United States of America v. Peter G. Rogan

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3718
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
PETER G. ROGAN,
Defendant.
410 MONTGOMERY, LLC, et al.,
Garnishees.
DIANE WHITLOW and
ESTATE OF JERRY WHITLOW,
Claimants-Appellants.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 3310—John W. Darrah, Judge.
ARGUED APRIL 14, 2011—DECIDED MAY 12, 2011
Before EASTERBROOK, Chief Judge, and ROVNER and
SYKES, Circuit Judges.
EASTERBROOK, Chief Judge. The United States has a
judgment for more than $60 million against Peter Rogan,

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2 No. 10-3718
who defrauded the Medicare and Medicaid programs.
See United States v. Rogan, 517 F.3d 449 (7th Cir. 2008).
Rogan, who has fled the country, concealed his wealth
in an attempt to frustrate his many creditors. See, e.g.,
Dexia Crédit Local v. Rogan, 629 F.3d 612 (7th Cir. 2010).
By tracing Rogan’s assets, the United States discovered
that he had invested in 410 Montgomery LLC, a firm
that built housing in Georgia. (Rogan made these invest-
ments through foreign trusts, some nominally owned by
his relatives. We disregard the trusts and treat Rogan
as the investor.)
The United States served 410 Montgomery with a writ
of garnishment against Rogan’s membership interest in
the business venture. See 28 U.S.C. §3205. The company
sold its holdings, paid its secured creditors, liquidated,
and placed the money in escrow. The district court ap-
proved distributions for closing costs. The residue came
to a little more than $4 million, and the United States
asked for all of it.
Jerry Whitlow and Diane Whitlow filed claims to about
$175,000 of the amount on deposit. (Jerry Whitlow has
since died, and his estate has been substituted as a
party. We refer to Diane Whitlow and the estate as the
Whitlows.) The Whitlows say that they own a one-
third interest in Taylor Row LLC, to which 410 Mont-
gomery LLC owes about $475,000. The United States
opposed the Whitlows’ claims, relying on §3205(c)(8),
which provides that a writ of garnishment under §3205
“shall have priority over writs which are issued later
in time.” The Whitlows replied that their entitlement

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No. 10-3718 3
does not depend on a writ but on Georgia law, which
establishes that creditors must be paid before equity
investors. Taylor Row is a creditor of 410 Montgomery,
while the United States stepped into the shoes of
Rogan, an equity investor. (If 410 Montgomery had been
a corporation, Rogan would have been a shareholder;
because 410 Montgomery was a limited liability com-
pany, he held membership units. These are functionally
similar to shares of stock.) The district court held
that §3205 displaces Georgia law. Because the United
States obtained a writ of garnishment, while Taylor
Row never obtained a writ of any kind, all of the money
belongs to the United States, the court concluded.
The disputed funds remain in the escrow pending
this appeal.
The Whitlows contend, and the United States concedes,
that, if Georgia law governs, any debt to Taylor Row
must be paid before funds can be disbursed to 410 Mont-
gomery’s equity investors. Normally state law prescribes
what the United States can attach or collect as a creditor.
United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979). The
United States contends that §3205 displaces state law
once the national government obtains a writ of garnish-
ment. That is not what §3205 says, however. Subsection
3205(c)(8), on which the United States relies, establishes
priority among competing writs. If the Whitlows were
trying to collect from Rogan’s assets, then §3205(c)(8)
would give priority to the United States. See United
States v. Kollintzas, 501 F.3d 796, 802–03 (7th Cir. 2007),
which we discuss later. But the Whitlows have not made

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4 No. 10-3718
a claim against Rogan’s assets; their claim is against
410 Montgomery’s assets (represented by the funds in
escrow).
Subsection 3205(c)(8) does not specify what a writ
covers. Does the writ of garnishment give the United
States rights directly in 410 Montgomery’s assets, or only
in Rogan’s equity interest in that firm? Although the
question is a novel one—no appellate decision discusses
it—novelty does not imply difficulty. Section 3205(a)
supplies the answer. It reads:
A court may issue a writ of garnishment
against property (including nonexempt dispos-
able earnings) in which the debtor has a substan-
tial nonexempt interest and which is in the pos-
session, custody, or control of a person other
than the debtor, in order to satisfy the judgment
against the debtor. Co-owned property shall be
subject to garnishment to the same extent as co-
owned property is subject to garnishment under
the law of the State in which such property is
located. A court may issue simultaneous separate
writs of garnishment to several garnishees. A writ
of garnishment issued under this subsection shall
be continuing and shall terminate only as pro-
vided in subsection (c)(10).
This tells us two things. First, the writ covers the property
“in which the debtor has a substantial nonexempt
interest”—which is to say, Rogan’s membership units in
410 Montgomery LLC, not the real estate that 410 Mont-
gomery developed. Investors in corporations and LLCs

