United States v. Ronald Arthur ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 07-1052 & 07-1267
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
R ONALD A. A RTHUR and M ARY K. A RTHUR,
Defendants-Appellants.
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 04 CR 122—Lynn Adelman, Judge.
A RGUED M AY 26, 2009—D ECIDED S EPTEMBER 17, 2009
Before E ASTERBROOK, Chief Judge, and B AUER and
P OSNER, Circuit Judges.
B AUER, Circuit Judge. Ronald Arthur (“Ronald”) filed a
Chapter 7 bankruptcy petition to discharge various
debts incurred over a period of time. Ronald claimed to
have few assets to satisfy the various claims. The fact was,
however, he had transferred, prior to the proceeding,
assets not listed in the petition to his wife Mary Arthur
(“Mary”). More assets were transferred to Mary after
2 Nos. 07-1052 & 07-1267
the petition had been filed. The matters were presented
to a grand jury, which charged both Ronald and Mary
with various counts of bankruptcy fraud and money
laundering. After a bench trial, the district court found
that the couple conspired to conceal Ronald’s assets from
both the trustee and the bankruptcy’s creditors, in an
attempt to have all of his debt discharged while re-
taining the money.
Ronald attacks all aspects of his convictions and sen-
tence, claiming constitutional violations and various
district court trial errors. Mary challenges the sufficiency
of the evidence as to her convictions. We affirm.
I. BACKGROUND
After Barbara Doyle obtained a judgment for $125,000
against Ronald based on damages to her property by
loggers affiliated with Ronald, he filed a Chapter 7 bank-
ruptcy petition and accompanying schedules to dis-
charge the debt in the United States Bankruptcy Court for
the Eastern District of Virginia. The proceedings were
later transferred to the Eastern District of Wisconsin.
In the course of these proceedings, it became apparent
to the trustee that Ronald had more assets than he had
disclosed in his petition; that he had transferred virtually
all of his income and assets to his wife Mary through
various marital property agreements. And several of his
entities, such as the Xtant Foundation, had received
considerable earnings that had not been disclosed in
his petition. (Mary served as a director of Xtant, a business
that purportedly sold recycled paper.)
Nos. 07-1052 & 07-1267 3
Mary, with the help of her husband, filed a claim for
$650,000 against Ronald’s bankruptcy estate. This claim
was filed as a stipulation, signed by Ronald and Mary,
acknowledging that Ronald was indeed indebted to
Mary for her various managerial, charitable and legal
services.
The bankruptcy trustee, suspicious of the couple’s
transfers, filed an adversary action against Ronald. Ulti-
mately, Ronald agreed to waive the discharge of
Doyle’s judgment and settled the trustee’s action for
$25,000. This, in the couple’s view, put the matter to rest.
The circumstances of the bankruptcy proceeding, how-
ever, had not gone unnoticed. A grand jury indicted
Ronald on 26 counts of bankruptcy fraud and money
laundering conspiracies, as well as various substantive
fraud and money laundering offenses based on his and
Mary’s efforts to conceal his assets from the bankruptcy
trustee and his creditors; Mary was charged on eleven
of these counts. Ronald and Mary each agreed to waive
their right to a jury trial.
During the trial, the couple mounted a joint defense,
claiming that the transfers of the assets were legitimate
and not an effort to hide assets. According to the
couple, Ronald transferred his interests in most indi-
vidually and jointly owned assets, as well as after-
acquired assets and income, to Mary pursuant to a
marital agreement executed on January 2, 1995, and
subsequent agreements executed on August 1, 1995,
and January 2, 1997.
The district court, in a 48-page “Findings of Fact and
Verdict” order, found that Ronald had utilized the bank-
4 Nos. 07-1052 & 07-1267
ruptcy system in an attempt to discharge the Doyle judg-
ment and foil other creditors. The court found that, with
the assistance of his wife Mary, Ronald created and used
“phony” entities, as well as “sham[ ]” marital agreements,
to hide his assets and income from the trustee, Doyle, and
his other creditors, and repeatedly lied during the course
of the bankruptcy proceeding. The court found that the
couple had deposited funds, which should have been
disclosed in the bankruptcy petition, into the bank ac-
counts of the corporations; deposited assets into Mary’s
personal accounts; used the entities, such as Xtant, to
conceal assets; and engaged in other unusual financial
moves in an effort to conceal assets. Also, the court
found that Mary inflated Ronald’s liabilities by filing a
false claim.
