[00:00:00] Speaker 04:
OK, we'll call our next case.

[00:00:02] Speaker 04:
25-3025, United States versus Caps.

[00:00:11] Speaker 03:
And play this court.

[00:00:13] Speaker 03:
Ted Knapp for the repellents, Charles Caps and Dweglo LLC.

[00:00:21] Speaker 03:
Thank you for the warm place to spend a Midwestern day.

[00:00:24] Speaker 03:
I have given you a special invitation to come see you.

[00:00:28] Speaker 03:
I'm looking forward to a heat of the questions you may have for us.

[00:00:33] Speaker 03:
This is a real estate case plunked into your criminal docket, and it involves the question of whether the government may slip the debtor in a restitution judgment.

[00:00:50] Speaker 03:
into a real estate transaction for the express purpose of trying to reattach a restitution lien that is expired by... Excuse me, could you please raise up your microphone?

[00:01:05] Speaker 00:
Please raise up your... There you go.

[00:01:06] Speaker 00:
Thank you.

[00:01:07] Speaker 03:
You're welcome.

[00:01:08] Speaker 03:
I'm sorry, Your Honor.

[00:01:09] Speaker 03:
So this is a case where the restitution lien of the government had failed to attach, had long since ceased to attach,

[00:01:20] Speaker 03:
to any interest of the criminal defendant.

[00:01:22] Speaker 01:
Can I ask you a really basic question?

[00:01:25] Speaker 01:
And I apologize if I just did not get this from the briefing.

[00:01:28] Speaker 01:
But I'm trying to understand the relationship in terms of the arguments before us between Charles Capps and Duay Glow.

[00:01:38] Speaker 01:
And specifically, my question is, does Charles Capps have an argument for why he's entitled to the escrowed funds that doesn't depend

[00:01:50] Speaker 01:
on Duayglo?

[00:01:52] Speaker 03:
Your Honor, no.

[00:01:53] Speaker 03:
At this point, his rights are derivative of Duayglo.

[00:02:00] Speaker 03:
Because Duayglo, if the government has no interest, this money belongs to Duayglo.

[00:02:07] Speaker 03:
And Duayglo has made promises, arrangements with Charles Capps, and acknowledges the improvements that Charles Capps made in the property to make it into a commercially

[00:02:19] Speaker 03:
a marketable property.

[00:02:21] Speaker 04:
Okay, so now that we've resolved that we're not really dealing with Mr. Capps here, we're dealing with Duanglo and their arguments, how does Duanglo even get to make arguments here, having not been an intervener and having not challenged the district court's decision to disallow intervention below?

[00:02:43] Speaker 03:
Your Honor, the way this happens is under the Chapman case of the 10th Circuit.

[00:02:50] Speaker 03:
This case stands on whether the government can prove their entitlement to the proceeds.

[00:02:55] Speaker 03:
And it can't prove or stand on any weakness in anybody else's claim.

[00:03:02] Speaker 03:
It just depends on whether the government can prove that they're entitled to these proceeds.

[00:03:07] Speaker 03:
And there are two fundamental reasons why they can't.

[00:03:11] Speaker 03:
Kansas is a foreclosure state.

[00:03:13] Speaker 03:
There's no non-judicial foreclosure.

[00:03:16] Speaker 03:
It's got redemption rights.

[00:03:18] Speaker 03:
I understand New Mexico does.

[00:03:20] Speaker 03:
Colorado has gotten rid of them for defendants, but has them for creditors, competing creditors.

[00:03:28] Speaker 03:
In Kansas, foreclosure wipes out nine out of the ten sticks in the bundle of rights that make up property rights.

[00:03:38] Speaker 03:
In this case, the foreclosure judgment against

[00:03:42] Speaker 03:
Michael Capps had already been entered by the time the restitution judgment had been entered.

