Court Opinion

ID: 6499440
Source: CourtListenerOpinion
Date Created: 2022-07-12 20:00:46.834839+00
Date Added: 2024-06-11T09:12:40.683215
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 21-2725
UNITED STATES OF AMERICA,
                                                   Plaintiff-Appellee,
                                 v.

STEVEN MILLER,
                                                           Defendant,

APPEAL OF: LILIYA KRASILNIKOVA,
                                                            Appellant.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
           No. 1:17-cr-00442-2 — Elaine E. Bucklo, Judge.
                     ____________________

       ARGUED APRIL 8, 2022 — DECIDED JULY 12, 2022
                ____________________

   Before WOOD, HAMILTON, and JACKSON-AKIWUMI, Circuit
Judges.
    HAMILTON, Circuit Judge. This appeal presents an unusu-
ally tangled story about ownership of a family residence. The
district court sorted out the mess as well as the record would
allow. We aﬃrm its decision ﬁnding that defendant Steven
2                                                   No. 21-2725

Miller had a one-half ownership interest in the property and
that it should be used to pay restitution for Miller’s crime.
   Miller and appellant Liliya Krasilnikova are married. In
2018, Miller pled guilty to one count of wire fraud. Part of his
sentence included an order to pay approximately $1.1 million
in restitution. Days after Miller received his sentence,
Krasilnikova agreed to sell their family home to a third party.
The United States then gave notice of a lien on the property,
asserting that Miller had a one-half interest in the proceeds
and that his share should be used to pay restitution.
Krasilnikova argues that the government is entitled to
nothing. She contends that she was the sole owner and that
Miller had no interest in the property or the sale proceeds.
    The title to the property was indeed only in Krasilnikova’s
name, and title is ordinarily king in determining ownership
interests in property. As Judge Bucklo explained in careful de-
tail, however, the evidence here shows that the property was
the subject of not one but several highly irregular, indeed
fraudulent, transactions preceding Miller’s conviction and the
eventual sale of the home. The fraudulent transactions in-
cluded the very transfer of title that Krasilnikova relies upon
to assert that she was the sole owner. Since the paper title is
not reliable, the district court properly considered the addi-
tional evidence, and the court did not err by dividing the pro-
ceeds equally between Miller and Krasilnikova based on their
shared exercise of control over their family home.
I. Factual and Procedural Background
   This appeal comes to us in the form of a civil garnishment
order inside a criminal prosecution. See United States v.
Kollintzas, 501 F.3d 796, 800 (7th Cir. 2007) (“[D]istrict courts
No. 21-2725                                                     3

may entertain civil garnishment and other collection proceed-
ings as postjudgment remedies within an underlying criminal
case….”).
    After Miller pled guilty to one count of wire fraud, he was
sentenced to a year and a day in prison and two years of su-
pervised release. He was also ordered to pay approximately
$1.1 million in restitution to two ﬁnancial institutions and a
government agency. Upon entry of judgment, the order for
payment of restitution became a lien in favor of the govern-
ment on all of Miller’s property and rights to property. See 18
U.S.C. § 3613(c); Kollintzas, 501 F.3d at 802. Such a lien is per-
fected against purchasers and other third parties when the
government ﬁles a notice of the lien with an appropriate pub-
lic oﬃce, such as the county clerk or recorder. See § 3613(d);
26 U.S.C. § 6323(f). Important to note: “Liens to pay restitu-
tion debts are treated like tax liens … [and] are ‘eﬀective
against every interest in property accorded a taxpayer by state
law.’” Kollintzas, 501 F.3d at 802 (internal citations omitted),
quoting United States v. Denlinger, 982 F.2d 233, 235 (7th Cir.
1992).
    The government then tried to collect Miller’s assets to use
them for restitution. Days after her husband was sentenced,
Krasilnikova entered into a contract to sell their family home
(“the Crescent Avenue property”) for $855,000. Shortly after
that, the United States ﬁled a lien on the property to enforce
the restitution judgment and collect what it said was Miller’s
portion of the proceeds. Krasilnikova disputed that claim. She
asserted that Miller—and thus the government in his stead—
was not entitled to any of the proceeds because title to the
Crescent Avenue property was only in her name. With the sale
pending, the parties struck a bargain: the government would
4                                                               No. 21-2725

