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United States v. The Polivka Group, LLC

United States District Court, N.D. Illinois, Eastern Division

July 6, 2017



          Joan B. Gottschall United States District Judge.

         Andrew J. Polivka (“Polivka”) works as a commercial real estate agent. He operates a single-member limited liability corporation, the Polivka Group, LLC (“the LLC”). Polivka and the LLC defaulted on a loan guaranteed by the Small Business Administration. In 2012, the United States obtained a $65, 812.40 default judgment against both defendants. (ECF No. 17.) The government moves under a provision of the Federal Debt Collection Procedures Act of 1990 (“FDCPA”), 28 U.S.C. § 3204, for an order requiring Polivka to make installment payments on the judgment. See generally United States v. Badger, 818 F.3d 563, 572-73 (10th Cir. 2016) (discussing the FDCPA's purpose and providing an overview of the statute).


         Section 3204, under which the government is proceeding, authorizes a court to order a judgment debtor to make installment payments when the evidence shows that the judgment debtor: “(1) is receiving or will receive substantial nonexempt disposable earnings from self employment that are not subject to garnishment; or (2) is diverting or concealing substantial earnings from any source, or property received in lieu of earnings.” 28 U.S.C. § 3204(a) (West 2017); see also Id. § 3204(c)(1) (exempting judgment debtor that is subject to a writ of garnishment under the FDCPA).

         If one or both of those conditions are met, the court must consider “after a hearing, the income, resources, and reasonable requirements of the judgment debtor and the judgment debtor's dependents, any other payments to be made in satisfaction of judgments against the judgment debtor, and the amount due on the judgment in favor of the United States” when fixing the amount of an installment payment. Id. § 3204(a); see also Davis v. United States, 569 F. App'x 322, 325 (5th Cir. 2014) (holding § 3204 allows district court to fix payment at “any amount supported by the totality of his finances, so long as substantial nonexempt disposable earnings [a]re available”).

         II. ANALYSIS

         The parties primarily disagree about how, if at all, to separate the income and expenses of Polivka and the LLC. In April 2017, the court entered an order stating that it could not “determine how to allocate the income and expenses reflected in the record between Polivka and [the LLC].” (Order 2, ECF No. 46.) The order described the record this way:

[N]o party has provided separate evidence of Polivka's personal income. Nor does any party explain why the Polivka Group, LLC's earnings and expenses should be equated to Polivka's. Polivka asserts, without citing legal authority, that his “sole source of income” is the net ordinary income of the Polivka Group, LLC. ECF No. 45 ¶ 8. The profit and loss statement does not reflect that Polivka pays himself a salary, however. See ECF No. 45 -7 at 1.
Furthermore, some of the expenses listed in the Polivka Group, LLC's profit and loss statement match expenses Polivka claims as personal expenses. The profit and loss statement expenses include the amount of the entire cost of rent for the space in which Polivka works and lives, for instance. Compare ECF No. 45-7, with ECF No. 45-3 (letter of understanding regarding rental). The statement also lists the cost of internet access; expenses related to maintenance of a car, including parking and gas; and fees for membership in the multiple listing service and other fees for membership in professional organizations as expenses. See Profit & Loss Stmt. 1, ECF No. 45-7. On the other hand, other costs claimed by Polivka as personal expenses are not reflected on the profit and loss statement, even though some, such as health insurance, are sometime[s] born[e] by an employer. Compare ECF No. 45 ¶ 7 (listing as expenses children's school tuition, daycare, rent, utilities, health insurance, cost of medical services for Polivka's children, and personal obligation to the Internal Revenue Service), and ECF No. 45-6 at 1 (IRS notice of intent to levy addressed to Polivka personally), with Profit & Loss Stmt. 1 (listing rent, phone, and internet access as expenses but omitting health insurance costs).

(Id. at 2-3.) The court ordered the parties to file supplemental memoranda clarifying their positions on which income and expenses are attributable to the LLC and which are attributable to Polivka. (Id. at 3.)

         Building on the fact that Polivka and the LLC are both judgment debtors, the government argues that treating the LLC's income and expenses as Polivka's makes practical and legal sense. It also suggests that piercing the corporate veil between Polivka and the LLC is appropriate because the two “are so intertwined that the court should consider them the same.” (See Supplemental Mem. 1-3, ECF No. 52.) Lastly, the government maintains that the profits of a single-member LLC are generally taxed as the member's gross earnings and cites a bankruptcy case to argue that Polivka would be required to list the LLC's gross, rather than net, income as his income. (See Supplemental Mem. 3-4, ECF No. 52 (citing In re Stamat, 395 B.R. 59 (Bankr. N.D.Ill. 2008), aff'd sub nom. Neary v. Stamat, No. 08 C 6543, 2009 WL 2916834 (N.D. Ill. Sept. 2, 2009) and In re Mosher, 417 B.R. 772, 782 (Bankr. N.D.Ill. 2009)).

         Polivka disagrees. He urges the court to treat his and the LLC's income and expenses as separate. He submits cash flow and profit-and-loss statements for the LLC showing that he took $7, 021.66 as his “owner's draw” from the LLC in calendar year 2016. (Stmt. Cash Flows 1, ECF No. 54-3; see also Id. Ex. 2 (cash flow statement showing owner's draw of $725.04 for Jan.-Mar. 2017)). The LLC earned $58, 525.91 in gross income during the same period, according to the profit and loss statement in the record. (Profit & Loss Stmt. Calendar Year 2016 at 1, ECF No. 54-5; see also Profit & Loss Stmt. Jan.-Mar. 2017 at 1, ECF No. 54-6 ($4, 836.30 in gross income)).

         The FDCPA's definitions section, § 3002, points the way to resolving this dispute. As it turns out, neither party is entirely correct.

         A. Polivka is Receiving Earnings ...

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