[00:03:49] Speaker 03:
That means Michael Capps' interest in the real estate was gone, and the only interest he had left was the redemption right under the statute and the common law right to pay the judgment the last minute before the sheriff's sale, but the right to redeem.

[00:04:08] Speaker 03:
In addition, we acknowledge that the government had

[00:04:12] Speaker 03:
had the right to attach, had a lien on Michael Capps' redemption rights.

[00:04:19] Speaker 03:
We also acknowledge, assert that the government had its own independent rights, not 90 days, but 120 days under 26 USC 7425A2.

[00:04:33] Speaker 03:
So the government, Michael Capps and the government had those rights.

[00:04:38] Speaker 03:
when the lien attached.

[00:04:39] Speaker 03:
And that's all the lien attached to.

[00:04:41] Speaker 04:
Well, let me ask you this mechanically.

[00:04:44] Speaker 04:
So there's a foreclosure sale, and now all Mr. Capps has are redemption rights, which are leaned by the government.

[00:04:54] Speaker 04:
So the government doesn't own those rights.

[00:04:57] Speaker 04:
They have a lien on his rights.

[00:05:01] Speaker 04:
It's apparent in this case that there was a lot of transparency between Dioglo and the government and Charles Capps as to what was going on on the redemptions and the agreements and various things like that.

[00:05:18] Speaker 04:
So everybody seemed to know what everybody else was doing, but let's say that's not true.

[00:05:22] Speaker 04:
Let's say Mr. Capps sold these redemption rights to someone else and that they were redeemed without the government's knowledge.

[00:05:31] Speaker 04:
Would the lien follow the proceeds?

[00:05:36] Speaker 03:
Yes, yes, absolutely.

[00:05:38] Speaker 03:
The government has the lien on the right and the proceeds of the sale of that right.

[00:05:45] Speaker 03:
There's no doubt about that.

[00:05:47] Speaker 03:
And so when Michael Capps sold his redemption rights, we'll get to the purchase money security, but when he sold his redemption rights and in return got a right to purchase the property,

[00:06:01] Speaker 03:
the government's lien attached to that right to purchase.

[00:06:04] Speaker 03:
It's proceeds of the sale, and it's a property interest that belongs to Michael Capps.

[00:06:09] Speaker 03:
There's no dispute about that, but this one, and so this one bundle of rights, which is the prevention right, was swapped for another bundle, sorry, another bundle of right that was the right to purchase the property by November 28th.

[00:06:27] Speaker 04:
Both of those rights... Well, the government doesn't have to purchase the property if someone else purchases it.

[00:06:32] Speaker 04:
They just get to take their value out of it, don't they?

[00:06:34] Speaker 03:
No.

[00:06:36] Speaker 03:
No.

[00:06:36] Speaker 03:
Not as against purchase money security interest.

[00:06:40] Speaker 03:
And in order for the government to realize on that lien, they've got to do something.

[00:06:47] Speaker 03:
They have to attach that interest.

[00:06:50] Speaker 03:
In the case of redemption right, the government has funds for redemption.

[00:06:55] Speaker 03:
They had a redemption right.

[00:06:57] Speaker 03:
they had the right to redeem, they had the right to take the property away from Dweglo within the 120 days by paying the amount provided in 28 USC 2410, which says pay Dweglo what they paid in, give them 6% interest, plus give them any expenses they incurred, plus

[00:07:24] Speaker 03:
plus expenses reasonably incurred in connection with the property.

[00:07:29] Speaker 03:
That would be the way the government would collect on the redemption rights.

[00:07:36] Speaker 03:
The purchase option, the government would say, thank you very much.

[00:07:40] Speaker 03:
I'm going to exercise those.

[00:07:43] Speaker 03:
I'm going to attach them.

[00:07:45] Speaker 03:
I'm going to exercise them.

[00:07:47] Speaker 03:
And the government has to do that before they expire.

[00:07:51] Speaker 03:
Because they're evanescent.

[00:07:55] Speaker 03:
They expire.

