Opinion ID: 2748472
Heading Depth: 1
Heading Rank: 2

Heading: Edgardo: Government Waiver

Text: Edgardo asserts that the Partial Settlement Agreement in his bankruptcy case effected a waiver by the government of the fraud, concealment, and money laundering charges lodged against him and, hence, entitled him to a judgment of acquittal on all counts. He frames this argument in terms of estoppel: the government is estopped from charging him criminally for concealing his ownership of Málaga #1 and IU and failing to disclose the transactions associated with them, because the trustee and bankruptcy court accepted the amended bankruptcy schedules that remedied any illegality in his prior conduct. In advancing this argument, Edgardo invokes both equitable estoppel and judicial estoppel.
In general, courts apply equitable estoppel to prevent injustice when an individual detrimentally and predictably relies on the misrepresentation of another. Nagle v. Acton-Boxborough Reg'l Sch. Dist., 576 F.3d 1, 3 (1st Cir. 2009). The doctrine is -10- used sparingly against the government, id., and a party seeking to equitably estop the government must show at least . . . 'an affirmative misrepresentation or affirmative concealment of a material fact by the government,' Shafmaster v. United States, 707 F.3d 130, 136 (1st Cir. 2013) (quoting Ramírez-Carlo v. United States, 496 F.3d 41, 49 (1st Cir. 2007)). See also Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 60 (1984) (noting that it is well settled that the Government may not be estopped on the same terms as any other litigant). Here, Edgardo cites no affirmative statement by the trustee or bankruptcy court that the Settlement Agreement, and Edgardo's filing of amended schedules, would cleanse his prior unlawful conduct and protect him from criminal prosecution. Edgardo suggests that the misrepresentation requirement is met through the bankruptcy court's allowance of his amendments, which he equates with a statement by the court that his conduct had become acceptable and, consequently, immune from criminal liability. Edgardo, however, reads far too much into the bare fact that the bankruptcy court approved his amendments. Under the Federal Rules of Bankruptcy Procedure, a debtor is permitted to amend a schedule as a matter of course at any time before the case is closed. Fed. R. Bankr. P. 1009(a); see also In re Hannigan, 409 F.3d 480, 481 (1st Cir. 2005). Although a bankruptcy judge has the discretion to deny an amendment based on the debtor's bad -11- faith, see, e.g., Malley v. Agin, 693 F.3d 28, 30-31 (1st Cir. 2012),10 the court's acceptance of amendments does not necessarily mean that the court has found no misconduct. Where, as here, the offered amendments plainly benefitted creditors, the decision to accept the amendments could not possibly reflect any forgiveness by the court of the underlying conduct that required the amendments. Hence, there was no misrepresentation to give rise to equitable estoppel.
To establish judicial estoppel, a litigant must show that an opposing party is pressing a litigation position inconsistent with a position the party successfully asserted previously, and the new position would unfairly advantage that party if the court accepted it. See Knowlton v. Shaw, 704 F.3d 1, 10 (1st Cir. 2013); Perry v. Blum, 629 F.3d 1, 9 (1st Cir. 2010). Edgardo argues that the government's filing of criminal charges was inconsistent with 10 We note that the Supreme Court has recently held that bankruptcy courts do not have a general, equitable power . . . to deny exemptions based on a debtor's bad-faith conduct. See Law v. Siegel, 134 S. Ct. 1188, 1196 (2014) (emphasis added). In Malley and the case it cites for the bad-faith principle, In re Hannigan, 409 F.3d 480 (1st Cir. 2005), we affirmed bankruptcy court orders that had relied on the debtors' bad faith to limit exemptions. See Malley, 693 F.3d at 30 (affirming surcharge against exempt property to offset fraudulent concealment of non-exempt property); In re Hannigan, 409 F.3d at 484 (affirming denial of amendment to homestead exemption as a sanction for bad faith). Although Law appears to overrule Malley and Hannigan to the extent they limited exemptions based on bad-faith conduct, the Supreme Court's ruling does not restrict the bankruptcy court's discretion concerning amendments unrelated to exemptions -- as was the situation here. -12- the bankruptcy court's prior judgment to accept the Partial Settlement Agreement. He asserts that the settlement benefited the Trustee and the creditors beyond what they would have obtained in an adversary proceeding. Hence, he argues that it is unfair to allow the government to prosecute him for fraud and concealment when, by the time the indictment was filed[,] the schedules were correct and the estate complete, all with the blessing of the Bankruptcy Court. Edgardo offers no case support, however, for his contention that the decision of a bankruptcy trustee or bankruptcy court to settle claims of misconduct in a bankruptcy case -- here, the concealment set forth in