Specifically, the court found Mary guilty of bankruptcy
fraud—receiving debtor property illegally and filing a
false claim. This finding was based on: (1) Mary’s deposit
of a check, issued by a Thompson Consulting Ltd. to
Ronald for work previously rendered, into their firm’s
business account titled “Arthur & Arthur”; (2) the pur-
chase of a SEA DOO, a personal watercraft, for per-
sonal use with a Xtant check; and (3) Mary’s deposit
of a check, representing the proceeds of Ronald’s
interest in another business, G & K Investment, into
her own bank account.
The money laundering convictions were based on the
transfer of Ronald’s assets and the proceeds of the bank-
ruptcy fraud into the bank accounts of the “dummy
corporations”, and Mary’s personal accounts, to hide
Ronald’s income.
Nos. 07-1052 & 07-1267 5
The district court found Ronald guilty of 23 of the
26 counts, and sentenced him to 54 months’ imprison-
ment. As part of this sentence, the district court applied
several enhancements; one enhancement was a ten-
base offense level increase under U.S.S.G. § 2B1.1(b)(1)(F)
based on Ronald’s attempt to discharge the $125,000
Doyle judgment.
The court found Mary guilty of nine counts of the
eleven charged and sentenced her to twelve months and
one-day of imprisonment.
The district court then ordered Ronald and Mary to
forfeit the assets listed in the indictment, as well as a
personal money judgment in an amount equal to the
total of the laundered funds. The judgment against
Ronald totaled $87,395.93; Mary’s judgment totaled
$40,806.49.
The Arthurs appealed.
II. DISCUSSION
Ronald and Mary each raise issues distinct to their
own appeal. Mary argues that the evidence presented to
the district court was insufficient to convict her of con-
spiracy to commit money laundering, money laundering,
receipt of debtor property and filing a false claim in
the bankruptcy proceeding. Ronald argues that a variety
of constitutional, trial, and sentencing errors were com-
mitted by the district court. The appeals have been con-
solidated, and we begin with Mary’s appeal.
6 Nos. 07-1052 & 07-1267
A. Mary Arthur
Mary faces a “nearly insurmountable hurdle” in chal-
lenging the sufficiency of the evidence to sustain her
convictions. United States v. Woods, 556 F.3d 616, 621 (7th
Cir. 2009) (citation omitted). We must be convinced that
even “after viewing the evidence in the light most favor-
able to the prosecution, no rational trier of fact could
have found [her] guilty beyond a reasonable doubt.” Id.“[W]e will overturn a conviction based on insufficient
evidence only if the record is devoid of evidence from
which a reasonable [trier of fact] could find guilt beyond
a reasonable doubt.” United States v. Severson, 569 F.3d
683, 688 (7th Cir. 2009) (citation omitted). In this inquiry,
we do not reassess the weight of the evidence or second-
guess the trier of fact’s credibility determinations. Id.Anent Mary’s bankruptcy fraud convictions, she
argues that the evidence against her as to the receipt of
debtor property lacked sufficiency. The indictment
charged Mary with five counts of receipt of debtor prop-
erty, all in violation of 18 U.S.C. § 152(5). The district
court found her guilty on three of these counts, relating
to: (1) her deposit of a Thompson Consulting check (repre-
senting an account receivable for work previously
rendered by Ronald) into the bank account of Arthur &
Arthur; (2) the purchase of a SEA DOO with a check from
the Arthurs’ foundation Xtant; and (3) her deposit of the
G & K check into her bank account. The district court
found that in these three instances, assets, which should
have been included in Ronald’s estate and subject to
creditors’ claims, were intentionally removed and con-
cealed from the bankruptcy trustee and creditors.
Nos. 07-1052 & 07-1267 7
For these convictions to stand, the evidence must be
such that a rational trier of fact could have found
beyond a reasonable doubt that: (1) Mary received a
material amount of property from Ronald after the filing
of Ronald’s bankruptcy case; (2) Mary received such
property with the intent to defeat the provisions of Title
11; and (3) Mary received this property knowingly and
fraudulently. See 18 U.S.C. § 152(5). Mary argues that
the evidence presented by the government did not
prove these elements beyond a reasonable doubt. Specifi-
cally, Mary argues that the assets received were legiti-
mately hers and not Ronald’s, pursuant to martial agree-
ments entered into by the couple, which directed the
distribution of the couple’s assets from Ronald to Mary.