[00:07:56] Speaker 03:
The redemption rights, if the government does nothing in 120 days, the right to redeem is gone.

[00:08:03] Speaker 03:
If the government doesn't exercise Mr. Capp's right to purchase, by the time the repurchase right expires, it's gone.

[00:08:12] Speaker 03:
And now the property belongs solely to someone other than the government.

[00:08:19] Speaker 03:
The government has slept on its rights to redeem.

[00:08:22] Speaker 03:
The government has slept on its right to purchase.

[00:08:26] Speaker 03:
And the government can't elbow its way into the transaction by saying, I will not give a release to the title company for my lien.

[00:08:37] Speaker 03:
I will not recognize the purchase money security interest.

[00:08:43] Speaker 03:
I will not give the title company confidence unless

[00:08:49] Speaker 03:
You agree, all the parties agree, that the contract that the deed will go from Dweglo through Michael Capps to the ultimate buyer, all in a simultaneous transaction.

[00:09:03] Speaker 01:
Council, I'm still further behind.

[00:09:06] Speaker 01:
You're more ahead getting to the merits of your arguments.

[00:09:09] Speaker 01:
And as I understand your argument, it's that

[00:09:13] Speaker 01:
is that Charles Capps, you're arguing that Charles Capps is entitled to the escrowed funds, and the government is saying that the arguments that you're making before us in support of that conclusion are waived.

[00:09:26] Speaker 01:
And I'd like you to explain why that is not the way we should be thinking.

[00:09:30] Speaker 01:
Why should we be rejecting the government's waiver position and finding that all of the arguments you're advancing in support of your position are properly before this court?

[00:09:41] Speaker 03:
We would assert that the

[00:09:43] Speaker 03:
The arguments were made and presented to the district court.

[00:09:46] Speaker 03:
They weren't made in the, they weren't clearly made in the initial briefing.

[00:09:51] Speaker 03:
They were made in oral argument.

[00:09:53] Speaker 03:
They were made, the court invited a supplemental brief.

[00:09:57] Speaker 03:
The supplemental brief raised these arguments.

[00:10:00] Speaker 03:
And a motion to reconsider raised these arguments in detail.

[00:10:05] Speaker 03:
These arguments have not been waived.

[00:10:08] Speaker 03:
In fact, they've been presented to the court.

[00:10:11] Speaker 03:
Furthermore, we'd argue that this falls within the plain error review because... But you didn't argue plain error in your brief, right?

[00:10:20] Speaker 03:
No.

[00:10:20] Speaker 03:
No.

[00:10:20] Speaker 03:
Okay.

[00:10:22] Speaker 03:
Because this, because the error, it's clearly an error.

[00:10:26] Speaker 03:
It's plain from the court's opinion.

[00:10:30] Speaker 03:
It's right there.

[00:10:30] Speaker 03:
There's a substantive loss to my client or to

[00:10:37] Speaker 03:
to someone that my client hopes to get money from in the amount of $50,000.

[00:10:44] Speaker 03:
And it involves a public right.

[00:10:48] Speaker 03:
It's asked the government to honor its, the Fair Debt or the Federal Debt Collection Procedures Act and the limitations on its redemption rights and its right to end its,

[00:11:06] Speaker 03:
the procedures it needs to follow.

[00:11:08] Speaker 04:
So procedurally, your case is really difficult because before the district court, the person who you're representing now was never allowed to participate.

[00:11:26] Speaker 03:
Your Honor, you're right.

[00:11:28] Speaker 03:
I do represent the way, however, my argument is a little different.

[00:11:32] Speaker 03:
My argument it is from the opinion of the court.

[00:11:37] Speaker 03:
It's clear that the government has lost its right and has no claim to this problem.

[00:11:43] Speaker 04:
I understand that, but you have to represent somebody who can be here procedurally to say, it's mine.