lift the lien on the property to allow the sale to go forward,
but the sale proceeds would sit in escrow while the parties
resolved the dispute.
    Next, Krasilnikova ﬁled a motion in the district court in
Miller’s criminal case. She sought an order to release the es-
crowed funds to her. The government objected and asserted
it was entitled to one-half of the sale proceeds. To resolve the
dispute, the district court applied the framework of the Fed-
eral Debt Collection Procedures Act (FDCPA), 28 U.S.C.
§§ 3001–3308. The FDCPA governs collection of, among oth-
ers, debts for securing restitution in federal criminal cases.
United States v. Sheth, 759 F.3d 711, 716 (7th Cir. 2014). When
the government asserts a lien on property of a criminal de-
fendant, a person with a competing interest in the property is
entitled to participate in the court collection proceedings.
Kollintzas, 501 F.3d at 801, 803. The so-called “interested per-
son” then has the burden of establishing her ownership inter-
est in the disputed property. Id. at 803. 1

    1  Krasilnikova notes that the government failed to file a writ of gar-
nishment or to serve her with a notice of garnishment proceedings under
28 U.S.C. § 3202(b). The procedural errors did not matter here. As the dis-
trict court found, Krasilnikova had actual notice of the government’s claim
to the Crescent Avenue property, and she participated in the proceedings
with an attorney and provided documents and testimony to support her
claim. United States v. Miller, 558 F. Supp. 3d 655, 659 (N.D. Ill. 2021). While
we remind the government to follow the necessary procedures under the
FDCPA, the procedural errors here did not cause Krasilnikova any preju-
dice. E.g., United States v. Meux, 597 F.3d 835, 838 (7th Cir. 2010) (no prej-
udice to defendant after government filed a motion for turnover instead
of a motion for garnishment; defendant had “essentially the same due pro-
cess protections” that he would have had in garnishment proceedings, in-
cluding notice, representation, and a hearing).
No. 21-2725                                                      5

    As an “interested person,” Krasilnikova asserted a com-
peting right to the Crescent Avenue property over which the
government had asserted an apparently valid lien. To resolve
ownership disputes under the FDCPA, courts “look initially
to state law to determine what rights the [criminal defendant]
has in the property the Government seeks to reach,” and then
turn to “federal law to determine whether the [defendant’s]
state-delineated rights qualify as ‘property’ or ‘rights to prop-
erty’ within the compass of the federal tax lien legislation.”
Kollintzas, 501 F.3d at 802, quoting Drye v. United States, 528
U.S. 49, 58 (1999). The latter is not in dispute, so the state law
issue is decisive.
    After holding an evidentiary hearing, the district court
concluded that the government was entitled to one-half of the
proceeds from the Crescent Avenue property sale. The court
ﬁrst determined that under Illinois law, courts evaluating
ownership can look past title and instead ask who actually
exercised control over the property at issue. United States v.
Miller, 558 F. Supp. 3d 655, 661–62 (N.D. Ill. 2021), citing People
v. Chicago Title & Trust Co., 389 N.E.2d 540, 544–45 (Ill. 1979).
Krasilnikova’s sole title was not decisive but rather a factor to
be considered. The district court gave little weight to the title
because it reﬂected “a number of serious irregularities.” Id. at
663.
    The court ultimately found that Miller and Krasilnikova
exercised shared control over the property so that each was
entitled to half of the proceeds. To reach an even split, the
court took guidance from Illinois divorce law. Illinois courts
split marital property “in just proportions.” Id., quoting 750
ILCS 5/503(d). The court concluded that a ﬁfty-ﬁfty split sat-
isﬁed that standard here, and at least that Krasilnikova did
6                                                          No. 21-2725

not prove she was entitled to more, as was her burden under
the FDCPA. The court therefore awarded the government
Miller’s half of the sale proceeds. Krasilnikova has appealed.
II. Analysis
    We review the district court’s factual ﬁndings for clear er-
ror and conclusions of law de novo. United States v. Henricks,
886 F.3d 618, 623 (7th Cir. 2018). Krasilnikova’s central argu-
ment on appeal is that the district court misapplied state law
by ﬁnding that Miller had an interest in the Crescent Avenue
property despite her sole title. We disagree.
    A series of property transfers and mortgages casts signiﬁ-
cant doubt on the legitimacy of Krasilnikova’s paper title.
Ample evidence suggests that Miller and Krasilnikova ma-
nipulated property and ﬁnancial records to conceal the true
ownership of the Crescent Avenue property. In such circum-
stances, Illinois law authorizes courts to evaluate ownership
in light of evidence of genuine control over the property. The
evidence showed that Miller and Krasilnikova exercised
equal control over the property and thus had equal property
interests at the time of sale. At the very least, the district court
did not clearly err in ﬁnding that they did. We turn now to
evidence of the history of the Crescent Avenue property, and
then apply Illinois law to this ownership dispute. 2

