United States v. Shadduck
112 F.3d 523 | 1st Cir. | 1997
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 95-1395
UNITED STATES OF AMERICA,
Appellee,
v.
MICHAEL D. SHADDUCK,
Defendant, Appellant.
No. 95-1396
UNITED STATES OF AMERICA,
Appellee,
v.
ANDREA D. SHADDUCK,
Defendant, Appellant.
No. 96-1342
UNITED STATES OF AMERICA,
Appellee,
v.
MICHAEL D. SHADDUCK,
Defendant, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Morris E. Lasker,* Senior U.S. District Judge]
*Of the Southern District of New York, sitting by designation.
Before
Cyr, Circuit Judge,
Campbell, Senior Circuit Judge,
and Stahl, Circuit Judge.
James B. Krasnoo with whom Law Offices of James B. Krasnoo was on
brief for appellants.
Mark J. Balthazard, Assistant United States Attorney, with whom
Donald K. Stern, United States Attorney, was on brief for appellee.
April 24, 1997
2
CYR, Circuit Judge. Appellants Michael and Andrea
CYR, Circuit Judge
Shadduck challenge the judgments of conviction and sentence
entered against them for bankruptcy fraud, see 18 U.S.C. 152,
following their four-day jury trial. We affirm the convictions,
but vacate, in part, the sentence imposed upon Michael Shadduck
and remand for resentencing.
I
I
BACKGROUND1
BACKGROUND
Appellant Michael Shadduck ("Shadduck"), a self-em-
ployed insurance salesman, invested in several insurance policies
and a pension fund with Guardian Investor Services Corporation
("Guardian"). Three days before the Shadducks filed their joint
chapter 11 petition on June 4, 1993, Shadduck had requested the
maximum loan advances available on four Guardian life insurance
policies. The chapter 11 petition, unaccompanied by schedules,
listed liabilities totaling $2,269,381.13 to the twenty largest
unsecured creditors.
On the day the joint chapter 11 petition was filed,
Mrs. Shadduck drew an $8,000 check on their personal checking
account and endorsed it over to her husband. Three days later,
1Viewing the evidence in the light most favorable to the
verdicts, we recite the facts as the jury reasonably could have
found them. United States v. Josleyn, 99 F.3d 1182, 1185 n.1
(1st Cir. 1996), cert. denied, 117 S. Ct. 959 (1997). We note,
however, that the record on appeal is woefully incomplete,
particularly as it includes no district court trial transcript.
Of course, the proponent of a claim must "bear the brunt of an
insufficient record on appeal." Real v. Hogan, 828 F.2d 58, 60
(1st. Cir. 1987). See also LaRou v. Ridlon, 98 F.3d 659, 664 n.8
(1st Cir. 1996).
3
four checks totaling $124,383.66 were deposited in a bank account
in the name of John Shepard, a friend of Shadduck. Three checks
had been issued to Shadduck by Guardian and represented portions
of the aforementioned loan proceeds, as well as policy dividends.
The fourth was the $8,000 check withdrawn by Mrs. Shadduck from
the joint account three days earlier.
At the creditors meeting on June 14, Shadduck denied
having made any payment in excess of $600 to any creditor within
the 90-day period preceding June 4, denied having a bank account,
and disavowed any beneficial interest either in insurance poli-
cies or a pension plan. Mrs. Shadduck, who was continuing to
write checks on their joint checking account during this time,
remained silent as her husband made these misrepresentations
under oath.
Following the creditors meeting, two other Guardian
checks, totaling $13,346.01, payable to Shadduck and endorsed
over to Shepard, were deposited in the Shepard account. Two days
later Shadduck gave Shepard a $73,900 check, drawn on Shadduck's
Guardian pension plan and endorsed over to Shepard. At the time,
the Shadduck pension plan account contained $118,339.05. On July
19, 1993, a $33,517.36 check was drawn on the Shadduck pension
plan account, representing the balance in the pension plan after
the required $10,921.69 withholding for federal income tax.
