IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 15-50128

UNITED STATES OF AMERICA, 

 Plaintiff - Appellee

v.

PATRICK G. MIRE, 

 Defendant - Appellee

v.

HARBOR AMERICA CENTRAL, INCORPORATED, 

 Garnishee - Appellant

------------------------------------------------------------------------------------------

UNITED STATES OF AMERICA, 

 Plaintiff - Appellee

v.

PATRICK G. MIRE, 

 Defendant - Appellee

v.

HARBOR AMERICA CENTRAL, INCORPORATED, 

 Defendant - Appellant

United States Court of Appeals

Fifth Circuit

FILED

September 30, 2016

Lyle W. Cayce

Clerk

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Appeal from the United States District Court

for the Western District of Texas

Before WIENER, CLEMENT, and COSTA, Circuit Judges.

GREGG COSTA, Circuit Judge:

Harbor America Central appeals the district court’s denial of its motions 

to release money paid into the court registry and to terminate garnishment. 

Patrick Mire, a convicted fraudster, is subject to a $10 million restitution order. 

Harbor America, which had contracted with Mire and his fraudulently run 

businesses, is subject to a writ of garnishment for that debt, but it asserts that 

it no longer holds Mire’s property as it has terminated the contracts under 

which it owed him regular payments. Harbor America alleges it was entitled 

to terminate the contracts based on Mire’s fraud and did so by obtaining a 

judgment in a Texas state court declaring its right to terminate. 

We hold that the state court ruling is not binding because the 

government was not allowed to participate in the proceeding. Considering the 

question of termination in the first instance, we conclude that Harbor America 

has lawfully terminated one of the contracts but may or may not have been 

entitled to terminate the other. We thus remand to the district court for 

further fact finding on the termination question and to determine any 

compensation Harbor America owes under any terminated contracts.

I.

Mire pleaded guilty to conspiracy to commit mail fraud and conspiracy 

to commit money laundering. United States v. Mire, 619 F. App’x 330, 331 (5th 

Cir. 2015). The convictions resulted from Mire’s involvement in companies 

that contracted to administer payroll and insurance programs for employers. 

Mire’s companies withheld employment taxes from payroll checks issued to the 

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clients’ employees but failed to deliver the withheld taxes to the IRS and kept

them instead. Mire was sentenced to 36 months in prison and ordered to pay 

$10 million in restitution. Id. at 331. 

After entry of final judgment, the government notified Harbor America 

that the government had “a federal tax type lien” on all of Mire’s property. See 

18 U.S.C. § 3613. The government next applied to the district court for a writ 

of garnishment directed to Harbor America as garnishee, asserting that 

Harbor America was indebted to Mire or “in possession of [substantial 

nonexempt] property” of his. See 28 U.S.C. § 3205; 18 U.S.C. § 3613. The court 

issued the writ.

Harbor America answered the writ and acknowledged that it owed 

“commission payments” to Mire based on two contracts. In the Independent 

Representative Agreement (IRA), CenterPoint Employee Management LLC, a 

company Mire owned and used in his frauds, agreed to represent Harbor 

America on a commission basis in selling and marketing staff leasing services. 

Through an Asset Purchase Agreement (APA), Harbor America acquired the 

payroll service contracts held by Centerpoint Outsourcing, LLC, another

company Mire owned and used to perpetrate his frauds. In exchange for these 

agreements, Harbor America agreed to make regular payments as a 

percentage of its earnings from the clients. The APA generated more income 

for Mire than the IRA. Taking the month of April 2014 as an example, Harbor 

America reported that it withheld $5,610.66 in bi-weekly payments due under 

the IRA and $37,683.85 in monthly payments due under the APA. 

The IRA provided that it could “be terminated immediately and all 

compensation shall cease if [CenterPoint] engages in any clearly illegal 

business practices.” In the APA, Centerpoint represented that it conducted its 

activities lawfully. 

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In its answer, Harbor America advised that it had initiated a state court 

declaratory judgment proceeding to terminate the IRA and the APA because of 

Mire’s criminal conviction. Harbor America did not join the government as a 

party in the state court action, but the government intervened on the basis of 

its restitution lien. The government then removed the state proceeding to 

federal district court, but that court remanded.1 Following remand, the state

court granted Harbor America’s motion to dismiss the government’s 

intervention. 