[00:11:52] Speaker 04:
I might think that the government blew it and lost their right, but I can't bring a suit and say, hey, in that Dueglo and Charles Capps case, the government really blew it.

[00:12:05] Speaker 04:
They should lose that right.

[00:12:06] Speaker 04:
I have no standing to do that.

[00:12:08] Speaker 04:
And Dueglo sought to intervene and was denied.

[00:12:12] Speaker 04:
So the district court didn't have to consider any of their arguments below.

[00:12:18] Speaker 03:
Do you agree with that?

[00:12:19] Speaker 03:
However, I agree with that, Your Honor.

[00:12:21] Speaker 03:
However, Charles Capps has an expectation.

[00:12:25] Speaker 03:
He had a mechanic sling.

[00:12:27] Speaker 03:
The mechanic sling was part of the peel wheat.

[00:12:31] Speaker 03:
He has an expectation and interest in this property.

[00:12:35] Speaker 03:
that gives him the right to challenge the government's claim.

[00:12:38] Speaker 04:
Well, he did.

[00:12:39] Speaker 04:
And he challenged it on the basis of, I've got a mechanics lien.

[00:12:43] Speaker 04:
And the district court said it's invalid.

[00:12:45] Speaker 04:
And nobody's challenging that on appeal.

[00:12:49] Speaker 03:
Your Honor, the basis of our appeal is that the government has no interest, that their rights

[00:12:57] Speaker 04:
No, I know, but it has to be more than they have no interest.

[00:13:00] Speaker 04:
You have to represent somebody who has a legally enforceable interest.

[00:13:04] Speaker 03:
And that interest would come from the record shows that Dweglo and the court recited that Dweglo entered into an agreement that said that it agreed that Charles Capps should be paid out of the funds if this appeal was successful.

[00:13:25] Speaker 03:
Dweglo

[00:13:26] Speaker 03:
acknowledged the improvements made.

[00:13:29] Speaker 03:
And I do want to get to the purchase money security interest.

[00:13:33] Speaker 03:
The Slodov case and revenue ruling of the IRS show that

[00:13:55] Speaker 03:
that someone in Dweglo's position who contributes property to the estate is protected in their interest.

[00:14:05] Speaker 03:
If Dweglo had not redeemed, this property and all the proceeds would have disappeared.

[00:14:12] Speaker 01:
So let me just get one, I'm going to ask a question to clarify my understanding.

[00:14:17] Speaker 01:
So Dweglo, not before us, they did not challenge the denial of their motion to intervene.

[00:14:25] Speaker 01:
they do not, we cannot adjudicate anything as to dueglo.

[00:14:29] Speaker 01:
Agreed?

[00:14:30] Speaker 03:
Agreed.

[00:14:31] Speaker 01:
OK.

[00:14:31] Speaker 01:
So that leaves Charles Capps.

[00:14:34] Speaker 01:
To the extent Charles Capps' arguments, assuming they're not waived for litigation reasons, but Charles Capps' arguments rely on dueglo, that's also not before us, correct?

[00:14:48] Speaker 03:
I believe that Charles Capps

[00:14:50] Speaker 03:
can be my position that Charles Capps can raise Dweglo's position in order to, and number one, in order to undercut the government and to also show at least the standing to make these claims.

[00:15:04] Speaker 01:
But his standing, Charles Capps' argument that is independent of Dweglo relies on the mechanics lean, is that correct?

[00:15:15] Speaker 03:
No, it also relies on Dweglo's willingness

[00:15:19] Speaker 03:
to pay him without needing a mechanics lien.

[00:15:24] Speaker 03:
And therefore, he has a justiciable interest in this claim.

[00:15:32] Speaker 03:
And so, Your Honor, at the end, the government may or may not have seen.

[00:15:44] Speaker 03:
The government alleged that Michael Capps inserted himself into the last closing.

[00:15:49] Speaker 03:
He did not.

[00:15:51] Speaker 03:
The government required him to be a conduit between Dweglo and the ultimate purchaser.

