United States v. Saacks ( 1998 )

REVISED
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-30246
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
ANTOINE M. SAACKS, JR.,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Louisiana
December 16, 1997
Before WIENER, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.
WIENER, Circuit Judge:
Following his jury conviction on charges of bankruptcy fraud,
Defendant-Appellant Antoine M. Saacks, Jr. was sentenced to twenty-
four months imprisonment, a $7,000 fine, and payment of
restitution. In appealing his sentence to this court, Saacks
complains that the district court misapplied several of the United
States Sentencing Guidelines (the Guidelines). More specifically,
he asserts that the district court erred in (1) determining that,
for purposes of § 2F1.1(b)(1)(G), the total amount of debts that he
caused to be listed in the bankruptcy petition of Jimmy C’s Sports
Bar and Grill, Ltd. (Jimmy C’s) was a proper measure of the loss
that Saacks intended to inflict on the creditors of Jimmy C’s, the
debts of which Saacks had assumed personally; (2) imposing a two-
level increase under § 2F1.1(b)(2)(B) after concluding that those
creditors constitute “multiple victims”; and (3) deducing that
bankruptcy fraud constitutes a violation of a judicial “process,”
thereby requiring a two-level increase under § 2F1.1(b)(3)(B).
Convinced that the district court did not err reversibly in
sentencing Saacks, we affirm.
I
FACTS AND PROCEEDINGS
Saacks and his family owned Jimmy C’s. Representing all co-
owners, Saacks sold the corporation for about $76,700. Saacks and
his father executed a “counter letter” to the purchaser specifying
that they “do hereby agree that such liabilities [of Jimmy C’s]
owed and due as of this signing are [the Saacks’] responsibility.”
The Saacks subsequently made no payments on Jimmy C’s pre-sale
debts even though the creditors were referred to Saacks by his
vendee.
Although the parties disagree whether Saacks acted with or
without authority, none contest that in April 1992, he filed a
voluntary petition on behalf of Jimmy C’s, seeking relief under
Chapter 7 of the Bankruptcy Code. The petition listed debts to
more than seventy-five individual creditors constituting an
2
aggregate indebtedness of $74,520.11. The petition listed no
assets for Jimmy C’s despite the fact that Saacks had signed a
corporate tax return filed eleven days before the filing of the
bankruptcy petition, which return listed assets worth approximately
$118,000. The bankruptcy petition identified Saacks and his
relatives as the shareholders, failing to disclose that they had
previously sold Jimmy C’s for over $75,000 cash and that Saacks and
his father had assumed responsibility for its pre-sale debts by
virtue of the counter letter.
At a § 314 creditors’ meeting held during the month following
the filing of the bankruptcy petition, Saacks testified under oath
that (1) he was authorized to file the bankruptcy petition, (2) the
corporation had no assets, and (3) the purchaser of Jimmy C’s had
been allowed to acquire and operate the establishment without
making any payment to Saacks or his relatives. In reliance on
these mendacious representations, the trustee declared the
bankruptcy to be a no-asset case.
The gravamen of the government’s bankruptcy fraud case was
that Saacks had (1) concealed from the creditors, the bankruptcy
trustee, and the officers of the bankruptcy court, the significant
facts that the debtor corporation had assets, that it had been
sold, and that Saacks was personally liable for the pre-sale debts
of the corporation; and (2) made false reports on the Bankruptcy
Schedules and Statement of Financial Affairs. A jury convicted
Saacks of seven counts of bankruptcy fraud for which he was
eventually sentenced. His sentence was calculated by adding (1) a
3
base offense level of six for fraud, pursuant to § 2F1.1(a); (2) a
six-level increase because the scheme comprised a loss of over
$70,000, pursuant to § 2F1.1(b)(1)(G); (3) a two-level increase for
violating a judicial or administrative order or process, pursuant
to § 2F1.1(b)(3)(B); and (4) a two-level increase for targeting
multiple victims of the fraud, pursuant to § 2F1.1(b)(2)(B).