In her view, she simply deposited checks that were hers
under the agreements, and so could not have had the
requisite mental state required for the convictions.
The district court found that the marital agreements
were a sham—essentially efforts to divest Ronald of his
interests in the assets to avoid creditors. The court deter-
mined that, although some marital agreements may be
valid, these bore many “badges of fraud.” The agree-
ments did not surface until after the bankruptcy pro-
ceeding had been initiated. When the trustee demanded
that Ronald reveal documents related to the transfer of
his assets to Mary within four years of the bankruptcy
filing, the first agreement was tendered, indicating that
it had been entered into five years before. Although the
agreement had purportedly been entered into five years
before the bankruptcy filing, Ronald had not transferred
any real property to Mary until the Doyle judgment
8 Nos. 07-1052 & 07-1267
had been entered against him, three years before the
filing. So, in fact, nothing was transferred pursuant to
the agreements until a state court ordered Ronald to
pay Doyle $125,000. Although this agreement, and
others, were ultimately produced at the bankruptcy
proceeding, they were never publicly filed until roughly
a year after Ronald filed his bankruptcy proceeding,
around the time when the couple’s relationship was
claimed to have soured, evidenced by a filing of a legal
separation petition. In fact, the couple still lived together
after the “legal separation.” Moreover, funds that Mary
claims were legitimately hers were never given to her,
but deposited into bank accounts, accessible to Ronald.
And, Ronald and Mary’s tax returns did not reflect any
of the transfers from Ronald to Mary, or that Ronald’s
income belonged to Mary. This is more than enough
evidence to support a factual finding that the agree-
ments were entered into fraudulently.
Finding the marital agreements fraudulent, the facts
are sufficient to establish that Mary received Ronald’s
assets with an intent to defeat the bankruptcy code.
For example, the SEA DOO was purchased by a check
drawn on Xtant’s account and titled in the name of the
foundation. The district court found that Xtant had no
legitimate business reason for a personal watercraft since
recreational use of the vehicle does not comport with
selling recycled paper. Although Mary testified that, by
buying the watercraft, she was merely “taking back”
money that she had loaned to Xtant, there was no
evidence of a personal loan to the foundation. The
district court noted that the evidence proved that Xtant
Nos. 07-1052 & 07-1267 9
was a shell corporation used by the couple to conceal
income and assets, and to pay personal expenses. Viewing
these facts in the light most favorable to the govern-
ment, there was enough evidence to lead a rational trier
of fact to find that Mary intentionally received the
property fraudulently.
Next, she challenges the sufficiency of the evidence
that led to her conviction for filing a false claim against
Ronald’s bankruptcy estate. Under 18 U.S.C. § 152(4), the
government had to prove beyond a reasonable doubt
that Mary personally, or by an agent, knowingly and
fraudulently presented a false claim against her
husband’s estate in his Title 11 bankruptcy proceeding.
Mary filed a claim for $650,000 in her husband’s bank-
ruptcy for managerial, charitable and legal work previ-
ously performed. Despite the fact that the claim was
stipulated to and signed by Ronald and Mary, the
district court rejected this take-our-word-for-it docu-
ment. It found that she had been employed on a full-time
basis as a nursing home administrator from 1997 to 2004,
and “it is incredible that she was also performing legal
work for her husband worth hundreds of thousands of
dollars during this time.” It is reasonable to conclude
that the sheer amount of work-hours claimed could not
have been amassed while working full time for another
organization. This alone is enough for a rational trier of
fact to find her guilty of filing a false claim.
Lastly, at least for Mary’s appeal, Mary challenges the
sufficiency of the evidence that she laundered money
and conspired to launder money.
10 Nos. 07-1052 & 07-1267
To sustain Mary’s convictions for money laundering,
we must determine that a rational trier of fact could
have concluded from the record that Mary knowingly
used the proceeds from a specified unlawful activity
in financial transactions that were intended to promote
the continuation of the unlawful activity, or were
designed to conceal or disguise the proceeds of the unlaw-
ful activity. See United States v. Turner, 400 F.3d 491, 496
(7th Cir. 2005) (citation omitted); see also 18 U.S.C.