the adversary proceeding that was resolved with the Partial Settlement Agreement -- can estop the United States Attorney from subsequently filing criminal charges. The government emphasizes the requirement that the same party assert contradictory positions, and it insists that the Chapter 7 trustee and the United States Attorney are not interchangeable. See United States v. Modanlo, 954 F. Supp. 2d 384, 388 (D. Md. 2013) (stating that the United States Attorney is not the same party as nor is it in privity with the U.S. Trustee, as the two officials operate pursuant to completely different statutory purposes, powers, and interests, with distinct agendas). Indeed, courts have recognized in the preclusion context the folly of treating the government as a single entity in which representation -13- by one government agent is necessarily representation for all segments of the government. See United States v. Alky Enters., Inc., 969 F.2d 1309, 1314-15 (1st Cir. 1992) (holding that the Interstate Commerce Commission was not in privity with the U.S. Attorney General, and rejecting applicability of res judicata because the ICC did not have statutory authority to represent the United States' interest in the earlier proceeding); see also United States v. Hickey, 367 F.3d 888, 893 (9th Cir. 2004) (holding that the Securities and Exchange Commission and the United States Attorney were not the same party for purposes of collateral estoppel because, inter alia, the SEC was not acting as the federal sovereign vindicating the criminal law of the United States (internal quotation marks omitted)).11 Likewise, in the context of judicial estoppel, the government in all its guises cannot inevitably be viewed as a single party. We need not compare the roles of the government parties in the proceedings at issue here, however, because, as explained above, there simply were no inconsistent positions taken. In 11 We have recognized that there are occasions when privity exists 'between officers of the same government so that a judgment in a suit between a party and a representative of the United States is res judicata in relitigation of the same issue between that party and another officer of the government.' Alky Enters., 969 F.2d at 1312 (quoting Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 402-03 (1940)). However, [t]he crucial point is whether or not in the earlier litigation the representative of the United States had authority to represent its interests in a final adjudication of the issue in controversy. Sunshine Anthracite Coal Co., 310 U.S. at 403. -14- bankruptcy court, Edgardo secured a stay of the adversary proceeding and, assuming his compliance with the Partial Settlement Agreement, he gained protection from the possibility of sanctions under bankruptcy law. See, e.g., Law v. Siegel, 134 S. Ct. 1188, 1198 (2014) (noting that bankruptcy courts have authority to respond to debtor misconduct with meaningful sanctions, including denying the debtor a discharge and ordering payment of attorney's fees and other expenses (internal quotation marks omitted) (citing Fed. R. Bankr. P. 9011(c)(2)). There was no reference in the agreement to the possibility of criminal charges. While Edgardo may have hoped his belated full disclosure would protect him from prosecution for fraud and unlawful concealment, the government -- whether in the persona of the bankruptcy trustee or the United States Attorney -- made no such commitment. Cf. United States v. Penn. Indus. Chem. Corp., 411 U.S. 655, 674 (1973) (holding that criminal prosecution may be barred if government misled defendant on whether charged conduct was criminal). The sole settlement case on which Edgardo relies, Hoseman v. Weinschneider, 322 F.3d 468 (7th Cir. 2003), is inapposite. There, a trustee's declaratory judgment action was filed in bankruptcy court against a debtor who had failed to disclose his interest in a business during negotiations to settle an adversary proceeding. Id. at 471. The Seventh Circuit ruled that the trustee must adhere to the terms of a release and covenant not to -15- sue that had been executed as part of the settlement, rejecting the trustee's post-settlement attempt to secure the business interest for the debtor's bankruptcy estate. Id. at 473-74. The court's enforcement of the settlement in Hoseman is nothing like Edgardo's proposed bar of a criminal prosecution based on his bankruptcy settlement. Not only did the agreement in Hoseman cover all claims, known or unknown and expressly protect the debtor from any suit or action, at law or in equity, id. at 473 (internal quotation marks omitted) -- the very type of proceeding later filed by the trustee -- but it was the trustee who both signed the agreement and sought to escape from its limitations. In addition, both the settlement and the court action in Hoseman were part of the bankruptcy proceedings. Here, by contrast, the settlement agreement did not promise Edgardo immunity from prosecution in exchange for his surrender of Málaga #1, and two different arms of the federal government are