II
ANALYSIS
Two of the three sentencing issues of which Saacks complains
can be disposed of with relative ease; the third requires a bit
more analysis. We address the two straight-forward issues first
and reserve the more complex one for last.
A. Loss Caused by Fraud
Section 2F1.1 of the Guidelines specifies a base offense level
of six for fraud and provides for incremental increases in the
offense level depending on, inter alia, the amount of loss caused
by the fraud.1 Application Note 7 to § 2F1.1 defines loss in a
case involving fraud as “the value of the money, property, or
services unlawfully taken,” and specifies that “[i]f an intended
loss that the defendant was attempting to inflict can be
determined, this figure will be used if it is greater than the
actual loss.”2 The district court’s calculation of loss need not
be determined with precision; it need only be a reasonable
1
United States v. Smithson, 49 F.3d 138, 143 (5th Cir.
1995).
2
U.S. Sentencing Guidelines Manual (U.S.S.G.) § 2F1.1
App. Note 7.
4
estimate.3
We review the sentencing court’s determination of loss for
clear error.4 “[A]s long as the determination is plausible in
light of the record as a whole, clear error does not exist.”5
Saacks emphasizes, though, that the question presented by his
assignment of error regarding loss is not the amount of the loss
vel non but the method used by the district court to calculate the
loss. As thus framed, Saacks’ complaint implicates an application
of the Guidelines, which we review de novo.6
Although we agree with Saacks that the total of the debts
listed in a fraudulent bankruptcy petition is not necessarily an
appropriate measure of the loss intended, we disagree that the
sentencing court’s use of that figure under the circumstances of
this case is error. As noted, Saacks had (1) signed a tax return
under penalty of perjury listing assets worth some $118,000 only
days before filing the corporation’s bankruptcy petition;
(2) concealed the fact that he and his father had personally
guaranteed all pre-sale debts of Jimmy C’s; and (3) withheld the
fact that he and his family received roughly $75,000 in payment for
3
United States v. Chappell, 6 F.3d 1095, 1101 (5th Cir.
1993), cert. denied by Mitchem v. United States, 510 U.S. 1183
(1994) and Shephard v. United States, 510 U.S. 1184 (1994).
4
United States v. Ismoila, 100 F.3d 380, 396 (5th Cir.
1996), cert. denied by Debowale v. United States, 117 S. Ct. 1712
(1997) and Lawanson v. United States, 117 S. Ct. 1858 (1997).
5
Id.
6
United States v. Krenning, 93 F.3d 1257, 1270 (5th Cir.
1996).
5
Jimmy C’s. In light of all the facts and circumstances, Saacks’
contention that the only loss intended was the $2,000 to $12,000 in
used assets of the corporation is unavailing. Moreover, Saacks
sought to gain through the bankruptcy artifice full insulation of
the sales price of $75,000 received for, inter alia, his personal
liability for debts owed by Jimmy C’s to its pre-sale creditors.
Regardless of whether we were to review for clear error or de novo,
we would affirm the district court’s assignment of loss for
sentencing purposes.
B. Multiple Victims
The weakest contention advanced by Saacks is that the district
court erred in determining that his machinations involved “a scheme
to defraud more than one victim.” Without citation to authority,
Saacks contends that the bankruptcy estate alone, and not the
myriad pre-sale creditors of Jimmy C’s, was the victim of the fraud
for purposes of § 2F1.1(b)(2)(B). As urged by the government,
however, the plain language of the Guidelines cannot be
disregarded. We agree with the reasoning of the Ninth Circuit
which, in upholding a district court’s findings that the creditors
and the bankruptcy trustee were victims of bankruptcy fraud,
stated:
Clearly, the false statement [the defendant] made in
relation to his bankruptcy case was intended to result in
an undervaluation of the estate in bankruptcy and thus
the availability of less money to satisfy the demands of
the creditors. Thus, [the defendant] would have
“obtained something of value from more than one person,”
that being whatever portion of the estate to which they
as creditors were entitled but which was hidden by the
6
false statement.7
As with the amount of loss, we find no reversible error and
therefore affirm the district court’s two-level increase under
§ 2F1.1(b)(2)(B) for defrauding multiple victims.
