United States v. Saacks

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 21, 1998
• Docket: 97-30246
• Status: Published

Opinion

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.