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United States v. Tully

April 30, 2002

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
WILLIAM E. TULLY, ET AL., DEFENDANTS,
APPEAL OF: TRAVIS V. PHERSON, ET AL., CLAIMANTS.



Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 95 CR 116--James T. Moody, Judge.

Before Bauer, Ripple, and Manion, Circuit Judges.

The opinion of the court was delivered by: Manion, Circuit Judge

Argued February 20, 2002

Donald L. Vauters, Jr., was indicted for several counts of mail fraud, securities violations, and money laundering. In a plea agreement with the government, he acknowledged his involvement in a conspiracy to commit mail fraud in violation of 18 U.S.C. sec. 371, and agreed that proceeds from the sale of certain real estate, titled in his wife's name but under his direct control, would be used to pay restitution to his victims. When the government filed a motion to disburse the proceeds from the sale of the property to the restitution victims, various individual claimants objected. The district court overruled the claimants' objections, and granted the government's motion to disburse. The claimants appeal the district court's decision. We affirm.

I.

Between September 12, 1994 and March 6, 1995, Travis Van Matre Pherson, Bedelia Weirick, Raymond Weirick (through his widow, Bedelia Weirick), Virginia Siscoe, Beryl Siscoe, Donald and Marjorie Phillips, and Illene Burton ("claimants") collectively invested $157,000 with Mallard Marketing, Inc. In return for their investments, Mallard's president, Donald L. Vauters, Jr., executed and delivered promissory notes to the claimants that referenced the construction of a private residence and promised to pay them back the principal amount of their loans, with interest at the rate of 10% per annum, by certain due dates. The promissory notes provided that if they were not paid in full by their respective due dates, Mallard, the maker, would execute and record mortgage liens in favor of the claimants, as note holders, on property commonly known as 4418 East 50 North, Lafayette, Indiana, and more particularly described as: "Part of lot 32 and lot 33 in Wildcat Valley Estates Subdivision, Phase One, Fairfield Township, as recorded in Document No. 94-20581, in the Tippecanoe County Recorder's Office, Tippecanoe County, Indiana" ("Lot 32/33").

Unfortunately for the claimants, Mallard never owned Lot 32/33. Baumco, Inc. or Connie I. Vauters *fn1 was the title holder of record for the real estate during the time period the claimants invested their money with Mallard. The deed to Lot 32/33 was conveyed to Connie Vauters, in her personal capacity, by Baumco, Inc. on or about October 20, 1994, and was recorded in the Tippecanoe County Recorder's Office on October 24, 1994. Shortly thereafter, Mallard constructed a two-story private residence on Lot 32/33 with the money it received from the claimants and additional funds that Connie Vauters obtained by issuing a mortgage on the property in favor of Sure Foundation, Inc. Mallard subsequently defaulted on each of the claimants' promissory notes, none of which was ever secured by a mortgage on Lot 32/33.

On December 12, 1995, a criminal indictment was returned against Donald Vauters, among others, charging him with numerous counts of mail fraud, securities violations, and money laundering. That same day, the district court issued a protective order prohibiting the disposition of Lot 32/33, in which Donald Vauters had an interest. Lot 32/33 was thereafter sold for $251,500 pursuant to an Order of Sale and Stipulated Motion for Sale ("Order of Sale") approved by the district court on July 25, 1996.*fn2 On or about August 9, 1996, the net proceeds from the sale of Lot 32/33, $229,349.29, were deposited into an interest-bearing account with the district court pursuant to Fed. R. Civ. P. 67.*fn3

On April 21, 1998, Donald Vauters pleaded guilty to conspiracy to commit mail fraud, and in doing so acknowledged that he was the true owner of Lot 32/33, even though his wife was publicly listed as the record title holder for the property. As part of his plea agreement, Vauters agreed that the proceeds from the sale of Lot 32/33 would be used to pay restitution to the numerous victims of his criminal misconduct. On February 10, 1999, Vauters was sentenced by the district court. His sentence provided, among other things, that he pay restitution to his victims in the amount of $5,701,735.92.

On October 29, 1999, the United States filed a motion seeking an order authorizing the clerk of court to disburse the proceeds from the sale of Lot 32/33 to the named restitution victims. In that motion, the government noted that "there are individuals [i.e., the claimants] who are not restitution victims who may claim some right, interest or title to the proceeds of the sale of [Lot 32/33] . . . ." A copy of the motion was mailed to each of the claimants that same day.

On or about February 14, 2000, the claimants filed "Notices of Claims" in response to the government's motion to disburse funds, objecting to the disbursement of the proceeds from the sale of Lot 32/33 to the restitution victims. The claimants argued that because the private residence on Lot 32/33 was primarily constructed with the money they invested with Mallard, they had equitable liens on the property that now covered the sale proceeds. The claimants further contended that their respective interests were superior to those of any other "claimants and parties of interest." The basis of the claimants' objections to the government's motion to disburse funds, both here and at trial, is that Mallard's promises to execute mortgage liens on their behalf, in return for the money they loaned the corporation, created equitable liens on Lot 32/33 that now cover the proceeds obtained from the forced sale of the property. The government argues that the claimants did not have equitable liens on Lot 32/33 at the time the property was sold. Furthermore, the government contends that even if such liens existed, they would nevertheless be inferior to the statutory lien the United States has on the sale proceeds, pursuant to 18 U.S.C. sec. 3613(c),*fn4 as a result of the district court's restitution order. The district court agreed with the government's position, and granted its motion to disburse funds. The claimants filed a timely appeal to the district court's decision.

II.

The facts of this case are undisputed. The questions before us are whether, under Indiana law, the claimants possessed equitable liens on Lot 32/33 at the time the property was sold, and, if so, whether those liens have priority over the government's sec. 3613(c) lien with respect to the proceeds from the sale of the property. We review these issues de novo. See, e.g., Appeal of Swartz, 18 F.3d 413, 415-16 (7th Cir. 1994).

Because the real estate at issue is located in Indiana, Indiana law is controlling on the question of whether the claimants have equitable liens on the proceeds from the forced sale of Lot 32/33. See, e.g., United States v. Craft, No. 00-1831, ___ U.S. ___, 2002 WL 561332, *3 (April 17, 2002) ("[a] common idiom describes property as a 'bundle of sticks'--a collection of individual rights which, in certain combinations, constitute property. State law determines only which sticks are in a person's bundle. . . .") (internal citations omitted). Under Indiana law, an equitable lien on real property is created when a property owner creates a written agreement that sufficiently indicates an intention to make his property, as described in the agreement, a security for a debt or other obligation. See, e.g., Gretzinger v. Arehart, 193 N.E. 714, 716 (Ind. App. 1935). As with liens at law, "where the existence of an equitable lien depends on construction of a written contract based on valuable consideration, a lien may be declared where the intent to secure an obligation ...


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