United States District Court, D. Nebraska
Michael D. Nelson, United States Magistrate Judge
matter is before the Court on Defendants' motion to quash
the prejudgment writ of garnishment issued ex parte
by this Court for Defendants' investment account at
Waddell & Reed. (Filing No. 154 in the Lead
Case). A hearing on the motion pursuant to 28
U.S.C. § 3101(d)(2) was held before the undersigned
magistrate judge on September 6, 2018. In addition to
the briefs and evidence submitted prior to the hearing,
(Filing Nos. 155, 156, 159, 161, 162), the parties also
submitted post-hearing briefs and evidence, (Filing Nos. 172,
177, 180, 181). A transcript (TR.) of the hearing was
prepared and filed on September 16, 2018. (Filing No. 170).
After careful consideration of the parties' arguments and
evidence, the Court will grant Defendants' motion to
quash because the undersigned concludes that there are
adequate remedies alternative to prejudgment garnishment that
will protect the United States' interests.
recounted by the Court in several previous orders, the United
States and the State of Nebraska filed these actions to
recover their respective portions of a judgment awarded
against Stabl Inc. (“Stabl”) in a prior action as
civil penalties for violations of the Clean Water Act
(“CWA”) and Nebraska Environmental Protection Act
(“NEPA”). See United States of America et al.
v. Stabl, Inc. f/k/a Nebraska By-Products, Inc., No.
8:11CV274. The United States and the State filed that action
against Stabl on August 10, 2011, for violations of the CWA
and NEPA, and, following a bench trial, on January 31, 2014,
the Court entered a judgment against Stabl “in the
amount of $2, 285, 874, payable to the Plaintiffs and to be
divided equally between them, ” which judgment was
affirmed by an Eight Circuit mandate issued October 21, 2015.
(Filing Nos. 157 and 175 in No. 8:11CV274). Stabl has paid
nothing towards the judgment.
United States and State allege that, beginning in August
2006, defendant Leon Johnson, the owner of Stabl, was
notified by the Nebraska Department of Environmental Quality
(“NDEQ”) that Stabl was not in compliance with
the CWA and NEPA. Between 2006 and 2010, the NDEQ and
Environmental Protection Agency (“EPA”) took
steps to enforce Stabl's compliance with the CWA and
informed Johnson of penalties for noncompliance. In July
2010, Stabl was notified by the United States Department of
Justice of a potential civil enforcement action pursuant to
the CWA, including monetary penalties owed by Stabl in the
amount of $2, 883, 414. (Filing No. 131-2 at p. 28). The
United States alleges that, five days later, on July 13,
2010, Stabl transferred almost of all of its assets,
approximately $8 million, to defendants Leon and Ann Johnson,
via three wire transfers. (Filing No. 47).
26, 2016, the United States filed this action against Stabl,
its holding company, Lant, Inc., and the Johnsons
individually, alleging that the July 2010 wire transfers were
fraudulent under the Federal Debt Collection Practices Act
(“FDCPA”). The United States later added one claim
entitled “Piercing Stabl's Corporate Veil” in
its Amended Complaint. The State filed this action on July
15, 2016, asserting one claim for fraudulent transfers under
the Nebraska Uniform Fraudulent Transfer Act
discovery in these cases, on June 21, 2018, the United States
filed an Ex Parte Application for Prejudgment Writ of
Garnishment pursuant to 28 U.S.C. §§ 3101 and 3104,
seeking to garnish funds owned by defendants Leon and Ann
Johnson to satisfy the 2014 judgment. (Filing No. 129). The
United States provided the Affidavit of Joan K. Meyer and
Daniel Leistra-Jones in support of its ex parte application.
(Filing No. 131-1). Upon review of the United States' Ex
Parte Brief (Filing No. 130), Ex Parte Index of Evidentiary
Material (Filing No. 131), and Ex Parte Supplementary Index
of Evidentiary Material (Filing No. 135), the Court found
that the application had merit and entered an Order (Filing
No. 136) granting the United States' motion and directing
the Clerk of Court to issue the prejudgment writs of
garnishment (Filing No. 129-1) as requested by the
9, 2018, the prejudgment writs of garnishment were issued to
the Johnsons' accounts at Edward Jones (Filing No.
137) and Waddell & Reed (Filing No. 138). The funds
in Johnsons' two brokerage accounts with Edward Jones,
one containing an estimated total market account value of
$92, 470.49, and the other containing an estimated total
market account value of $1, 046, 880.30, were garnished.
(Filing No. 140). Waddell & Reed froze the assets in the
Johnson's investment account with a net asset value of
$3, 395, 924.70. (Filing No. 141).
received notice of the above filings and prejudgment writs on
July 18, 2018, and thereafter filed an objection and
requested that the Court set a hearing and a deadline to file
a motion to quash the prejudgment writs. (Filing No.
142). After a telephonic hearing with the Court, the
parties met and conferred and agreed to dismiss the
prejudgment writ as to the Edward Jones accounts. (Filing
Nos. 150 and 151). Defendants have now moved to quash the
remaining prejudgment writ to Waddell & Reed, the
Court's sealed order for prejudgment writ, and the United
States' application for prejudgment writ. (Filing No.
objected to the prejudgment writ on several grounds. First,
Defendants assert that the procedure utilized by the United
States violated the Due Process Clause of the Fourteenth
Amendment of the U.S. Constitution and did not comply with
the requirements set forth in 28 U.S.C. §§
3301-3407. Next, Defendants assert that the United States
improperly garnished funds in excess of the entire underlying
judgment against Stabl, and also improperly garnished funds
on behalf of the State. Defendants further argue that the
garnished funds are solely owned by parties other than Stabl,
which is the only judgment debtor. Defendants additionally
argue that the United States' ex parte actions
were unconscionable and unnecessary because Defendants
“have not acted intentionally to hinder, delay, or
defraud the United States, and Defendants' actions have
not had the effect of hindering, delaying, or defrauding the
United States.” (Filing No. 154). Finally, Defendants
argue less restrictive alternative remedies are available.
(Filing No. 155 at pp. 19-20).
United States applied for the prejudgment writs of
garnishment pursuant to 28 U.S.C. § 3101, which permits
the United States to petition the court for a prejudgment
remedy “at any time after the filing of a civil action
on a claim for a debt[.]” 28 U.S.C. § 3101(a)(1).
The United States' application must “set forth the
factual and legal basis for each prejudgment remedy sought,
” “state that the debtor against whom the
prejudgment remedy is sought shall be afforded an opportunity
for a hearing, ” and “set forth with
particularity that all statutory requirements under this
chapter for the issuance of the prejudgment remedy sought
have been satisfied.” 28 U.S.C. § 3101(a)(2)-(3).
The Court may grant a prejudgment remedy “if the United
States shows reasonable cause to believe” that the
(A) is about to leave the jurisdiction of the United States
with the effect of hindering, delaying, or defrauding the
United States in its effort to recover a debt;
(B) has or is about to assign, dispose, remove, conceal, ill
treat, waste, or destroy property with the effect of
hindering, delaying, or defrauding the United States;
(C) has or is about to convert the debtor's property into
money, securities, or evidence of debt in a manner
prejudicial to the United States with the effect of
hindering, delaying, or defrauding the United States; or
(D) has evaded service of process by concealing himself or
has temporarily withdrawn from the jurisdiction of the United
States with the effect of hindering, delaying, ...