On July 1, the Shadducks filed their bankruptcy sched-
ules, signed the same day under penalty of perjury, asserting
that they had no interest in pension plans or insurance policies
4
and, further, that they had no bank account. Throughout this
entire period, however, Shadduck had funds in his pension plan
and Mrs. Shadduck continued to write checks on their joint
checking account. Shepard subsequently drew checks totaling
$171,211.12 to Shadduck on September 29 and November 2, 1993, in
amounts mirroring the checks Shadduck had issued to Shepard the
previous June. Three of these checks, totaling $17,134.70,
explicitly noted that the proceeds represented pension plan
funds.
The Shadducks were indicted on January 19, 1994: he on
four counts, for concealing assets and falsely stating that he
had no bank account, insurance policies, or pension plan, in
violation of 18 U.S.C. 152; she on one count, for falsely
stating she had no bank account. At trial, Shadduck admitted
making false statements but nevertheless insisted that he had not
listed the pension plan funds on the schedules because they were
exempt, even though he concededly had failed also to list any
pension plan funds as property claimed exempt. Shadduck further
testified that the monies invested in the insurance policies
belonged to clients who had requested that he invest approxi-
mately $85,000 in their behalf. Shadduck admitted making false
statements at the creditors meeting and on the bankruptcy sched-
ules, but vouchsafed that his wife had not known what was going
on.
After the jury returned guilty verdicts against both
defendants, the district court sentenced Shadduck to twenty-seven
5
months' imprisonment, including enhancements based on the total
intended loss, see U.S.S.G. 2F1.1(b)(1) (Nov. 1994), violation
of a judicial order, id. 2F1.1(b)(3)(B), and defrauding multi-
ple victims, id. 2F1.1(b)(2)(B). Shadduck appeals his convic-
tions and sentence. Mrs. Shadduck, who was sentenced to two
years' probation, principally challenges her conviction.2
II
II
DISCUSSION
DISCUSSION
1. Andrea Shadduck
1. Andrea Shadduck
Andrea Shadduck concedes that she purchased the $8,000
bank check with funds drawn from the joint checking account and
endorsed it to her husband, that she signed the bankruptcy
schedules listing no bank account, and that she remained silent
at the creditors meeting while her husband falsely represented
that they had no bank account. She nonetheless contends that
there was insufficient evidence that she intentionally made a
false statement, since her husband testified to her lack of
knowledge.
There was ample evidence to support the conviction.
The jury reasonably could infer from all the circumstances,
especially the timing of the various transactions, that she
possessed the requisite fraudulent intent. She drew an $8,000
2Although both appellants challenge the 2F1.1(b)(3)(B)
enhancement, the district court imposed a downward departure
before sentencing Mrs. Shadduck to probation. United States v.
Shadduck, 889 F. Supp. 8, 11-12 (D.Mass. 1995). Thus, no purpose
would be served by remanding for resentencing in these circum-
stances.
6
bank check on the unscheduled joint checking account the very day
she and her husband signed and filed their joint chapter 11
petition. She signed the bankruptcy schedule stating she had no
bank account, yet continued to draw checks on the joint account
for more than three months, even after her husband, in her
presence, falsely denied the existence of any such account at the
creditors meeting. This circumstantial evidence alone supported
a reasonable inference that her motive in making the $8,000
withdrawal from the joint checking account on the eve of bank-
ruptcy was to prevent its disclosure to creditors. Finally,
fraudulent intent was readily inferable from the fact that the
Shadducks omitted from their joint list of claimed exemptions
only the property not elsewhere disclosed as assets on their
schedules.3 Moreover, the jury was free to discredit the excul-
patory testimony offered by her husband, United States v.
Restrepo-Contreras, 942 F.2d 96, 99 (1st Cir. 1991), and we are
not at liberty to presume otherwise, see United States v. Laboy-
Delgado, 84 F.3d 22, 26 (1st Cir. 1996) (noting that appellate
court must "resolve all disagreement regarding the credibility of
witnesses to the government's behoof").