    2  Krasilnikova makes an additional argument related to the proper
framework for resolving her appeal. She asserts that the parties’ escrow
agreement, not the FDCPA, governs this dispute. It does not. The govern-
ment’s potential interest in the Crescent Avenue property stems from Mil-
ler’s restitution order, not the escrow agreement. While the escrow agree-
ment offered a practical solution to a time-sensitive problem, the parties
did not contract around the FDCPA, which “provides the exclusive civil
procedures for the United States … to recover a judgment on a debt” in
No. 21-2725                                                               7

    A. The Crescent Avenue Property
    In 2012, Krasilnikova purchased the Crescent Avenue
property with a $250,000 gift she received from her parents.
Miller handled the closing by himself at Krasilnikova’s direc-
tion. At the time, Miller and Krasilnikova were engaged.
Krasilnikova did not obtain title to the property immediately.
Instead, county property records indicate that the title passed
to a land trust. The beneﬁciaries of the trust were Krasilnikova
and Ellen Malecki, a person who would play a big role in later
transactions, and they were listed as joint tenants.
    In December 2012, Miller and Krasilnikova were married.
They razed the old house on the Crescent Avenue property
and built a new one. The improvements cost around $425,000.
To help ﬁnance the building, SRK Ventures LLC issued a
mortgage loan for $200,000 to the trust, with the loan to be
paid oﬀ in four months. The loan agreement bore
Krasilnikova’s and Ellen Malecki’s signatures, but Malecki
testiﬁed that her signature was forged. Miller himself
guaranteed the construction loan. A law ﬁrm disbursed the
funds from the trust to the subcontractors with Krasilnikova’s
and Ellen Malecki’s signatures, but Malecki testiﬁed that her
signature was again forged. 3

most cases. Sheth, 759 F.3d at 716 (omission in original), quoting 28 U.S.C.
§ 3001(a). And no other federal law, such as the Mandatory Victims Resti-
tution Act, applies in this case. See § 3001(b) (other collection procedures
may apply if “another Federal law specifies procedures for recovering on
a claim or a judgment for a debt arising under such law”).
    3 The loan was not paid off within the four months, so SRK filed a lien

on the property. Then in October 2013, a friend of Krasilnikova’s paid off
the balance of the SRK loan, which at that time was $250,000. SRK then
released the lien. Krasilnikova reimbursed the friend with part of the
8                                                         No. 21-2725

    Miller and Krasilnikova moved into the Crescent Avenue
property in 2013. The two would go on to live together and
raise two children there until they sold the property in 2019,
three months after Miller’s sentencing. During those years of
the couple’s residence, however, the paper trail of titles,
deeds, and mortgages was a byzantine tangle.
    In November 2013, Krasilnikova transferred to Ellen Mal-
ecki and Malecki’s husband her interests in the land trust that
held title to the Crescent Avenue property. Krasilnikova
acknowledged that her action “took myself oﬀ the title.” Ellen
Malecki testiﬁed that the only Malecki signature on the docu-
ment approving the transfer was forged. A week later, the
trust deeded the Crescent Avenue property to the Maleckis in
their own names. Ellen Malecki testiﬁed that, once again, she
and her husband did not know about the deed. The Maleckis’
names would remain on the title of the Crescent Avenue prop-
erty for the next two years, all while Miller and Krasilnikova
lived in the home.
    Then came a series of additional mortgages and title trans-
fers. First, in December 2013, a mortgage loan application was
submitted to Carrington Mortgage Services, LLC in the names
of the Maleckis. Miller witnessed and notarized the loan ap-
plication. Carrington loaned the Maleckis $417,000. In what is
becoming a familiar story, Ellen Malecki testiﬁed that she did
not know about the Carrington mortgage, that her and her
husband’s signatures were forged, and that she never re-
ceived the proceeds.

proceeds from a later mortgage. According to the evidence in the district
court, these transactions involving Krasilnikova’s friend were not docu-
mented.
No. 21-2725                                                   9

