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United States v. Sonnenschein

May 4, 2009


The opinion of the court was delivered by: Reagan, District Judge


The undersigned District Judge has held dozens of hearings and entered over 50 Orders in the above-captioned case, a striking figure given the fact that Defendant Sonnenschein pled guilty immediately upon being charged in June 2003. The majority of the Orders related to the monetary penalties (restitution and fine) imposed via this Court's sentence and Defendant's endeavors to satisfy those obligations.

The circuitous odyssey of this case has included many strange ports of call and curious sights -- Brooklyn (Illinois) strip clubs, Denver (Colorado) storage lockers, divorce court, bankruptcy court, bronze sconces, silver bowls, Paso Fino horses and the in-court appearance of the hero of Super Bowl XXXIV. The journey nears its final destination as the undersigned Judge resolves the last question before him -- how to distribute $125,467.39 being held by the Clerk of Court. Resolution begins with brief overview of pertinent procedural history and key facts.

When his criminal troubles began, Defendant Dennis Sonnenschein was married to Linda Sonnenschein. The marriage did not survive these criminal proceedings. From the get-go, plea discussions between Dennis and the Government focused on an arrangement pursuant to which Linda would escape prosecution but Dennis would agree to serve prison time, surrender titles to several parcels of real property and pay hefty amounts in fine and restitution.

On June 9, 2003, Dennis pled guilty here to misprision of a felony. A month later, the District Court of Jefferson County, Colorado (where the Sonnenschein's divorce proceeding was pending) adopted a Special Master's Order, part of which provided that the first $1.5 million realized from the Sonnenschein's marital estate be deposited in the trust account of Dennis' criminal defense counsel and be used to satisfy the terms of the plea agreement.

On October 17, 2003, the undersigned District Judge sentenced Dennis. The sentence included $1,000,000 in restitution and a $250,000 fine. Judgment was entered three days later. During and after serving his term of imprisonment in this case, Dennis found himself drawn into various proceedings commenced by Linda in Colorado court.

In June 2005, Dennis discovered that Linda had stashed marital belongings in storage facilities in Denver. He alerted the United States Attorney for the Southern District of Illinois, who obtained a writ of execution from this Court, had the U.S. Marshal seize the property in question and moved to sell the property at auction. (The latter motion is referred to herein as the July 2005 Motion to Approve Sale.)

In October 2005, Linda filed for Chapter 7 bankruptcy protection in Colorado. Ultimately, in March 2008, the United States Bankruptcy Court for the District of Colorado approved a settlement agreement between Dennis and the Trustee in Bankruptcy for Linda. Under that agreement, the Trustee abandoned $125,000 derived from the sale of marital assets ("the Proceeds") in exchange for Dennis withdrawing a $246,000 claim against Linda's bankruptcy estate. The agreement required the Trustee to transfer the Proceeds to the registry of this Court.

In April 2008, the undersigned Judge granted a motion to deposit the Proceeds in this Court's registry. Three conflicting claims have been made for disposition of the Proceeds. Dennis maintains the Proceeds should be applied to his outstanding fine (Doc. 140). The United States contends the Proceeds must be applied against Dennis' tax liabilities (Doc. 141).*fn1 And a law firm who represented Linda in Colorado (McGuane & Hogan, LLP) wants the Proceeds to partially satisfy its attorneys' fee lien (Doc. 142).

The claimants have extensively briefed the issues via motions, supporting briefs, responses and replies. The Court heard oral arguments on April 3, 2009. Having carefully reviewed the thorough and ample record before it, the Court concludes that the Proceeds should be applied to satisfy Defendant's obligations in this criminal proceeding.

With respect for the fine work apparently done by McGuane & Hogan, LLP (McGuane) in the Colorado proceedings, its claim to the Proceeds fails for one simple reason. Neither the Proceeds nor the furniture and fixtures from which the Proceeds were derived ever were awarded to Linda in the Colorado divorce or bankruptcy case.*fn2

Because Linda never obtained the assets in question by judgment or settlement, her former counsel cannot assert a lien on the Proceeds from those assets.*fn3 Which leaves the Court to determine which of two federal coffers the Proceeds belong in, i.e., whether the Proceeds pay down Sonnenschein's fine owed to the United States in this criminal action or go to the United States to be paid toward his IRS tax liabilities.

Two facts bear note at this juncture. First, there would be no Proceeds, were if not for Dennis Sonnenschein's considerable effort and expense in tracking down the property hidden by Linda and advising the Government of its existence. Second, over three years ago, this Court undertook a formal process to identify any potential claimants to the property that became the Proceeds, and the IRS asserted no claim.

In the July 2005 Motion to Approve Sale, the Government acknowledged that Linda claimed an interest in the property, argued that any interest Linda had was inferior to the United States' interest, and assured the undersigned Judge: "There are no other liens ...

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