2. Michael Shadduck
2. Michael Shadduck
3Mrs. Shadduck also urges us to consider testimony presented
by her counsel at a postjudgment hearing to correct Shadduck's
sentence pursuant to 28 U.S.C. 2255. Counsel testified that
the joint checking account had been inadvertently omitted from
the schedules. In evaluating a challenge to the sufficiency of
the evidence on direct appeal, however, we may consider only the
evidence presented at trial. See United States v. Laboy-Delgado,
84 F.3d 22, 26 (1st Cir. 1996).
7
a. Supplemental Jury Instruction4
a. Supplemental Jury Instruction
Shadduck claims the jury verdict was tainted by the
response to a question submitted by the jury.5 Although Shadduck
would have us isolate the trial court's supplemental instruction,
the law is clear that it "'must be viewed in the context of the
overall charge.'" United States v. Femia, 57 F.3d 43, 47 (1st
Cir.) (quoting Cupp v. Naughten, 414 U.S. 141, 146-47 (1973)),
cert. denied, 116 S. Ct. 349 (1995). The general charge had
explained, with respect to each count, that the jury would need
to determine whether the alleged false statements and concealment
had been "knowing" and "fraudulent." There was no objection to
4We "review the propriety of jury instructions for abuse of
discretion." United States v. Mitchell, 85 F.3d 800, 809 (1st
Cir. 1996).
5Shadduck further complains, for the first time, that the
following comment about the weather caused the jury to hurry its
deliberations:
Now it's 3 o'clock in the afternoon. It's a
pretty nasty afternoon in case you haven't
been able to see the weather in the jury
room. Counsel and I are willing to stay as
long as you wish. What I normally do - and
what I will do - is about 4 o'clock, I'll
come down and I would normally excuse you at
that time unless the jury or a majority, at
least, of the jury believes that they are so
close to completing the case that they'd like
to stay a little bit longer. But if that's
not the case, then I will excuse you to re-
sume on Monday morning.
There is nothing in this comment to suggest that the jury was
pressured to rush its verdicts. Rather, the trial judge made
abundantly clear that he was willing to remain as long as neces-
sary that afternoon or to reconvene the following Monday.
Moreover, the defense failed to object to this reasonable proce-
dure.
8
the general charge.
Several hours after retiring to deliberate, the jury
inquired in writing whether there would be a change in the
ownership of certain funds invested in an annuity contract under
the name of one Leonard Roy were the jury to find Shadduck
guilty. The trial judge replied that there was no evidence on
which to base a response to their inquiry and that they were not
to consider this collateral matter in arriving at their verdicts.
The court added:
You should decide whether you believe that
[Shadduck] intentionally made a false state-
ment or he did not make a false statement in
regard to this material. That is the issue
before you.
Shadduck objected that a further instruction was required to the
effect that the jury would need to determine whether Shadduck had
made the statements "fraudulently." After explaining that its
response was consistent with its earlier and more detailed
charge, the court denied the request. Later, Shadduck unsuccess-
fully moved for a mistrial on the ground that the response to the
jury inquiry effectively had eliminated an element of the of-
fense.
Viewed in the context of the entire charge, and given
the clear signal from the trial judge that the jury inquiry
related to a collateral matter not appropriate for their consid-
eration, the response was entirely proper. It did nothing to
disturb, let alone gainsay, the very clear instruction in the
general charge; viz., that the jury must determine whether the
9
alleged conduct had been undertaken "knowingly" and "fraudulent-
ly."
Now, . . . the offenses . . . are al-
leged to have been done "knowingly and fraud-
ulently."
An act or failure to act is "knowingly"
done if it's done voluntarily and intention-
ally and not because of mistake or accident
or any other innocent reason.
The purpose of requiring that the gov-
ernment . . . prove that a defendant acted
"knowingly" is to insure that no one is con-
victed because of an act, or failure to act,
due to a mistake or an accident or some - any
innocent reason.
An act or failure to act is "fraudulent-
ly" done if it is done willfully and with the
intent to deceive or cheat any creditor,
trustee or bankruptcy judge.
An act or failure to act is "willfully"
done if it is done voluntarily and intention-
ally and with a specific intent to do some-
thing which the law forbids; that is to say,
for bad purpose either to disobey or disre-
gard the law.
....
The intent with which an act is done may
also be inferred from the nature of the act
itself. Accordingly, intent, willfulness and
knowledge are usually established by sur-
rounding facts and circumstances as of the
time the acts in question occurred or the
events took place and the reasonable infer-
ences to be drawn from them.
(Emphasis added.) Thus, the court defined both "knowingly" and
"fraudulently" through direct reference to the voluntariness, as
well as the general and specific intent, animating Shadduck's
conduct.