§ 1956(a)(1). For the conspiracy conviction, our inquiry
is to whether the district court could have concluded
from the record that Mary “was knowingly involved
with two or more people for the purposes of money
laundering and that [she] knew the proceeds used to
further the scheme were derived from an illegal activity.”
Turner, 400 F.3d at 496 (citation omitted); 18 U.S.C.
§ 1956(h).
The district court convicted Mary of one count of con-
spiracy to launder money and three counts of money
laundering. For the three substantive counts, the district
court convicted Mary based on the bankruptcy fraud
convictions for the receipt of debtor property in which
we found the evidence sufficient. In other words, the
district court found that these unlawful specified
activities generated proceeds that Mary subsequently
laundered.
Mary argues that the evidence was insufficient to
establish any proceeds generated from the unlawful
activity, and that, even assuming we find that proceeds
were so generated, Mary did not use them to perpetu-
Nos. 07-1052 & 07-1267 11
ate the specified unlawful activity. She correctly states
that the bankruptcy fraud offenses must have produced
proceeds that were subsequently laundered and that
these offenses “must have produced proceeds in
acts distinct from the conduct that constitutes money
laundering.” United States v. Mankarious, 151 F.3d 694, 705
(7th Cir. 1998). The record shows that Mary deposited
the Thompson Consulting check, issued to Ronald, into
the Arthur & Arthur bank account, over which she had
sole signature authority. As mentioned before, the $3,350
check represented an account receivable due to Ronald
for work he performed prior to his bankruptcy filing.
This amount should have been disclosed to the bank-
ruptcy trustee. Mary deposited the check, but her in-
volvement consisted of much more than a simple bank
visit. Thompson Consulting’s David Welnetz testified
that although Ronald had performed the work, Mary
delivered the invoice. This is enough to conclude that
Mary was aware that Ronald, and not she, had the
account receivable coming. The assets were omitted
from Ronald’s bankruptcy petition. While it was
Ronald’s petition that started the proceeding, there is
evidence that Mary was aware of it and its requisite
disclosures; she and Ronald had prepared a stipulation
that Ronald had owed her money. A rational trier of fact
could conclude that by depositing the check, the couple
promoted the ongoing concealment of assets.
For similar reasons, there is enough evidence in the
record to sustain Mary’s convictions as to her deposit
of the G & K Investment check. Ronald initially sought
to have G & K make the check for $27,954 payable to
12 Nos. 07-1052 & 07-1267
Mary, but G & K refused. Although Ronald claimed in
his bankruptcy proceeding that two previous G & K
checks were lost, he signed the third one over to Mary,
roughly six months after it had been issued, and cer-
tainly after Ronald filed his bankruptcy petition. This
was an asset that Ronald omitted from his bankruptcy
petition and schedules. And like the Thompson check, the
G & K check was taken out of Ronald’s estate, and, this
time, deposited into Mary’s account. In short, Mary
engaged in financial transactions that shielded assets
from the trustee and Ronald’s creditors in his bank-
ruptcy proceeding.
The district court was aware that “the mere spending
of ill-gotten funds” would not sweep the bankruptcy
fraud conduct within the money laundering statute,
and that subsequent transactions must be designed to
hide the provenance of the funds. Based on the proven
facts, there was no error in viewing these events as
efforts to conceal or disguise the proceeds, or promote
the carrying on, of the bankruptcy fraud. Mary’s convic-
tions stand. And because the forfeiture order entered
against her was based on these convictions, it also stands.
B. Ronald Arthur
Ronald claims that his prosecution for concealing
assets violated his constitutional rights since he believed
in the validity of the marital agreements. He also argues
that the indictment charging him in various counts
was improper. He then argues that the district court
erred in denying his motion to substitute attorneys, and
in the sentence imposed.
Nos. 07-1052 & 07-1267 13
Ronald claims that he did not disclose assets from
his estate in his bankruptcy petition and schedules
because they were distributed pursuant to marital agree-
ments, and therefore, he cannot be found guilty for
making false oaths or accounts under 18 U.S.C. § 152(2).