implicated. Finally, to the extent Edgardo's briefing can be construed to raise the doctrine of collateral estoppel, that effort too is unavailing.12 The bankruptcy court issued no ruling on the legality of Edgardo's conduct that could possibly implicate collateral estoppel, which bars relitigation of previously decided issues that were essential to the [earlier] judgment, Ríos- 12 The district court expressly rejected collateral estoppel based on the settlement agreement as a bar to the criminal prosecution. See Dkt. 302 (Order of Feb. 6, 2012). -16- Piñeiro v. United States, 713 F.3d 688, 692 (1st Cir. 2013). See, e.g., United States v. Tatum, 943 F.2d 370, 382 (4th Cir. 1991) (rejecting application of collateral estoppel in a criminal case based on bankruptcy discharge where [t]he only adjudication necessary to the discharge . . . was approval of the settlement agreement as an acceptable compromise in the interests of the estate and its creditors); cf. United States v. Modanlo, 493 B.R. 469, 475 (D. Md. 2013) (noting parties' acknowledgment that collateral estoppel may bar the Government from litigating, in a criminal case, an issue previously litigated and decided in a civil bankruptcy proceeding).13 The bankruptcy judge did not address the criminality of Edgardo's conduct, and whether Edgardo committed crimes was not essential to the decision approving the Partial Settlement Agreement. In sum, Edgardo's settlement of the adversary proceeding provided no basis for a judgment of acquittal on the criminal charges subsequently filed against him. III. Edgardo and Astrid: Sufficiency of the Evidence Both appellants argue that the evidence adduced by the government was insufficient to support their conspiracy convictions 13 As noted above, in a separate decision in a related proceeding, the judge in Modanlo rejected the defendant's contention that the government was collaterally estopped from criminally prosecuting him on the ground that the U.S. Attorney and the U.S. Trustee were neither the same party nor in privity with each other. See 954 F. Supp. at 388. -17- under Count One and the fraudulent transfer convictions under Counts Three through Five based on IU's acquisition in 2006 of Laguna Gardens V PHP, El Convento and Antonsanti. Edgardo additionally challenges the adequacy of the record to support his conviction for money laundering. We apply de novo review to evidentiary sufficiency claims, examining whether 'a rational factfinder could find, beyond a reasonable doubt, that the prosecution successfully proved the essential elements of the crime.' United States v. DiRosa, 761 F.3d 144, 150 (1st Cir. 2014) (quoting United States v. Hatch, 434 F.3d 1, 4 (1st Cir. 2006)). We review the evidence, and all reasonable inferences drawn from it, in the light most favorable to the government. Id. A. The Conspiracy Count Both appellants claim that the evidence presented by the government at trial fell short of establishing a conspiracy between them to conceal and fraudulently transfer Edgardo's assets in violation of the bankruptcy laws. See 18 U.S.C. § 152(1), (7).14 Astrid attempts to distance herself from Edgardo's conduct, 14 Section 152(1) imposes criminal liability on any person involved in a bankruptcy case who knowingly and fraudulently conceals . . . from creditors or the United States Trustee, any property belonging to the estate of a debtor. Section 152(7) imposes criminal liability on any person who in contemplation of a case under title 11 [the Bankruptcy Code] . . . or with intent to defeat the provisions of title 11, knowingly and fraudulently transfers or conceals any of his property. -18- claiming that she had nothing to do with his actions before the transfer of the Málaga #1 property to IU and, hence, no conspiracy could have been in place at the time of that transaction. She also minimizes the significance of her role as president of IU, pointing to evidence that other individuals who held that position were uninvolved in the business and citing Edgardo's admission that IU was his alter ego. For his part, Edgardo complains that the government relied on improper hearsay evidence, and he asserts that the jury necessarily drew impermissible inferences from appellants' brother-sister relationship. We find none of appellants' arguments persuasive. To sustain a conspiracy conviction, the government must show that the defendant knowingly agreed with at least one other person to commit a crime, intending that the underlying offense be completed. See United States v. Rodríguez-Adorno, 695 F.3d 32, 41 (1st Cir. 2012); United States v. García-Pastrana, 584 F.3d 351, 377 (1st Cir. 2009). The indictment charges a conspiracy that extended from about August 17, 2002 -- the date Málaga #1 was transferred from Edgardo to IU -- through mid-January 2007 -- following the Three Kings Day sale of Málaga #1, and after Astrid withdrew from the bankruptcy case and relinquished the presidency of IU. The record shows continuous collaboration by the siblings throughout that period. Both were involved in the 2002 transfer: Edgardo was