Against the backdrop of this earlier detailed instruc-
tion, we are not persuaded that any significant risk of confusion
arose from the subsequent umbrella response to the jury that it
was to decide whether Shadduck "intentionally" made false state-
10
ments. See United States v. Yefsky, 994 F.2d 885, 899 (1st Cir.
1993) (instruction on "intent," rather than "specific intent,"
held adequate given court's earlier definition of "willfully" as
encompassing specific intent); United States v. Nichols, 820 F.2d
508, 511 (1st Cir. 1987) (unnecessary to instruct on specific
intent "[g]iven the extensive instruction on 'knowingly and
willfully' [delivered] moments earlier").
b. Calculation of Intended Loss (U.S.S.G. 2F1.1)
b. Calculation of Intended Loss (U.S.S.G. 2F1.1)
The district court imposed an eight-level sentence
enhancement based on its finding that Shadduck had intended to
cause loss totaling $246,280. See U.S.S.G. 2F1.1, comment.
(n.7). ("[I]f [the] loss that the defendant was intending to
inflict can be determined, this figure will be used if it is
greater than the actual loss."). On appeal, Shadduck claims for
the first time that the loss calculation, which included the
loans obtained against the Guardian insurance policies and the
funds withdrawn from the pension plan, must be set aside because
those monies were in all events exempt under Bankruptcy Code
522, hence not subject to administration in bankruptcy.6 As
6Shadduck further claims, and the government concedes, that
the presentence report ("PSR") initially "double counted" the
$8,000 removed from the joint checking account the day the
Shadducks filed for bankruptcy. Although the government claims
that the error was corrected in an amended PSR, the record
contains no PSR. In all events, any such double counting would
have been harmless, since the total-loss category was unaffected.
See U.S.S.G. 2F1.1(b)(1)(I) (eight-level increase for loss
exceeding $200,000 but less than $350,000). Thus, addressing the
error, if any, could have no effect on the sentence. See United
States v. Sepulveda, 15 F.3d 1161, 1199 (1st Cir. 1993) (noting,
in context of drug-quantity calculation, that "[i]t is unneces-
sary to address an allegedly erroneous sentencing computation if,
11
Shadduck failed to object below, we review only for "plain
error." United States v. Carrington, 96 F.3d 1, 6 (1st Cir.
1996), cert. denied, 65 U.S.L.W. 3648 (U.S. March 24, 1997) (No.
96-8027); see also Koon v. United States, 116 S. Ct. 2035 (1996);
United States v. Olano, 507 U.S. 725, 734 (1993) ("plain error"
means "obvious" error); see also Fed. R. Crim. P. 52(b).
The present contention assumes, contrary to our
caselaw, that property of the debtor neither claimed nor set
apart as exempt would not have been subject to administration.
See Petit v. Fessenden, 80 F.3d 29, 33 (1st Cir. 1996); Mercer v.
Monzack, 53 F.3d 1, 3 (1st Cir. 1995), cert. denied, 116 S. Ct.
1317 (1996); see also 11 U.S.C. 522(l) (requiring debtor to
list property claimed exempt); Fed. R. Bankr. P. 4003(b). As the
Supreme Court recently held, Bankruptcy Code 522(l) and Bank-
ruptcy Rule 4003(b) are to be interpreted in accordance with
their literal intendment. See Taylor v. Freeland & Kronz, 503
U.S. 638, 643-45 (1992); see also Mercer, 53 F.3d at 3.
Virtually all property of the debtor, except as provid-
ed in Bankruptcy Code 541(b),(c)(2)&(d), becomes "property of
the estate" by operation of law without regard to whether it is
listed on the schedules. Id. 541(a). Shadduck has never
argued that these pension plan monies were not "property of the
and to the extent that, correcting it will not change the appli-
cable offense level").
12
estate,"7 but only that they were not subject to process under
applicable state law.8
7Bankruptcy Code 541(c)(2) excludes from "property of the
estate" an interest in a trust subject to transfer restrictions
enforceable under applicable nonbankruptcy law. See Patterson v.
Shumate, 504 U.S. 753, 757-58 (1992). Patterson held that the
antialienation provisions in ERISA-qualified plans constitute
transfer restrictions for 541(c)(2) purposes, hence such plans
are not "property of the estate." Id. at 760. See also In re
Yuhas, 104 F.3d 612, 614-16 (3d Cir. 1997) (IRA funds not "prop-
erty of estate"); In re Meehan, 102 F.3d 1209, 1214 (11th Cir.