C. Violation of Judicial or Administrative Order or Process
Saacks’ most vociferous complaint targets the district court’s
two-level increase for violating “any judicial or administrative
order, injunction, decree or process not addressed elsewhere in the
Guidelines,” pursuant to § 2F1.1(b)(3)(B). The sentencing court
reasoned that Saacks’ “conduct involved a fraud on the bankruptcy
system, which resulted in a violation of a judicial `process.’”
As Saacks correctly notes, this is an issue of first
impression in this circuit and one on which there is a split among
the other circuits that have ruled on the question. And, as this
issue clearly involves application of the Guidelines, we review the
determination of the district court de novo.
Again, our base point in this analysis is § 2F1.1, the general
sentencing provision for all fraud. In this context we find
important the observation that in neither § 2F1.1 nor any other
section of the Guidelines is there either a base offense level or
an enhancement provision for bankruptcy fraud as such.
Consequently, were we to stop with the general sentencing
provisions for fraud, we would fail to make any distinction between
the most pedestrian federal fraud offense and bankruptcy fraud with
7
United States v. Nazifpour, 944 F.2d 472, 474 (9th Cir.
1991) (per curiam) (quoting U.S.S.G. § 2F1.1 App. Note 3).
7
all of its implications of a scheme to dupe the bankruptcy court,
the trustee, and the creditor or creditors of the debtor, i.e., the
entire federal system of bankruptcy. If we imagine, for example,
some simple fraud with a federal nexus implicating one defrauder’s
attempt to defraud two individuals (“multiple victims” under
§ 2F1.1(b)(2)(B)) for a targeted amount of $70,000 (the same level
as the instant case for purposes of § 2F1.1(b)(1)(G)), our
hypothetical defrauder would be sentenced under precisely the same
offense level as Saacks, whose skulduggery directly affected the
federal bankruptcy system and thus some seventy-five creditors, a
bankruptcy trustee, and a bankruptcy judge. In casting about to
see if the Guidelines contain any provision that would distinguish
Saacks’ conduct from our hypothetical simple defrauder we, like the
district court before us, focus first and foremost on
§ 2F1.1(b)(3)(B), which calls for a two-level increase for
violation of a judicial or administrative order or process.
Saacks insists that § 2F1.1(b)(3)(B) cannot have been intended
to add two levels to fraud’s base offense level of six in every
sentencing of every person found guilty of bankruptcy fraud. Yet,
he urges, that would be the result of deeming the standing orders
of the bankruptcy court an “order” and the bankruptcy system a
“process” for purposes of the subject subsection of the Guidelines.
The principal thrust of Saacks’ argument comes from his invoking
Application Note 5, which states:
Subsection (b)(3)(B) provides an adjustment for violation
of any judicial or administrative order, injunction,
decree or process. If it is established that an entity
the defendant controlled was a party to the prior
8
proceeding and the defendant had knowledge of the prior
decree, this provision applies even if the defendant was
not a specifically named party in that prior case. For
example, a defendant whose business was previously
enjoined from selling a dangerous product, but who
nonetheless engaged in fraudulent conduct to sell the
product, would be subject to this provision.8
Although an Application Note is not entitled to the same weight as
a Guideline, it is considered authoritative.9 Saacks insists that
the plain language of the Application Note makes clear that the
Sentencing Commission intended for this provision to apply in
limited circumstances only, i.e., when a particular order,
injunction, decree, or process existed previously and was
subsequently violated.
