United States v. Michael Free
839 F.3d 308
| 3rd Cir. | 2016Background
- Michael Free filed bankruptcy (converted to Chapter 7) despite assets exceeding liabilities; he concealed and sold numerous WWII‑era firearms during the proceedings.
- Trustee Walsh and the Bankruptcy Court found Free willfully concealed assets, disobeyed orders, and sold guns; sheriffs and FBI later recovered many firearms and evidence of sales.
- A federal grand jury indicted Free on counts under 18 U.S.C. §§ 157 and 152 for bankruptcy fraud, concealment, and false statements; a jury convicted him on all counts.
- At sentencing the District Court treated the value of concealed assets (guns) as the relevant Guidelines “loss,” applying a 14‑level enhancement and an additional 2‑level bankruptcy‑related enhancement, producing an offense level of 22; the court then varied downward and sentenced Free to 24 months.
- The District Court emphasized harm to the integrity of the judicial system in justifying punishment; Free argued loss should be $0 because creditors were paid in full.
- The Third Circuit vacated and remanded for resentencing, holding the District Court failed to make the required finding whether Free intended pecuniary harm to creditors or sought a pecuniary gain as the basis for a loss enhancement under U.S. v. Feldman.
Issues
| Issue | Plaintiff's Argument (Gov't) | Defendant's Argument (Free) | Held |
|---|---|---|---|
| Sufficiency of evidence for convictions under §§ 157, 152 | Ample evidence Free filed false schedules, made false declarations, and concealed assets; convictions valid even without actual pecuniary loss | Lies may be contemptible but do not prove scheme‑to‑defraud mens rea if creditors suffered no loss | Convictions affirmed: filing false documents and concealing assets satisfy §§ 157 and 152; no monetary loss required for guilt |
| Proper measure of "loss" under U.S.S.G. § 2B1.1 in bankruptcy fraud | Loss may be measured by value of concealed assets; courts may infer intended loss from concealment and other facts | Loss should measure actual or intended pecuniary harm to victims; here creditors received full payment so loss = $0 | Loss enhancement must reflect actual or intended pecuniary harm to victims (or gain sought); abstract injury to judiciary is not a proper loss basis under the Guidelines |
| Whether concealment value alone suffices to trigger intended‑loss enhancement | Government: large concealments justify treating asset value as intended loss (inference from conduct) | Free: Guidelines focus on pecuniary harm; value of concealment that caused no creditor loss cannot be used as loss | Third Circuit: Feldman allows inference of intent from concealment, but district court must explicitly find that defendant intended pecuniary harm or gain; cannot base loss solely on abstract harm to the judicial system |
| Remedy and sentencing options on remand | Gov't seeks reinstatement of loss calculation based on concealed asset values | Free seeks zero loss and lower Guidelines range; bail pending appeal granted in part due to significant legal question | Case vacated and remanded for resentencing; district court must make explicit findings on intended pecuniary harm or gain; may still impose upward departure/variance for non‑pecuniary harm to judicial functions |
Key Cases Cited
- United States v. Feldman, 338 F.3d 212 (3d Cir. 2003) (loss enhancement depends on actual or intended pecuniary harm; court must assess what defendant sought to gain)
- United States v. Yihao Pu, 814 F.3d 818 (7th Cir. 2016) (loss determination can be zero; guidelines’ loss is an estimation of victim financial loss rather than a punitive figure)
- United States v. Fumo, 655 F.3d 288 (3d Cir. 2011) (government bears burden by preponderance to establish loss at sentencing)
- United States v. Dullum, 560 F.3d 133 (3d Cir. 2009) (procedural note on §2B1.1 consolidation and review of loss findings)