    Krasilnikova admitted in her testimony that the Carring-
ton loan was actually for her and Miller’s use. She also testi-
ﬁed that the Maleckis’ family history and ﬁnancial infor-
mation, instead of her own, were submitted to qualify for the
mortgage. (We use the passive voice advisedly because
Krasilnikova’s testimony about how this fraudulent transac-
tion was accomplished was so vague. See Dkt. 188, at 20–25.)
As the district court noted, Krasilnikova testiﬁed that she was
under the impression, from Miller, that Ellen Malecki had
agreed to “help me out” because Krasilnikova’s credit score
was not high enough to obtain a loan in her name. Cf. 18
U.S.C. § 1344 (criminal bank fraud). The district court also
found, on a point important to the bottom-line ﬁnding of
shared ownership, that Miller and Krasilnikova made
monthly payments on the loan from a joint checking account,
and that Miller and Krasilnikova paid property taxes from the
same joint checking account until late 2015.
    Property records indicate that the Maleckis quit-claimed
the property to Myers Building & Consulting in September
2015. Once again, Ellen Malecki testiﬁed that her and her
husband’s signatures were forged and that she did not know
about the transaction. It was Miller who notarized their
supposed signatures on the quit-claim deed. A week later,
Myers Building & Consulting quit-claimed the title to
Krasilnikova in her own name. Once again, Miller notarized
the transaction. On this transaction, Krasilnikova testiﬁed, her
own signature on the document was forged. Still, this is the
deed that Krasilnikova relies on to claim sole ownership.
   In October 2015, two more mortgages were taken out on
the Crescent Avenue property. The ﬁrst was from First Gen-
eration Capital LLC, which issued a loan for $310,000 secured
10                                                  No. 21-2725

by a mortgage on the property. The mortgage listed the Mal-
eckis as the mortgagors and OV18 LLC, one of Miller’s com-
panies, as the borrower. This time, Ellen Malecki testiﬁed, she
and her husband had actually signed the document. But she
added that she signed the document at Miller’s request with-
out knowing what the document was for and that she did not
receive any proceeds from the loan. As for Krasilnikova, she
testiﬁed that she did not know about this mortgage or loan.
Even though the loan was secured by a mortgage granted by
the Maleckis, who were no longer even nominally on the title,
the First Generation Capital loan was released on January 31,
2016. The record does not reﬂect who, if anyone, paid oﬀ the
loan.
    The second October 2015 mortgage came from FirstMerit
Bank. It issued a loan to Krasilnikova for $500,000 secured by
a mortgage on the Crescent Avenue property. Krasilnikova
testiﬁed that she used the proceeds from the FirstMerit loan
to pay oﬀ the earlier Carrington loan. Krasilnikova now as-
serts on appeal that she made monthly payments on the First-
Merit loan, but she provided no documentary evidence for
support in the district court.
    Then in May 2019, days after Miller was sentenced for wire
fraud, Krasilnikova entered into a contract to sell the Crescent
Avenue property to a third party for $855,000. Some of the
proceeds were then used to pay oﬀ the FirstMerit loan. Under
the parties’ agreement, the net proceeds were placed in es-
crow pending the court’s resolution of the dispute. The court
later granted a joint request from the parties to release half of
the net proceeds to Krasilnikova while it determined whether
the government had an interest in the rest.
No. 21-2725                                                     11

   B. The Legal Consequences for Ownership
    As noted above, we consult state law to determine the par-
ties’ property rights for purposes of the FDCPA. Henricks, 886
F.3d at 625. The parties agree that when Krasilnikova sold the
Crescent Avenue property shortly after Miller’s sentencing,
she conveyed a facially unencumbered title and that title was
in only her name. That title generally reﬂects legal ownership
is axiomatic. See, e.g., Denlinger, 982 F.2d at 235 (explaining
that “the rule everywhere in America” is that record title is
the “highest evidence of ownership” (internal citation omit-
ted)).
    A good illustration of the point is First Federal Savings &
Loan Ass’n of Chicago v. Pogue, 389 N.E.2d 652 (Ill. App. 1979).
In that case, a bank ﬁled a judgment lien on the property of a
land trust against the beneﬁciary of that trust. Under Illinois
law, a “beneﬁcial interest in an Illinois land trust is an interest
in personal property and not a direct interest in the real estate
res of the trust.” Id. at 655. The court found that since the rec-
ord title of the property was in the trustee’s name, the beneﬁ-
ciary did not have any “actual ownership or record title to
property … upon which a lien could be impressed.” Id.; ac-
cord, Wagemann Oil Co. v. Marathon Oil Co., 714 N.E.2d 107,
115 (Ill. App. 1999) (“To hold otherwise would be inconsistent
with the body of law holding that an interest in a beneﬁcial
interest does not attach to the real estate.”). This general prin-
ciple would point toward a conclusion that the government is
not entitled to any of the sale proceeds because Miller’s name
was not listed on the title.
   But the problem for Krasilnikova is that the larger record
shows that her claim to sole title is completely unreliable. As
the district court found, Miller and Krasilnikova engaged in a
12                                                   No. 21-2725

