Ms. Henricks's retirement account, and the Henrickses' 2013 federal income tax refund.

         Ms. Henricks filed an objection to the government's motion for restitution default and resentencing, specifically objecting to the property the government sought to apply to Henricks's restitution, and requested a hearing on the motion. On January 7, 2015, the district court granted Ms. Henricks's motion for a stay of the writ of execution stating that "it would be premature to decide the extent to which the government is entitled to seize Ms. Henricks's property" until the bank ruptcy court lifted the automatic stay. United States v. Henricks, 2015 WL 106160, at *1 (W.D. Wis. Jan. 7, 2015). In that same order, the district court scheduled an evidentiary hearing on the government's restitution default and resentencing motion for April 16, 2015.

         Also on January 7, Ms. Henricks received her discharge from the bankruptcy court. She then filed a complaint for an adversary proceeding in the bankruptcy court, alleging that the government violated the automatic stay by continuing to keep property it locked in buildings on AJ's Auto Body property on May 7, 2014.

         On April 16, 2015, the district court held a hearing on the government's motion for default and resentencing. Because neither Ms. Henricks nor her attorney was present, the district court deferred resolving the government's property claims for restitution. The district court found Henricks defaulted on his restitution payments. It found that Henricks and Ms. Henricks worked together before and after Henricks's January 9, 2014 sentencing to hide or shelter assets from restitution. The court also found that the couple's divorce, the property settlement of which was entered on February 10, 2015, was a sham to divert assets from restitution. In making this finding, in addition to the ...

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