1997) (same). Not only was this argument not raised below, but
there is no record evidence, see supra n.1, that Shadduck's
pension plan even contained transfer restrictions.
8Nor does the record on appeal indicate that this claim was
preserved below. Shadduck contends that Mass. Gen. Laws ch. 235,
34A, exempts pension plan funds which do not exceed seven
percent of the debtor's total income within the five-year period
preceding bankruptcy, and that Mass. Gen. Laws ch. 175, 119A,
exempts insurance policies under certain conditions. In any
event, this argument proves too much.
13
Were we to adopt the regime advocated by Shadduck,
property fraudulently concealed throughout the course of a
bankruptcy proceeding nonetheless would become exempt by opera-
tion of law.9 By contrast, property duly claimed exempt by an
honest debtor does not become exempt by operation of law unless
no "party in interest" objects to the exemption claim within the
allotted thirty-day period. See In re Edmonston, 107 F.3d 74, 76
(1st Cir. 1997); 11 U.S.C. 522(l); Fed. R. Bankr. P. 4003(b).
Thus, the argument advanced by Shadduck would short-circuit the
exemption-claim screening process explicitly envisioned in Fed.
R. Bankr. P. 4003(b), which provides that the thirty-day limita-
tion on objections to exemption claims "does not begin to run
until the debtor lists the 'property claimed as exempt.'"
Mercer, 53 F.3d at 3 (quoting Fed. R. Bankr. P. 4003(b)). See
also Petit, 80 F.3d at 33 ("Unless and until a debtor files a
timely claim of exemptions, however, as required by the Bankrupt-
cy Code and the Federal Rules of Bankruptcy Procedure, there is
no 'list of property claimed exempt' for the trustee or creditors
to oppose."). We therefore reject it and affirm the district
court's "intended loss" calculation.
9Shadduck seeks to supplement the record with "newly discov-
ered evidence" which allegedly establishes that these monies were
considered exempt by the bankruptcy court even though never
claimed exempt. The supplemental submissions a hearing
transcript in which the bankruptcy judge took a matter under
advisement, and a letter from counsel for the trustee suggesting
that the bankruptcy court might find that the pension plan funds
were not reachable by creditors establish nothing of the sort.
We simply note, therefore, that the so-called "evidence" would
not have affected the outcome.
14
c. Enhancement for Violating a Judicial
c. Enhancement for Violating a Judicial
Order (U.S.S.G. 2F1.1(b)(3)(B))10
Order (U.S.S.G. 2F1.1(b)(3)(B))
(i) Judicial Order
(i) Judicial Order
The district court imposed a two-level enhancement on
the ground that Shadduck had violated a judicial "order," within
the meaning of U.S.S.G. 2F1.1(b)(3)(B) (1994) (prescribing two-
level enhancement for violating "any judicial or administrative
order, injunction, decree, or process"), by repeatedly flouting
the obvious intendment behind the Bankruptcy Rules and Official
Forms that all property of the debtor be disclosed. See United
States v. Shadduck, 889 F. Supp. 8, 10 (D. Mass. 1995). See also
United States v. Bellew, 35 F.3d 518, 520-21 (11th Cir. 1994)
(affirming enhancement because Bankruptcy Rules and Official
Forms are "judicial orders").
Shadduck contends that the term "order," as used in
section 2F1.1(b)(3)(B), contemplates only a specific order, such
as a consent decree or an adjudicative order or mandate entered
pursuant to judicial direction. He argues that to uphold the
enhancement absent a specific order would permit its automatic
application in any bankruptcy fraud case, simply by virtue of the
forum in which the false statements were made and without regard
to the aggravated criminal intent which the enhancement was
designed to redress. As hereinafter discussed, we are unable to
agree that a bankruptcy rule or official form is a "judicial
10The guideline interpretation underlying the district court
ruling is reviewed de novo. United States v. Garcia, 34 F.3d 6,
10 (1st Cir. 1994).
15
order," as the term is used in section 2F1.1(b)(3)(B).
First, it is clear that the bankruptcy judge never
entered an order specifically directing Shadduck to disclose
property of the debtor. See Bankruptcy Code 541(a), 11 U.S.C.