[00:16:00] Speaker 03:
The only apparent reason for that was to try to have a lien reattached.

[00:16:05] Speaker 03:
There's a Kansas case, an old one, Harrison and Willis versus Andrews, 18 can, 535.

[00:16:13] Speaker 03:
It's an 1877 case.

[00:16:16] Speaker 03:
It says,

[00:16:16] Speaker 03:
bare naked title is not enough for a lien to attach to.

[00:16:21] Speaker 03:
And when somebody's just a mere conduit from one person to another in a simultaneous transaction, there's nothing more than bare naked title and that is not enough for the government's lien to reattach.

[00:16:36] Speaker 04:
Okay, thank you, Counselor.

[00:16:37] Speaker 04:
You're out of time.

[00:16:49] Speaker 02:
Good morning.

[00:16:50] Speaker 02:
May it please the court, Catherine Sheedy appears for the United States.

[00:16:55] Speaker 02:
We're here today to address challenges to the United States' enforcement of a criminal restitution order against the property of criminal defendant Michael Capps.

[00:17:04] Speaker 02:
This is not a real estate case.

[00:17:07] Speaker 04:
Well, it's sort of his.

[00:17:08] Speaker 04:
I mean, we're going through the, you're, you a tad, you put a lien on some real estate and you wanted the money when it was sold.

[00:17:16] Speaker 04:
So,

[00:17:17] Speaker 04:
The underlying criminal case, other than the fact that it gave you your right to the money, doesn't have anything to do with it.

[00:17:24] Speaker 04:
That's correct.

[00:17:25] Speaker 02:
But as I listen to the court's questions to Appellants' Council, I see that the court's instincts about this case are correct.

[00:17:33] Speaker 02:
Appellants have waived the merits arguments that they're desperately asking this court to reach, and the court doesn't need to go there.

[00:17:40] Speaker 02:
The court doesn't need to wade into these real estate issues.

[00:17:46] Speaker 04:
Educate me about the proceeding below.

[00:17:49] Speaker 04:
What did Charles Capps argue below on his behalf?

[00:17:59] Speaker 02:
The record is rather convoluted, but Charles Capps clearly argued that he had a mechanics lien against the real estate and that mechanics lien attached to the proceeds from the sale of that real estate.

[00:18:14] Speaker 02:
And why did he have standing in the district court?

[00:18:16] Speaker 02:
He had standing because the Federal Debt Collections Procedures Act basically implies that third parties who have an interest in the property subject to enforcement by the United States can participate in those enforcement proceedings.

[00:18:32] Speaker 02:
And he was named in the garnishment notice, wasn't he?

[00:18:36] Speaker 02:
He wasn't named in the garnishment, but a separate notice was provided to Charles Capps informing him of his opportunity to move to Quash the garnishment to assert his interest.

[00:18:47] Speaker 02:
So there's no question that Charles Capps could participate in this proceeding.

[00:18:51] Speaker 02:
And when he did participate in the proceeding, he filed an objection to garnishment, which didn't really set forth his entire argument.

[00:18:59] Speaker 02:
It actually just referenced a state court interpleader action where he claimed that he had a mechanics lien on this property.

[00:19:12] Speaker 04:
OK.

[00:19:13] Speaker 04:
So this argument about the revenue ruling and the

[00:19:16] Speaker 04:
Slodov case, and did Charles Capps press those before the district court?

[00:19:22] Speaker 02:
He did, but it wasn't timely.

[00:19:24] Speaker 02:
He didn't even mention revenue rulings or the Slodov case until the court asked for supplemental briefing.

[00:19:32] Speaker 02:
After Charles Capps had filed his initial objection to the garnishment, the United States responded.

[00:19:38] Speaker 02:
Charles Capps filed a second objection to the garnishment, which again, the United States objected to that on procedural grounds, but the district court

[00:19:47] Speaker 02:
interpreted it as a reply, we had a hearing on the objections and the court asked for supplemental briefing after that hearing.