In June 2014, the government moved in the ongoing garnishment 

proceeding for an order disposing of the garnished property held by Harbor 

America. See 28 U.S.C. § 3205(c)(7). Harbor America opposed the motion, 

contending that a determination of its rights and obligations with regard to 

Mire was properly at issue in the state court declaratory judgment action. The 

district court ruled in favor of the government. It determined that Harbor 

America had retained $43,294.51 due Mire under the IRA and the APA as of 

the date of the writ and that all commissions were nonexempt property of 

Mire’s that the government was entitled to garnish. Consequently, Harbor 

America was ordered to pay the government all property in its possession 

belonging to Mire. The clerk was ordered to retain the monies collected 

pending disposition of Mire’s appeal of his conviction. The court also ordered 

that the garnishment continue until terminated. See 28 U.S.C. § 3205(c)(10). 

The state court granted summary judgment in favor of Harbor America 

on its claim for a declaration that it had the right to terminate the IRA and the 

APA. Afterward, in November 2014, Harbor America notified Mire in writing 

 

1 The action was removed to the District Court for the Southern District of Texas, not 

the District Court for the Western District—the court where Mire was convicted, the 

garnishment proceedings were ongoing, and this appeal originates. 

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of its termination of the IRA and the APA, “[p]ursuant to the IRA, the APA, 

the Texas Declaratory Judgment Act, and the [state] court’s rulings.” 

In December 2014, Harbor America moved the federal court to release to 

it $312,838.37 that it had deposited in the court registry under protest as 

garnishee. The district court denied the motion and ordered Harbor America 

to comply with the writ of garnishment and the disposition order. Harbor 

America moved to quash the disposition order on the basis that a condition to 

quash had been met, namely that the IRA and the APA had been terminated. 

See 28 U.S.C. § 3205(c)(10)(B) (providing for expiration of a writ when the 

debtor’s property in the garnishee’s possession is exhausted). The district court 

did not rule on this motion but ordered Harbor America to show cause why it 

should not be held in contempt and again directed it to comply with the writ of 

garnishment and the disposition order. Harbor America appealed.

II.

A.

We review garnishment orders and ancillary decisions for abuse of 

discretion. United States v. Elashi, 789 F.3d 547, 548 (5th Cir. 2015); United 

States v. Clayton, 613 F.3d 592, 595 (5th Cir. 2010). Supporting findings of 

fact are reviewed for clear error, and supporting conclusions of law are 

reviewed de novo. Af-Cap, Inc. v. Republic of Congo, 462 F.3d 417, 423 (5th 

Cir. 2006).

Federal law makes “a restitution order enforceable to the same extent as 

a tax lien.” United States v. Loftis, 607 F.3d 173, 179 n.7 (5th Cir. 2010) (citing 

18 U.S.C. § 3613(c)). The government may use the garnishment provisions of 

the Federal Debt Collection Procedures Act, 28 U.S.C. §§ 3001–3308, to collect 

a restitution obligation imposed by a judgment of conviction. United States v. 

Phillips, 303 F.3d 548, 550–51 (5th Cir. 2002). Under the Act, a court may 

garnish “property (including nonexempt disposable earnings) in which the 

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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 the 

judgment against the debtor.” 28 U.S.C. § 3205(a). “Property” for these 

purposes includes the present and future right to receive payments under a 

contract. See 28 U.S.C. § 3002(12).

Although federal law thus creates a lien on property, it is state law that 

“defines the property interests to which the lien attaches.” Elashi, 789 F.3d at 

548–49. In this context, federal law “creates no property rights but merely 

attaches consequences, federally defined, to rights created under state law.” 

United States v. Craft, 535 U.S. 277, 278 (2002).

B.

Harbor America argues that it terminated both the IRA and the APA on 

April 22, 2014 (when it filed the state court action), that Texas contract law 

entitled it to terminate those agreements when it did, and that the state 

declaratory judgment conclusively decided this issue in its favor. It reasons 

that because state law undoubtedly defines the property interest that is subject 

to the government’s lien (in this case a right to receive payments under two 

contracts), Mire’s property evaporated on April 22, 2014, when the contracts 

were allegedly terminated.

We first consider the effect of the state court judgment. The government

contends that it is not bound by the state court’s determination that Harbor 

America could terminate the IRA and APA because that court refused to allow 

it to intervene. It relies on the following provision of the Internal Revenue 

Code:

If the United States is not a party to a civil action or suit, the 

United States may intervene in such action or suit to assert any 

lien arising under this title [the Internal Revenue Code] on the 

property which is the subject of such action or suit . . . . In any case 

in which the application of the United States to intervene is 

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denied, the adjudication in such civil action or suit shall have no 

effect upon such lien.