541(a). The district court implicitly acknowledged as much
through its reliance on the several verification requirements in
the Official Forms, see Official Bankr. Forms 1, 6, 11 U.S.C.
(requiring debtor's signature verifying assertions in petition
and schedules); Fed. R. Bankr. P. 1008 (mandating verification of
forms); 9011 (signature constitutes representation by signatory
that information provided is true). See Shadduck, 889 F. Supp.
at 10; see also Bellew, 35 F.3d at 520. Thus, as the bankruptcy
court entered no "order, injunction or decree" directing Shadduck
to disclose property of the debtor, the enhancement cannot stand
unless the district court correctly determined that the universal
admonitions in the various Official Forms and/or Bankruptcy Rules
applicable to all debtors in bankruptcy proceedings constitute
"judicial or administrative order[s]" within the meaning of
U.S.S.G. 2F1.1(b)(3)(B).
We turn to the guideline commentary for further assis-
tance. See Stinson v. United States, 508 U.S. 36, 42-43 (1993)
("Commentary which functions to interpret [a] guideline or
explain how it is to be applied controls.") (internal quotation
marks omitted); see also United States v. Weston, 960 F.2d 212,
219 (1st Cir. 1992). The application note accompanying U.S.S.G.
2F1.1(b)(3)(B) focuses upon violations of prior orders, injunc-
16
tions, and decrees. See U.S.S.G. 2F1.1, comment. (n.5) (ad-
verting to defendant's "knowledge of the prior decree or or-
der").11 The accompanying exemplar describes a defendant who had
been enjoined in a prior proceeding from engaging in certain
conduct, but who violated the injunction anyway by committing the
fraud for which he was awaiting sentence. Id., see supra n.11.
Thus, the commentary makes clear that the rationale for the
enhancement is to redress the "aggravated criminal intent"
inherent in violating a prior order specifically enjoining the
defendant, or an entity the defendant controlled, from engaging
in the fraudulent conduct which formed the basis for the offense
of conviction. U.S.S.G. 2F1.1, comment. (backg'd).
In the instant case, no pertinent order, decree or
11The application note provides in full:
Subsection (b)(3)(B) provides an adjustment
for violation of any judicial or administra-
tive order, injunction, decree, or process.
If it is established that an entity the de-
fendant controlled was a party to the prior
proceeding, and the defendant had knowledge
of the prior decree or order, this provision
applies even if the defendant was not a spe-
cifically 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. This subsec-
tion does not apply to conduct addressed
elsewhere in the guidelines; e.g., a viola-
tion of a condition of release (addressed in
J.7 (Offense Committed While on Release)) or
a violation of probation (addressed in 4A1.1
(Criminal History Category)).
(Emphasis added.)
17
injunction ever entered prior to the bankruptcy fraud perpetrated
by Shadduck, either in the bankruptcy proceeding itself or in any
prior judicial or administrative proceeding. To be sure,
Shadduck attempted to cover up the bankruptcy fraud with false
statements in the petition and schedules submitted to the bank-
ruptcy court, see Official Bankr. Forms 1, 6, 11 U.S.C, as well
as under oath at the creditors meeting. Thus, by concealing
property of the debtor notwithstanding the copious admonitions,
instructions, and verifications in the Bankruptcy Rules and
Official Forms, Shadduck unquestionably committed bankruptcy
fraud. See 18 U.S.C. 152.
Nevertheless, if the government cannot demonstrate that
a prior order, decree or injunction prohibited the defendant (or
an entity controlled by the debtor) from engaging in the type of
fraudulent conduct which formed the basis for his conviction,
there has been no showing that the defendant acted with the
aggravated criminal intent envisioned by the Sentencing Commis-
sion in section 2F1.1(b)(3)(B), as illustrated by the applicable
guideline text and commentary. See United States v. Carrozzella,
105 F.3d 796, 800 (2d Cir. 1997) (the defendant "violated a
command not to file false accounts, but the command was a rule
applicable to all [debtors] and not specifically directed to
him.").12
The nearest likeness to a section 2F1.1(b)(3)(B)
12We express no view regarding whether a departure might be
based upon conduct that does not come squarely within U.S.S.G.