Ronald argues that the district court violated his con-
stitutional rights by an overly broad reading of the
statute and interpreting it to include a mandatory dis-
closure of the purportedly legally distributed assets in
his bankruptcy petition. He also claims that the statute
contains ambiguous terms that welcomed the district
court’s overbroad interpretation.
We disagree. Briefly, the statute is not overbroad; it
simply has a broad scope. See United States v. Ellis, 50 F.3d
419, 422-23 (7th Cir. 1995) (citation omitted) (“Section 152
is a congressional attempt to cover all the possible
methods by which a debtor or any other person may
attempt to defeat the intent and effect of the bankruptcy
law through any type of effort to keep assets from being
equitably distributed among the creditors.”). Ronald was
required to disclose the assets that he concealed, including
the assets still due to him at the time he filed that
were ultimately delivered to his wife. See In re Carlson,
263 F.3d 748, 750 (7th Cir. 2001). And as for his non-
disclosure justification, the district court’s factual
finding that the marital agreements were fraudulent was
well-founded.
Next, Ronald claims “structural error” by the district
court when it denied his motions for a mistrial based on
his wife’s purported ineffective counsel and for
14 Nos. 07-1052 & 07-1267
refusing him counsel of his choice, coercing him to
appear pro se. We review these decisions for an abuse
of discretion. See United States v. Taylor, 569 F.3d 742, 746
(7th Cir. 2009); see also United States v. Irorere, 228 F.3d
816, 827 (7th Cir. 2000). At trial, Mary’s counsel admitted
that he had fallen asleep, but the district court concluded
that since there had been very little mention of Mary at
that point, she was not prejudiced. The district court
further gave Mary the option of how to proceed in her
case: remaining with her counsel, dual representation
by Ronald’s counsel or, proceeding pro se. Mary elected
to remain with her attorney and the district court noted
that he had adequately performed to date.
Initially, Ronald has no standing to raise a Sixth Amend-
ment ineffective assistance of counsel claim on behalf of
his wife. See United States v. Recendiz, 557 F.3d 511, 522
(7th Cir. 2009). In fact, Mary had no qualms with her
representation and she did not appeal on the issue.
Second, Ronald elected to appear pro se after the court
determined that “[h]e has a conflict-free lawyer who is
able to competently represent him.” The district court
found that Ronald continuously delayed the trial by
toying with this subject throughout the litigation. See
United States v. Murphy, 469 F.3d 1130, 1135 (7th Cir.
2006) (internal quotations and citation omitted) (“a defen-
dant may not use [the Sixth Amendment right to
counsel] to play a cat and mouse game with the court, or
by ruse or stratagem fraudulently seek to have the trial
judge placed in a position where . . . the judge appears
to be arbitrarily depriving the defendant of counsel.”).
He waited almost a year after his verdict had been
Nos. 07-1052 & 07-1267 15
entered to request new counsel for sentencing purposes
and did not justify his delay to the district court. Although
he was without counsel during his sentencing hearing, his
previous counsel remained as “stand-by” counsel. More
importantly, it was his choice. See United States v. Fazzini,
871 F.2d 635, 642 (7th Cir. 1989).
Finally, Ronald asserts that the district court erred
when it used a prior $125,000 state court judgment
against Ronald to increase his base offense level under
U.S.S.G. § 2B1.1(b)(1)(F). He argues that, although the
proper measure of “intended loss” in a bankruptcy
fraud case is the amount of debt that a defendant seeks
to discharge, the prior judgment could never have been
discharged. However, had Ronald’s bankruptcy pro-
ceeding sailed smoothly, the judgment would have
indeed been wiped out. “Intended loss” is the “harm
that was intended to result from the offense.” U.S.S.G.
§ 2B1.1, Application Note 3(A)(ii). It matters not that
Ronald ultimately waived the discharge of the judg-
ment since, admittedly, his intent was to rid himself of
the debt. Moreover, even if as Ronald argues, the judg-
ment was, at least in part, non-dischargeable, “intended
loss” also includes “harm that would have been
impossible or unlikely to occur.” Id.
III. CONCLUSION
For the reasons set forth above, the convictions and
sentences of Ronald and Mary stand. We A FFIRM .
9-17-09