the seller and, in effect, the buyer as well, and Astrid drafted the -19- deed and formally represented IU in the transaction as its president. When Edgardo filed for bankruptcy about ten months later without disclosing the sale of Málaga #1 or his ownership interest in IU, Astrid signed the bankruptcy petition as his attorney. Both attended the creditors' meeting in November 2003, when Edgardo falsely stated that IU was owned by Chicago investors. At that time, Astrid was still acting as IU's president (as well as Edgardo's attorney). Both also signed the amended bankruptcy schedules that continued to omit Málaga #1, and Astrid acted as IU's president in the multiple real estate deals that Edgardo initiated for IU in 2006. Later in 2006, Astrid signed five years' worth of IU's late annual reports. This evidence of the siblings' activities is sufficient to permit a reasonable jury to conclude that the pair worked jointly throughout the period charged in the indictment to unlawfully conceal and transfer property belonging to Edgardo's bankruptcy estate. Appellants attempt to discount the import of their obvious collaboration by claiming a lack of proof that their actions were taken pursuant to a conspiratorial agreement. The government, however, need not produce evidence of an explicit agreement to ground a conspiracy conviction. United States v. Pesaturo, 476 F.3d 60, 72 (1st Cir. 2007). Rather, [a]n agreement to join a conspiracy 'may be express or tacit . . . and may be proved by direct or circumstantial evidence.' United States v. -20- Liriano, 761 F.3d 131, 135 (1st Cir. 2014) (omission in original) (quoting United States v. Rivera Calderón, 578 F.3d 78, 88 (1st Cir. 2009)). Based on the evidence described above, a jury reasonably could infer that the siblings had agreed to mislead the bankruptcy court about Edgardo's assets, including his ownership of IU, and took numerous steps designed to protect his resources, beginning with the transfer of Málaga #1 in anticipation of the bankruptcy filing.15 See Rodríguez-Adorno, 695 F.3d at 41-42 (noting that findings of knowledge and intent may rest on inferences drawn from the defendant's commission of acts furthering the conspiracy's purposes). Accordingly, there is no question that the government presented sufficient evidence to support appellant[s'] convictions. Id. at 43.16 B. The Property Purchases in 2006 Both appellants claim that judgments of acquittal should have been entered on the three counts charging them with the fraudulent transfers of Laguna Gardens V PHP (Count Three), El Convento (Count Four), and Antonsanti (Count Five), in violation of 15 Hence, contrary to Astrid's assertions, the jury could properly find that the transfer of Málaga #1 was an overt act -- indeed, the first of many -- in furtherance of the conspiracy. 16 Edgardo fails to develop his argument that the government relied on inadmissible hearsay evidence to support his conviction, and we therefore deem it waived. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). -21- 18 U.S.C. § 152(7). Section 152(7) provides, in relevant part, that it is unlawful for a person, with intent to defeat the provisions of [the Bankruptcy Code], knowingly and fraudulently [to] transfer[] or conceal[] any of his property. Appellants argue that the government failed to prove that the properties were purchased with funds belonging to the bankruptcy estate and, hence, the jury could not properly find that they acted with the intent to defeat the provisions of the Bankruptcy Code. Although the government acknowledges that, [d]ue to Appellants' actions, the bankruptcy trustee could not exclude the possibility that the properties were purchased with post-petition earnings,17 it asserts that § 152(7) does not demand that the fraudulent transfers at issue involve property of the bankruptcy estate. We agree with the government, whose position is supported by the plain language of the statute. Unlike § 152(1), which addresses the concealment of any property belonging to the estate of a debtor, 18 U.S.C. § 152(1) (emphasis added), § 152(7) covers the transfer or concealment of any of [a debtor's] property or the property of [any] other person or corporation, id. § 152(7)(emphasis added); see also United States v. Moody, 923 F.2d 341, 346-47 (5th Cir. 1991) (noting the different language). Hence, although the transfer or concealment prohibited by § 152(7) 17 Earnings from services performed by an individual debtor after the commencement of the [bankruptcy] case are not property of the estate. 