2F1.1(b)(3)(B).
18
"order" contained in the Official Forms is the "Notice of Com-
mencement of Case Under Chapter 11 of the Bankruptcy Code,
Meeting of Creditors, and Fixing of Dates," Official Bankr. Form
9, 11 U.S.C., which is mailed by the bankruptcy court clerk's
office to the debtor and all creditors. Virtually identical
variations on Form 9 are entered routinely in most bankruptcy
proceedings. Form 9 bears the preprinted name of the Bankruptcy
Court Clerk, acting "for the court," see id., and directs the
debtor to appear at the meeting of creditors to provide sworn
testimony. Id. In the latter respect, Form 9 is no more akin to
a judicial order than is the administration of the oath itself.
Official Form 9 resembles in considerable measure the
official letter of warning discussed in United States v.
Linville, 10 F.3d 630 (9th Cir. 1993), with respect to which the
Ninth Circuit explained:
It is pellucid that there is a vast differ-
ence between ignoring prior decrees, orders
and injunctions after being subject to formal
proceedings, and ignoring letters and the
like, no matter how official they might look.
To hold otherwise would compel enhancements
in every criminal case where a defendant was
told by someone in authority that what she
was doing was illegal, rather than limiting
them to more relatively unusual cases where
someone violated a specific court or agency
order or adjudication.
Id. at 632-33 (emphasis added). Similarly, the notice of meeting
of creditors mailed by the bankruptcy clerk is an advisory which
rises neither to the level of a judicial nor an administrative
order under any conventional meaning of the term.
Thus, neither section 2F1.1(b)(3)(B) itself, nor the
19
relevant commentary, supports the enhancement rationale relied
upon below, since their language plainly indicates that the
enhancement was meant to apply to defendants who have demon-
strated a heightened mens rea by violating a prior "judicial or
administrative order, decree, injunction or process." See
U.S.S.G. 2F1.1(b)(3)(B), comment. (n.5), (backg'd). Were an
enhancement to be predicated on the ground that Official Form 9
constitutes a "judicial order," it would become applicable in all
bankruptcy fraud cases, simply by virtue of the forum in which
the false statements were made and without regard to the aggra-
vated criminal intent it was designed to redress. Any such
automatic application in bankruptcy fraud cases, especially
absent the required mens rea, would work an amendment of the
guideline, see id. 2F1.1(b)(3)(B) (prescribing minimum offense
level of ten after enhancement); see id. 2F1.1(a) (setting BOL
at six). As we can discern no hint that the Commission meant to
distinguish bankruptcy fraud from other frauds in this regard,
see U.S.S.G. 2F1.1, comment. (backg'd) (explaining that fraud
guideline "is designed to apply to a wide variety of fraud
cases"), we conclude that the two-level enhancement imposed on
Shadduck for violating a judicial order (U.S.S.G.
2F1.1(b)(3)(B)) was erroneous and cannot stand.
(ii) Judicial Process
(ii) Judicial Process
The government contends, in the alternative, that
Shadduck violated a "judicial . . . process," see U.S.S.G.
2F1.1(b)(3)(B), by committing a bankruptcy fraud which abused the
20
bankruptcy process itself. See United States v. Messner,
F.3d , 1997 WL 67847, *8 (10th Cir. 1997) (holding that
bankruptcy fraud constitutes violation of "judicial process");
United States v. Welch, 103 F.3d 906, 908 (9th Cir. 1996) (per
curiam) (same); United States v. Michalek, 54 F.3d 325, 330-33
(7th Cir. 1995) (same); United States v. Lloyd, 947 F.2d 339, 340
(8th Cir. 1991) (same). We decline to address the claim for
several reasons.
First, the district court explicitly declined to reach
the question after holding that Shadduck had violated a judicial
order. Shadduck, 889 F. Supp. at 10. Second, no exceptional
circumstance warrants our consideration of the claim before the
district court (as it is free to do) has occasion to consider it
on remand. See United States v. Morales-Diaz, 925 F.2d 535, 540
(1st Cir. 1991). Third, the issue is not free from doubt. See
Carrozzella, 105 F.3d at 799-802 (questioning rationale employed
in cases which hold that "abuse" of bankruptcy proceeding itself
constitutes "violation" of judicial "process"); see also United
States v. Krynicki, 689 F.2d 289, 292 (1st Cir. 1982) (before
addressing issue first raised on appeal, appellate court should
consider whether correct resolution is clear).
d. Multiple-Victims Enhancement (U.S.S.G.
d. Multiple-Victims Enhancement (U.S.S.G.