Recognizing that a majority of the circuits are of a different
persuasion, Saacks attempts to distinguish the cases that have held
that bankruptcy fraud warrants an increase under § 2F1.1(b)(3)(B).
Saacks describes as “tautological” the Eight Circuit’s reasoning in
United States v. Lloyd, the first case to address the issue, which
concluded that even though the defendant “did not violate a
specific judicial order, injunction or decree . . . [he] did
violate a judicial process by fraudulently concealing assets from
bankruptcy court officers.”10 In criticizing Lloyd, Saacks notes
8
U.S.S.G. § 2F1.1 App. Note 5 (emphasis added).
9
United States v. Alexander, 100 F.3d 24, 26 (5th Cir.
1996), cert. denied, 117 S. Ct. 1273 (1997) (“[W]here the
commentary to a guideline section functions to interpret that
section or to explain how it is to be applied, a sentencing court
is bound to consider its implications, unless it is plainly
erroneous or inconsistent with the guidelines.”).
10
947 F.2d 339, 340 (8th Cir. 1991).
9
that the court cited neither Application Note 5 nor any other
authority for its position. Saacks also faults the Eleventh
Circuit’s decision in United States v. Bellew for the same
reasons.11 And, Saacks likewise takes issue with the Seventh
Circuit’s majority opinion in United States v. Michalek.12
Further castigating the line of cases that apply the subject
enhancement, Saacks insists that this constitutes double-counting.
In support of his contention, he urges us to adopt the reasoning of
the dissent in Michalek, which states:
The error of the majority is particularly clear in this
case, where the defendant’s only violation was the core
violation —— bankruptcy fraud —— upon which his base
offense was calculated. The defendant did not violate a
bankruptcy “process” in addition to or while committing
bankruptcy fraud. He did not do any act except the
commission of bankruptcy fraud to trigger application of
this enhancement. The district court’s use of this
enhancement derogated the very structure of the
Sentencing Guidelines whereby the core crime corresponds
to the base offense level and the enhancements correspond
to the particular facts of the crime as it was committed
by the defendant.13
11
35 F.3d 518, 521 (11th Cir. 1994) (per
curiam)(concluding that the defendant had violated a “judicial
order” by disobeying the “mandate of the Bankruptcy Rules and
Official Forms that a debtor truthfully disclose assets and
liabilities”).
12
54 F.3d 325 (7th Cir. 1995) (concluding that the
enhancement is applicable); see also United States v. Mohammad,
53 F.3d 1426 (7th Cir. 1995).
13
Michalek, 54 F.3d at 336 (Ferguson, J., dissenting)
(citations omitted). Saacks contends that the Seventh Circuit
retreated from the majority view in Michalek when it decided United
States v. Gunderson, 55 F.3d 1328 (7th Cir. 1995), in which the
court looked to Application Note 5 and stated: “From [the language
of Application Note 5]. Gunderson concludes that `it appears that
the two-point enhancement at issue here is designed to apply when
a defendant has had a previous warning.’ We agree.” Id. at 1333.
As Gunderson had been given such a previous warning, however, the
10
Consistent with his position that the Seventh Circuit has
backed off from the position of the majority in Michalek, Saacks
argues that a growing minority of the circuits —— including the
First Circuit14 and the Second Circuit15 —— have retreated from the
automatic enhancement and now take the position that, without more,
§ 2F1.1(b)(3)(B) does not automatically mandate a two-level
increase in every bankruptcy fraud sentencing.
Not surprisingly, the government urges us to adopt the
majority view that bankruptcy fraud violates a judicial process,
thereby justifying the two-level increase. In addition to its
reliance on Lloyd, Michalek, and Bellew, the government undergirds
its position with the recent Tenth Circuit opinion in United States
v. Messner, which adopted the majority view by reasoning that:
Bankruptcy fraud undermines the whole concept of allowing
a debtor to obtain protection from creditors, pay debts
in accord with the debtor’s ability, and thereby obtain
a fresh start. When a debtor frustrates those objectives
by concealing the very property which is to be utilized
to achieve that purpose, the debtor works a fraud on the
entirety of the proceedings.16
Embracing the Messner logic, the government posits that, as the
Bankruptcy Rules and Official Forms require a debtor to disclose
all assets and liabilities truthfully,17 Saacks violated a judicial
court determined that the increase was applicable. Id.