26 U.S.C. § 7424.

The order of restitution in this case arises under Title 18. On its face, 

section 7424 applies only to liens arising under Title 26, the Internal Revenue 

Code. An order of restitution, however, “is a lien in favor of the United States 

on all property and rights to property of the person fined as if the liability of 

the person fined were a liability for a tax assessed under the Internal Revenue 

Code . . . .” 18 U.S.C. § 3613(c). No circuit has addressed the interaction of 

these two sections, but we read them together to require that the government

be allowed to intervene in an action directed at property that is subject to an 

order of restitution. If the government is not allowed to intervene, the 

subsequent adjudication cannot prevent the government from contesting the 

status of the subject property in a collateral proceeding.

Our conclusion follows from the language of the text: section 3613 says 

that an order of restitution is to be treated as if it were a tax lien; section 7424 

gives the government a right to intervene in any action directed at property 

against which it holds a tax lien; and section 7424 further provides that when 

that right is violated, the resulting adjudication has “no effect upon such lien.” 

The statute reflects that the government’s status as a lienholder makes it the 

party with an interest in contesting any dispute about the property subject to 

the lien. United States v. Nat’l Bank of Commerce, 472 U.S. 713, 725 (1985).

Because the government was not permitted to intervene in the Texas 

action that produced the declaratory judgment upon which Harbor America 

relies, Harbor America cannot use it to forestall the government from litigating 

as an original matter whether Harbor America was entitled to terminate the 

contracts. Harbor America protests that this holding is at odds with the 

principle that state law defines property interests that are subject to federal 

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liens. But 26 U.S.C. § 7424 does not displace state law, it merely provides that 

the government’s interest as a lienholder allows it a say in disputes deciding 

the extent of those interests under state law. We thus proceed to determine, 

in light of the governing state law, whether Harbor America could—and if it 

could, when it did—terminate the agreements it had with Mire’s companies.

C.

The IRA states that it “may be terminated immediately and all 

compensation shall cease if [Centerpoint] engages in any clearly illegal 

business practices.” It is undisputed that Centerpoint was engaged in criminal 

business practices. Under Texas contract law, termination provisions such as 

this are generally given effect without regard to questions of material breach. 

See Woodard v. Gen. Motors Corp., 298 F.2d 121, 126 (5th Cir. 1962); Capcor 

at KirbyMain, L.L.C. v. Moody Nat. Kirby Houston S, L.L.C, 2014 WL 982858, 

at *10 (Tex. App.—Houston [1st Dist.] Mar. 13, 2014, no pet.) (holding that 

jury instruction on material breach was not necessary when contract contained 

termination provision); Home Reader Serv., Inc. v. Grappi, 446 S.W.2d 95, 99

(Tex. Civ. App.—Dallas 1969, writ ref’d n.r.e.) (“A contract provision for 

termination by either party when fairly entered into, will be enforced if not 

contrary to equity and good conscience.” (internal quotation marks omitted)). 

It follows that Harbor America had the right to terminate the IRA because of 

Centerpoint’s criminal activities.

Harbor America asserts that it terminated the IRA on April 22, 2014, the 

date it filed its state court action. Its state court petition, however, did not 

attempt to terminate the IRA and APA but sought a declaration that the 

contracts permitted it to do so. It was only on November 24, 2014, that Harbor 

America sent a termination letter to Mire. The record does not indicate that 

Harbor America took any action to terminate the IRA, as opposed to seeking a 

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declaration that it could terminate it, until it sent that letter. Harbor America

thus did not terminate the IRA until November 24, 2014.

Because Harbor America can and did terminate the IRA, it no longer 

owed commission payments under that services agreement to Mire as of 

November 24, 2014. Successful termination of the IRA halted accumulation of

Mire’s property interest in the commission payments and thus in the property 

available for garnishment. The district court erred in denying Harbor 

America’s motion to quash and motion to release funds without taking into 

account the effect of the termination letter on Mire’s interest in the IRA. On 

remand, it will be necessary for the court to calculate the sum of commission 

payments that accrued prior to November 24, 2014, to ascertain the correct 

amount owed to the government.

D.

Both the question of termination and, in the event of termination, 

compensation are more difficult when it comes to the APA. Unlike the IRA, 

the APA does not authorize Harbor America to terminate the agreement for 

illegal business practices. The APA does, however, include a warranty that 

Mire’s company had “conducted its operations in accordance with all applicable 

law.” 