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No. 10-3718 5
own tradable shares or units; they do not own the com-
pany’s assets. The separation of investment interests
from operating assets is a fundamental premise of
business law. See Landreth Timber Co. v. Landreth, 471 U.S.
681 (1985). Equity investors are residual claimants; they
get only what is left after debts have been paid. Second,
if we were nonetheless to treat 410 Montgomery’s assets
as property that Rogan “co-owned” with other in-
vestors (including the banks and Taylor Row), then the
law of the state in which the property is located deter-
mines how far the writ of garnishment reaches. That’s
Georgia law—and the parties agree that a writ under
Georgia law would not vault equity investor Rogan
(and hence would not promote the United States) over
creditors’ interests.
An example may help. Suppose Rogan invested
$2 million in 410 Montgomery LLC and the Whitlows
$2 million; each thus would have 50% of the member-
ship interests, and each would be entitled to 50% of any
liquidating distribution. Both interests in this example
are equity. Neither Rogan nor the Whitlows could have
obtained a judgment or lien against 410 Montgomery’s
assets; their interest is in the firm, not the assets it owned.
The United States gets a judgment against Rogan, gar-
nishes his equity interest, and causes 410 Montgomery
to liquidate so that Rogan’s stake can be paid over. Let
us suppose that the condos sell for $6 million (in other
words, that the real estate venture made a $2 million
profit). What the United States argues here is that it
would receive the entire $6 million and the Whitlows
nothing. This is the only possible outcome, the United

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6 No. 10-3718
States contends, because the Whitlows did not have a
writ against 410 Montgomery. But why should the
United States be entitled to the Whitlows’ half of the
business, when §3205(a) says that the writ applies only
to Rogan’s assets? We should not impute to Congress
a plan to confiscate private property without just com-
pensation (or, indeed, any compensation). And if the
Whitlows keep their interest when they are equity in-
vestors, they assuredly keep it as debt investors (credi-
tors), for debt has higher priority than equity.
The United States relies heavily on Kollintzas. Frank
Kollintzas was ordered to pay some $25 million in resti-
tution. He absconded, and the United States obtained a
lien against some of his assets, such as pension plans,
checking accounts, and the cash surrender value of his
life insurance policies. See 18 U.S.C. §3613(c). Frank’s
wife Joanna filed for divorce and made a claim to some
of Frank’s assets; she contended that the divorce court
should determine her share. We held that the right
forum is the federal court, which issued the judgment
that created the lien, and that the United States had an
interest in Frank’s assets senior to Joanna’s. This decision
rested on two conclusions: first, that Joanna was making
a claim to some of Frank’s assets (rather than, say, to
a marital share in jointly owned assets such as a resi-
dence); second, that Indiana law would give Joanna’s
claim a priority date as of the divorce decree, which
came after the lien had been perfected. 501 F.3d at 803.
Kollintzas does not help the United States, because the
Whitlows are not claiming any of Rogan’s assets. As
we have emphasized, what Rogan owned was a mem-

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No. 10-3718 7
bership interest in 410 Montgomery LLC. The Whitlows
don’t want any part of that equity interest; their claim
is against the LLC’s own assets, in which creditors
have entitlements senior to those of equity investors.
Our conclusion that §3205 does not seize third-party
interests recognized by state law leaves several questions
unanswered. Did 410 Montgomery LLC owe a debt to
Taylor Row LLC? If so, how much? If it owed money
to Taylor Row LLC, why are the Whitlows the right
parties to receive that money? Just as Rogan’s investment
in 410 Montgomery LLC did not give Rogan a property
interest in the firm’s assets (Rogan owned only his mem-
bership interests), so the Whitlows’ investment in Taylor
Row LLC did not give them an interest in that firm’s
assets. Georgia law allows investors in limited liability
companies, as in corporations, to pursue derivative
actions, see Ga. Code §14-11-801; Uniform Limited
Liability Company Act §902 (rev. 2006), but the
Whitlows have not followed that route. Instead they
bypassed Taylor Row and asserted a claim directly
against 410 Montgomery. A direct claim would cut out
other equity investors in, and creditors of, Taylor Row.
The potential to undermine such interests is one reason
why investors can’t pierce their own firm’s structure
and assert its rights directly. See Mid-State Fertilizer Co.
v. Exchange National Bank, 877 F.2d 1333 (7th Cir. 1989).
Georgia does not appear to permit a suit of this nature;
direct actions are proper only with respect to an
investor’s own rights against the LLC or its other mem-
bers. Southwest Health & Wellness, L.L.C. v. Work, 282 Ga.
App. 619, 639 S.E.2d 570 (2006); see also Uniform Limited

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8 No. 10-3718
Liability Company Act §901. Does some other provision
of Georgia law permit the sort of direct claim that the
Whitlows have presented? Has the United States for-
feited any objection to the direct nature of this claim?
These and any other material issues are open on remand.
The judgment is vacated, and the case is remanded
for proceedings consistent with this opinion.
5-12-11

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