[00:19:55] Speaker 02:
Simultaneous supplemental briefing on limited issues that the court still had questions about after the hearing.

[00:20:02] Speaker 04:
Presumably the request for supplemental briefing didn't include the application of the revenue ruling in the Slowdome case?

[00:20:10] Speaker 02:
Absolutely not.

[00:20:11] Speaker 02:
Okay.

[00:20:14] Speaker 02:
And so the district court declined to consider

[00:20:17] Speaker 02:
the revenue rulings and the Slodov case, because they weren't timely raised.

[00:20:22] Speaker 02:
And the district court also notes that even if they were timely raised, they were raised on behalf of Dweglo, who was not a party to the case.

[00:20:29] Speaker 02:
So after supplemental briefing was submitted, but before the court had ruled on Charles Capps' objections, Charles Capps and Dweglo filed a joint motion to intervene, for Dweglo to intervene.

[00:20:44] Speaker 01:
Do you, does the government think that Charles Capps' arguments for his entitlement to the funds all depend on Dueglo, or are there other arguments that, regardless of putting aside for a minute whether they're waived or not, that are independent, that are just his, that don't piggyback off of Dueglo?

[00:21:02] Speaker 01:
The arguments raved in appellants brief.

[00:21:08] Speaker 02:
In those arguments, Charles Capps

[00:21:13] Speaker 02:
piggybacks off of Duweglos.

[00:21:14] Speaker 02:
And I think counsel for appellants already admitted that here today that Charles Capps' rights are derivative of Duweglos.

[00:21:22] Speaker 02:
So I don't believe there's anything in the opening brief that really challenges the district court's adverse ruling as to Charles Capps.

[00:21:31] Speaker 01:
So to what extent does our conclusion that because of the failure to challenge the denial of the motion to intervene

[00:21:43] Speaker 01:
that ruling keeps Duago out of this court, right?

[00:21:48] Speaker 01:
And how should we be thinking about that as it relates to anything that Charles Capps is bringing?

[00:21:56] Speaker 01:
Do we look at it independently?

[00:21:57] Speaker 02:
No.

[00:21:58] Speaker 02:
I think that they're wholly related because Charles Capps waived any argument that the rulings adverse to him in the district court should be reviewed by this court.

[00:22:09] Speaker 02:
So I think Charles Capps

[00:22:11] Speaker 02:
isn't really a necessary party to this appeal, other than he's piggybacking off of the claims of Dweglo.

[00:22:18] Speaker 02:
But as the court has noted, Dweglo isn't a proper party to this case.

[00:22:22] Speaker 02:
Well, you're not contending that Caps doesn't have a pellet standing, right?

[00:22:25] Speaker 02:
Well, he has a pellet standing to challenge the ruling adverse to his claim, which was the ruling saying that his mechanics was invalid.

[00:22:36] Speaker 02:
But that's not what he's arguing before this court.

[00:22:38] Speaker 04:
I guess he could also challenge the district court's decision not to accept his additional arguments in the supplemental briefing as an abuse of discretion or something like that.

[00:22:49] Speaker 02:
He could, but he did not.

[00:22:51] Speaker 04:
All right.

[00:22:52] Speaker 02:
All right, thank you.

[00:22:58] Speaker 04:
Judge Kelly, you have any questions?

[00:23:01] Speaker 04:
No.

[00:23:01] Speaker 04:
OK, hold on.

[00:23:02] Speaker 04:
Don't sit down.

[00:23:02] Speaker 04:
I might have another question for you.

[00:23:04] Speaker 04:
That was abrupt.

[00:23:06] Speaker 04:
I just want to make sure.

[00:23:14] Speaker 04:
Okay, I don't have anything.

[00:23:15] Speaker 04:
Thank you, counsel.

[00:23:16] Speaker 04:
Okay, the case is submitted and counsel are excused.