complex series of irregular and fraudulent transactions to
conceal true ownership of the Crescent Avenue property. To
rely on bare title here would ignore the actual circumstances
of those transactions. As we read Illinois law, in a rare case
like this one, where substantial evidence shows that the paper
title cannot be trusted, Illinois courts will consider other fac-
tors to determine true ownership of the property in dispute.
     We draw this understanding from cases in which Illinois
courts have recognized certain exceptions to the general rule
that title is king. For instance, in assessing real estate taxes,
the Illinois Supreme Court held that beneﬁciaries of a land
trust, though not in legal title, were the owners of the property
and therefore were liable for the tax. Chicago Title, 389 N.E.2d
at 544 (“Revenue collection is not concerned with the
‘reﬁnements of title’; it is concerned with the realities of
ownership.”). In Chicago Title, the court explained that its
prior opinions “indicate[d] a clear policy of the tax statute to
look beyond the mere holder of title for a determination of
ownership.” Id. at 545. Courts do not ignore title in land
taxation disputes. Rather: “While title may be a factor in
determining ownership it is not decisive. Of far greater
importance is control of the property and the right to its
beneﬁts.” Id. The idea that title does not always control
ownership disputes extends beyond taxes to other areas in
Illinois law as well. See, e.g., IMM Acceptance Corp. v. First
National Bank & Trust Co. of Evanston, 499 N.E.2d 1012, 1015
(Ill. App. 1986) (statute of frauds); Department of Conservation
v. Franzen, 356 N.E.2d 1245, 1250–51 (Ill. App. 1976) (eminent
domain proceedings).
   These cases indicate that in rare cases where substantial
evidence casts paper title into doubt, Illinois courts are willing
No. 21-2725                                                  13

to look beyond paper title and to take practical approaches to
resolving ownership questions. Cf. Chicago Title, 389 N.E.2d
at 544 (“where the primary issue involves ownership rather
than title, reliance on bare legal title would be inappropriate”
(internal citation omitted)). That practical approach is
especially suited to cases like this one, where the paper title
does not reliably reﬂect reality.
    A hypothetical example borrowing facts from this appeal
illustrates the need for this ﬂexibility in rare cases. Vary the
facts here and assume Miller had been sentenced in 2014,
when the title of the Crescent Avenue property was in the
Maleckis’ names. At that time, Miller and Krasilnikova had
built a new home on the property and were living there,
paying property taxes, and making payments from their joint
checking account on the Carrington mortgage that they had
taken out in the names of the Maleckis. Suppose the
government had then asserted a lien on the Crescent Avenue
property to secure restitution. A court would not have held
the lien invalid, letting Miller oﬀ the hook, just because the
Maleckis’ names—not his—were on the title, especially
without the Maleckis’ knowledge. We would not conclude
that Miller had no ownership interest when he lived in and
helped improve the property, made payments for mortgages
and property taxes, and orchestrated irregular and fraudulent
transactions so that property records would not show his
ownership interest. In that rare situation, Illinois law would
permit courts to look beyond title. The same is true here.
    We are not saying that a married couple cannot choose to
arrange their aﬀairs so that they maintain separate ownership
of properties, including a family residence. The problem here
is that the paper title in only Krasilnikova’s name is
14                                                 No. 21-2725

unreliable, as it stems from the series of fraudulent transac-
tions and forged signatures described above.
    Accordingly, the district court did not err in consulting
other facts indicating actual control and deciding to split the
proceeds equally between Miller and Krasilnikova. Neither
spouse exercised more control than the other. The property
was the family home for both. While Krasilnikova took out
some of the mortgage loans in her name, Miller facilitated the
closing and/or personally guaranteed some of those transac-
tions, sometimes even entering into mortgages and transac-
tions in Krasilnikova’s name, supposedly without her
knowledge. Payments for at least one of those mortgages, as
well as property taxes, came from a joint checking account
where they both deposited their paychecks.
   The district court considered these facts and found that
neither spouse exercised more control than the other. That
ﬁnding was not clearly erroneous, and the court reasonably
concluded that Miller and Krasilnikova each had a one-half
ownership interest in the sale proceeds. The government is
therefore entitled to Miller’s one-half interest of the Crescent
Avenue property sale proceeds under the restitution order.
The judgment of the district court is
                                                   AFFIRMED.