11 U.S.C. § 541(a)(6). -22- must relate to a bankruptcy case -- i.e., it must be intended to defeat the provisions of the Bankruptcy Code -- the statute reaches beyond the bankruptcy estate itself. See United States v. Messner, 107 F.3d 1448, 1452 (10th Cir. 1997) (finding that culpability will attach to a concealment of a person's own property if done for the purpose of defeating bankruptcy); United States v. West, 22 F.3d 586, 590 (5th Cir. 1994) (holding that transfer of property outside the bankruptcy estate may provide basis for violation so long as it was made knowingly, fraudulently, and in contemplation of a case under title 11 or with intent to defeat the provisions of title 11); Moody, 923 F.2d at 347 (holding that it is not necessary for the property to be an asset of the bankruptcy estate so long as the defendant has the intent at the time of the concealment or transfer to defeat the bankruptcy law (internal quotation marks omitted)); see also 1 Collier on Bankruptcy ¶ 7.02[7][a][v] (16th ed. 2014) (noting that § 152(7) covers the debtor's postpetition transfers or concealments, if taken with the requisite mental state, due to the level of interference with the administration of the debtor's bankruptcy estate that might arise from unregulated transfers). The facts here illustrate why the fraud provisions of the Bankruptcy Code reach post-petition earnings. The jury reasonably could have found that Edgardo used post-petition earnings to fund IU's account -- a bankruptcy estate asset that should have been -23- disclosed initially -- and then used that IU account to acquire the three properties. It is inconceivable that such a blatant scheme to manipulate an estate asset could be insulated from criminal consequences simply because the funds at issue derived from postpetition earnings. Indeed, because IU should have been included in the bankruptcy estate, appellants presumably were obliged to bring to the trustee's attention any funds moving through the company. See 11 U.S.C. § 541(a)(7) (stating that property of the estate includes [a]ny interest in property that the estate acquires after the commencement of the case). Ultimately, however, appellants' challenge to their convictions under Counts Three through Five does not depend on the source of the funds used to purchase the three properties. Regardless of how the acquisitions were financed, the jury could have found that the transactions were deliberately structured to conceal assets from the trustee and, hence, were done with intent to defeat the provisions of [the Bankruptcy Code]. 18 U.S.C. § 152(7). Appellants were therefore not entitled to judgments of acquittal on Counts Three through Five.
Count Seven of the indictment charged Edgardo with money laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(i),18 alleging 18 To prove a violation of § 1956(a)(1)(B)(i), the government must establish: -24- that he knowingly transformed the proceeds of a property transfer that was unlawful under bankruptcy law, see 18 U.S.C. § 152(7), with the intention to conceal and disguise[] the nature, location, source, ownership, and control of the funds. Edgardo cursorily asserts that the government's evidence failed to show two necessary elements of the money laundering charge: that the money at issue was derived from unlawful activity and that he intended to unlawfully use or conceal the money.19 This claim warrants little discussion. The government sought to show that Edgardo committed money laundering when he converted the proceeds of the Málaga #1 sale in January 2007 into eight manager's checks payable to four of his relatives.20 By that time, the trustee's investigation into the ownership of Málaga #1 (1) that [the defendant] knowingly conducted a financial transaction, (2) that he knew that the transaction involved funds that were proceeds of some form of unlawful activity, (3) that the funds were proceeds of a specified unlawful activity, and (4) that [the defendant] engaged in the financial transaction knowing that it was designed in whole or in part to conceal or disguise the nature, location, source, ownership, or control of the proceeds of such unlawful activity. United States v. Hall, 434 F.3d 42, 50 (1st Cir. 2006). 19 Edgardo makes a fleeting reference to the inadequacy of the government's proof that the charged financial transactions affected interstate commerce, see 18 U.S.C. § 1956(c)(4), but he fails to make a meaningful challenge to the sufficiency of the evidence on that element. We therefore do not consider the issue. 20 As noted above, the government presented evidence that the funds eventually were returned to the accounts of the purported buyers, the parents of Edgardo's girlfriend. -25- was underway and the adversary proceeding had been filed. The circumstances of the closing itself bespoke a suspicious foundation: the unusual scheduling on Three Kings Day to finalize the sale, indicating urgency to get the deal done, with Edgardo's cousin/housekeeper serving as IU's president following Astrid's resignation. Notations on the eight IU checks that funded the manager's checks suggested that the four payees were connected to the company, but each denied any such relationship or receiving the funds. This evidence, taken in the light most favorable to the government, supports a finding that Edgardo initiated the sham sale of Málaga #1, and arranged the convoluted handling of the proceeds, to further his earlier fraudulent transfer and concealment of the property.21 The evidence was thus sufficient for the jury to find Edgardo guilty of unlawful money laundering.