2F1.1(b)(2)(B))
2F1.1(b)(2)(B))
The district court imposed a two-level enhancement
pursuant to U.S.S.G. 2F1.1(b)(2)(B), based on its finding that
Shadduck had engaged in a scheme to defraud more than one victim.
21
Shadduck, 889 F. Supp. at 11. Shadduck complained below that his
crime was victimless, in that the monies he concealed were exempt
and, therefore, that neither the trustee nor the creditors can be
considered victims. On appeal, however, Shadduck presses only
two arguments: (i) the trustee alone qualifies as a victim, and
(ii) the multiple-victims enhancement, in tandem with the en-
hancement under U.S.S.G. 2F1.1(b)(3)(B), see supra pps. 14-19,
amounted to impermissible "double counting." As neither argument
was raised below, we review only for "plain error." See United
States v. Lilly, 13 F.3d 15, 17-18 (1st Cir. 1994).
There is no merit in the contention that the trustee
alone was victimized by the concealment. As used in subsection
2F1.1(b)(2)(B), the phrase "'[s]cheme to defraud more than one
victim,' . . . refers to a design or plan to obtain something of
value from more than one person. In this context, 'victim'
refers to the person or entity from which the funds are to come
directly." U.S.S.G. 2F1.1, comment. (n.3). Thus, the relevant
commentary makes clear that the primary victims of a bankruptcy
fraud, for the most part, are the individual creditors.
Nevertheless, as the representative of the debtor
estate, see Bankruptcy Code 323(a), 11 U.S.C. 323 (a), it is
incumbent upon the trustee to collect and reduce to money all
nonexempt assets of the estate, id. 704 (1). Accordingly,
although the trustee has no prepetition claim to property of the
debtor and therefore does not qualify as a "creditor," a pre-
scribed portion of the net recoveries from any "property of the
22
estate" administered by the trustee comprises a priority cost of
administration as provided in Bankruptcy Code 326(a),
330(a)(1), 503(b)(1)(A) & 507(a)(1). Consequently, not only
creditors but the chapter 7 trustee as well may be victimized
directly by a bankruptcy fraud to the extent it deprives the
estate of assets otherwise subject to administration.
Moreover, it is likewise clear that Shadduck schemed to
obtain something of value. By concealing pension plan funds and
insurance policies which were neither claimed nor set apart as
exempt, Shadduck attempted to retain property of the estate
otherwise subject to administration for the benefit of credi-
tors.13 See Taylor, 503 U.S. at 643-44; Mercer, 53 F.3d at 3
(property claimed exempt is initially "property of the estate"
and becomes exempt only if there is no timely objection to
exemption claim).
The second challenge Shadduck makes to the multiple-
victims enhancement that it amounts to impermissible "double
13As the Ninth Circuit has noted:
Clearly the false statement [the debtor] made
in relation to his bankruptcy estate was
intended to result in an undervaluation of
the estate in bankruptcy and the availability
of less money to satisfy the demands of the
creditors. Thus, [the debtor] would have
"obtained something of value from more than
one person," that being whatever portion of
the estate to which the creditors were enti-
tled but which was hidden by the false state-
ment.
United States v. Nazifpour, 944 F.2d 472, 474 (9th Cir. 1991)
(per curiam). See also Michalek, 54 F.3d 325, 330 (7th Cir.
1995) (concealing assets harms trustee and creditors).
23
counting" when imposed with the enhancement for violating a
judicial order need not be discussed at this time given our
decision to set aside the latter ruling. See supra pps. 14-19.
Consequently, we affirm the two-level enhancement imposed pursu-
ant to U.S.S.G. 2F1.1(b)(2)(B).
24
III
III
CONCLUSION
CONCLUSION
For the foregoing reasons, appellants' convictions are
affirmed. Andrea Shadduck's sentence is affirmed. Michael
Shadduck's sentence is affirmed in part and vacated in part, and
the case is remanded to the district court for resentencing.
So Ordered.
So Ordered.
25