In the absence of a clause authorizing Harbor America to terminate the 

APA for breach of the lawful-conduct warranty, its ability to terminate hinges 

on whether the breach was material. See Lennar Corp. v. Markel Am. Ins. Co., 

413 S.W.3d 750, 755 (Tex. 2013) (“Generally, one party’s breach does not excuse 

the other’s performance unless the breach is material.”). Texas courts follow 

the framework outlined in the Restatement to determine whether a breach is 

material. Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 199 

(Tex. 2004) (per curiam) (citing RESTATEMENT (SECOND) OF CONTRACTS §241 

(1981)). The analysis prescribed by the Restatement includes consideration of 

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factors outside the text of the contract that bear on the real expectations, 

benefits, and injuries to the parties. For example, courts are to consider “the 

extent to which the injured party will be deprived of the benefit which he 

reasonably expected.” RESTATEMENT, supra, § 241(a). Materiality is 

accordingly an issue of fact under Texas law. Briargrove Shopping Ctr. Joint 

Venture v. Vilar, Inc., 647 S.W.2d 329, 333 (Tex. App.—Houston [1st Dist.]

1982, no writ).

There is another important difference between the APA and IRA that 

affects the question of compensation in the event Harbor America was entitled 

to terminate the APA. As their titles disclose, the APA is a sales agreement

and the IRA is a representation agreement for ongoing services. That makes

the question of compensation straightforward for the IRA: as of the date of 

termination, Harbor America owes nothing else on the contract as it no longer 

receives any services under the contract. Under the APA, however, Harbor 

America has already received everything it was due: the valuable contracts 

Mire’s company had with employers to provide payroll services. But Mire has 

not. The APA gives him a right to ongoing payments—fifty percent of Harbor 

America’s monthly earnings from the book of business it received. Given this 

feature of the APA, we requested supplemental briefing from the parties 

regarding the fate of these assets should Harbor America terminate the APA.

In the event of a material breach, Harbor America can of course undo the 

entire relationship created by the contract by no longer providing services for 

the clients it obtained. That is not, however, its current plan. Harbor America

contends that a termination would allow it to keep the clients but no longer 

have to pay any compensation to Mire. Harbor America’s desire for a windfall 

from Mire’s criminality ignores the principles of restitution expressed in the 

Restatement that govern the issue:

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[I]f a party justifiably refuses to perform on the ground that his 

remaining duties of performance have been discharged by the 

other party’s breach, the party in breach is entitled to restitution 

for any benefit that he has conferred by way of part performance 

or reliance in excess of the loss that he has caused by his own 

breach.

RESTATEMENT, supra, § 374(1). The Restatement accurately reflects the law in 

Texas on this point. See, e.g., Lipscomb v. Fuqua, 131 S.W. 1061, 1064 (Tex. 

1910); Grant v. Sherwood Shores, Inc., 477 S.W.2d 667, 671–72 (Tex. Civ. 

App.—Austin 1972, no writ); De Leon v. Aldrete, 398 S.W.2d 160, 162–63 (Tex. 

Civ. App.—San Antonio 1965, writ ref’d n.r.e.). Under a terminated APA in 

which Harbor America retains the clients that agreement gave it, Mire (in 

whose shoes the government now stands) would be entitled to restitution. A 

court would calculate that amount by comparing the benefit conferred and the 

loss caused by the breaching party.

Given the absence of relevant evidence and the fact–intensive nature of 

the materiality and restitution inquiries, we are unable to determine whether 

Harbor America continues to hold Mire’s garnished property under the APA. 

Although the district court correctly reasoned that the state court decision 

obtained by Harbor America had no effect on the government’s lien, it thus 

should also have considered whether the APA was nonetheless lawfully 

terminated under Texas law when Harbor America sent the November 2014 

letter purporting to terminate the agreement. Accordingly, remand is 

necessary so that the district court may receive and consider evidence bearing 

on materiality of breach and, if need be, the propriety of restitution.

* * *

In summary, we hold that Harbor America rightly terminated the IRA 

on November 24, 2014. On remand, the district court must calculate the 

amount of commission payments accruing to Mire before this date; these 

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payments were properly garnished and are now due to the government. Any 

payments that Harbor America would have made to Mire under the IRA 

subsequent to that date are no longer owed to him, subject to garnishment, or

due to the government. 

We reach no conclusion regarding whether Harbor America has rightly 

terminated the APA. The district court on remand should allow the parties to 

present evidence concerning whether violation of the warranty of lawful 

conduct was a material breach and Mire’s right to restitution of the client 

service agreements should the breach be deemed material. Any right Mire has 

to restitution is of course subject to garnishment along with the rest of his 

nonexempt property.

The judgment is VACATED and the case REMANDED for further 

proceedings consistent with this opinion.

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