14
United States v. Shadduck, 112 F.3d 523 (1st Cir. 1997).
15
United States v. Carrozzella, 105 F.3d 796 (2d Cir.
1997).
16
107 F.3d 1448, 1457 (10th Cir. 1997).
17
See, e.g., Bankruptcy Rules 9009 and 9011, 11 U.S.C.A.
11
order or process within the meaning of the subject Guideline by
fraudulently concealing assets and relevant information in the
bankruptcy proceedings.18 Thus, argues the government, it was not
necessary for any particular prior order to issue from the
bankruptcy court and then be violated; the mandated standing rules,
policies and procedures are laid out for all filers and thus exist
prior to the filing of petitions.19
Disagreeing with Saacks, the government insists that
increasing the offense level for those convicted of bankruptcy
fraud will not result in double-counting: As § 2F1.1 is a broad
guideline covering a variety of crimes besides fraud, including
deceit and forgery, adjustment of an offender’s sentence based on
the specific characteristic of his offense, such as the bankruptcy
element of bankruptcy fraud, is appropriate.20 The government
further bolsters its position in support of the sentencing court’s
two-level increase for Saacks by noting that, even if we were to
find that bankruptcy does not constitute a judicial process, it
must be an administrative process, to which § 2F1.1(b)(3)(B)
applies with equal force.
18
See, e.g., Bellew, 35 F.3d at 521.
19
See id.; see also United States v. Welch, 103 F.3d 906,
907-08 (9th Cir. 1996).
20
See Michalek, 54 F.3d at 331. This is the point at
which we, like the Michalek majority, diverge from Judge Ferguson’s
dissent in that case. He insists that bankruptcy fraud is the
“core violation.” Even if this is true for the conviction, we
cannot see it that way for purposes of sentencing. Within the
Guidelines, the “core violation” is fraud, plain and simple;
bankruptcy fraud is a specialized, considerably more egregious type
of fraud.
12
On this matter of first impression in this circuit, the margin
of the majority of the other circuits is admittedly less than
overwhelming. And Saacks is far from frivolous in urging that we
cast our lot with the significant minority position which rejects
adding two levels to the base offense level for fraud every time it
is used in the sentencing calculus for bankruptcy fraud. Perhaps
his most compelling argument is the triple reference in Application
Note 5 to “prior” proceedings, decrees, and cases. We nevertheless
remain unconvinced and therefore elect to join the majority which
recognizes bankruptcy fraud as implicating the violation of a
judicial or administrative order or process within the
contemplation of § 2F1.1(b)(3)(B). We find sound the reasoning of
those circuits constituting the majority position, which emphasizes
the fact that, even when the fraudulent debtor takes the very first
act by filing his petition in bankruptcy, he is acting subsequently
to the previously adopted and promulgated standing orders and
standard forms, all of which command complete and truthful
disclosure.
III
CONCLUSION
Irrespective of the standard of review under which we analyze
Saacks’ challenges to the district court’s factual bases and legal
application of the Guidelines, we are convinced that no reversible
error infected that court’s determination of the sentence it
imposed on Saacks: The loss he intended to inflict on the creditors
of Jimmy C’s exceeded $70,000; the intended victims were multiple;
13
and his fraud on those creditors, the bankruptcy trustee, the
bankruptcy court, and thus the entire bankruptcy regime,
constituted a violation of judicial or administrative orders or
process. For the foregoing reasons, Saacks’ sentence is, in all
respects,
AFFIRMED.
14