An accounting expert witness’ declaration was at the center of a dispute arising from the federal government’s attempts to collect a $1.3 million judgment debt against a debtor pursuant to the Federal Debt Collection Procedures Act (FDCPA). They wanted to garnish the funds owed to “Development Group”—a company belonging to the Debtor. The district court held Debtor had a sufficient property interest in Development Group’s assets to permit garnishing them under the FDCPA in satisfaction of his debts. The Debtor appealed.
The U.S. District Court for District of Columbia ruled that Debtor and the second of his companies (of which Debtor was president) were jointly and severally liable to the United States for $1.3 million in damages for violations of the False Claims Act. The Circuit Court of Appeals affirmed that ruling in 2002, and that company was dissolved soon after. The Government then sought to recover Debtor’s debt pursuant to the FDCPA § 3205, which requires that, upon application by the U.S. and its satisfaction of certain conditions, the court “issue a writ of garnishment against property “… in which the debtor has a substantial nonexempt interest and which is in the possession, custody, or control of a person other than the debtor, in order to satisfy [a] judgment against the debtor.”
Debtor died in 2009.
The district court permitted Development Group to intervene in July 2012 in a dispute concerning an air-rights lease and a garnishment proceeding to defend its interest in the $8 million judgment against the District of Columbia. That case was settled while their cross-appeals of the $8 million judgment were pending. The District agreed to pay Development Group the $8 million judgment plus interest, less $2 million, which was held in escrow pending resolution of the garnishment proceeding.
Development Group dissolved in December 2012, but remained a party to the suit pursuant to D.C. Code § 29–312.05(a), which provides that “[a] dissolved corporation continues its corporate existence … to wind up and liquidate its business and affairs.”
The Government moved for a “disposition order” directing the District to transfer to it the amount of the Debtor’s debt from the funds being held in escrow, arguing that the settlement funds owed to the Development Group could be garnished to satisfy the Debtor’s debt because Debtor had a sufficient property interest in the funds, or the company was his alter ego.
The district court refused to strike an expert declaration of the Government’s tax and accounting expert that it submitted in support of its theories, and granted its motion for a disposition order. The court held Debtor had a sufficient interest in the settlement funds owed to the Development Group to allow the garnishment.
Development Group challenged the court’s denial of its motion to strike the tax and accounting expert witness’ declaration. It argued that the declaration wasn’t admissible as expert testimony under Federal Rules of Evidence 702 and 704. It contained legal conclusions, they said, and it failed to cite facts or a methodology that would permit the Development Group to assess the reliability of the tax and accounting expert witness’ conclusions.
The Court of Appeals, D.C. Circuit Senior Circuit Judge Douglas H. Ginsburg wrote in his opinion on the case that the district court erred in concluding Debtor had a property interest in the settlement funds for purposes of the FDCPA, and that it abused its discretion by admitting the tax and accounting expert witness’ declaration.
First, Judge Ginsburg wrote that the Circuit Court found no abuse of discretion in the district court’s refusal to exclude the tax and accounting expert witness’ declaration in its entirety. The declaration included admissible analyses of relevant facts, conducted by the expert by applying his knowledge of income tax and accounting matters to the corporate records of the Development Group and the tax records of Debtor’s two corporations. In addition, Ginsburg noted that the district court said it would disregard “legal conclusions and other deficiencies…” As a result, the court, while relying upon the expert declaration for some factual analyses, analyzed the law by reference solely to cases and statutes, not to the declaration. The district court also didn’t rely on any of the three conclusions that—according to Development Group—didn’t cite facts or methodology. Judge Ginsburg held that the Circuit would “leave it to the district court in the first instance to evaluate the admissibility of these and other portions” of the expert’s declaration as far as to what degree it is relied upon by the court.
Development Group argued the district court erred in saying that it didn’t dispute that Debtor “controlled the reins of the corporation and its assets.” However, Judge Ginsburg found that in context, the appellate court read the lower court to mean Development Group and its expert “failed meaningfully to rebut” the expert’s conclusion that Debtor effectively controlled Development Group even though its board met occasionally. There was no clear error in that finding.
Thus, the D.C. Circuit held that due to the fact that the district court erred in concluding Debtor had a substantial property interest in the settlement funds for purposes of the FDCPA, it remanded this case.