Opinion ID: 804482
Heading Depth: 2
Heading Rank: 2

Heading: Count Four—Sufficiency of the Evidence

Text: Under count four, Johns is alleged to have “knowingly and fraudulently received a material amount of property” “with the intent to defeat the provisions of title 11 of the United States Bankruptcy Code.” Johns was found guilty on this count, and he now challenges the sufficiency of the evidence. Johns argues that he could not have intended to defeat the provisions of the Bankruptcy Code, since he helped all creditors get paid in full and helped the debtor 22 No. 11-3299 emerge from bankruptcy earlier than anticipated. The government, conversely, contends that one of the main purposes of the Bankruptcy Code is to help debtors get a “fresh start,” and Johns, in stealing the Ten Hoves’ equity, defeated that purpose. As discussed in Section III.A.1 above, “We evaluate the evidence in the light most favorable to the government, and if ‘any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,’ the judge committed no error in denying the motion for acquittal and we will affirm the conviction.” Douglas, 874 F.2d at 1155 (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)). Since it is clear that Johns received property from the Ten Hoves in the form of his broker’s fee, the parties focus on whether or not Johns received such property with the intent to defeat the provisions of the Bankruptcy Code. We have very little case law on the specific provision at issue here—18 U.S.C. § 152(5)—but in discussing § 152 generally, we have stated: Section 152 of Title 18 is a congressional attempt to cover all of 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 creditors. United States v. Goodstein, 883 F.2d 1362, 1369 (7th Cir. 1989) (citing Stegeman v. United States, 425 F.2d 984, 986 (9th Cir. 1970)). See also United States v. Persfull, 660 F.3d 286, 294 (7th Cir. 2011); United States v. Ellis, 50 F.3d 419, 422 (7th Cir. 1995); C OLLIER ON B ANKRUPTCY, ¶ 7.02(5)(a)(iv) (“At a No. 11-3299 23 minimum, this component requires the defendant to act in such a way as to intentionally effect a deviation from the distributions anticipated by title 11 liquidations, including both the priorities and the rule that claimants within a class share pro rata.”). Johns argues that these sources illustrate the true purpose of 18 U.S.C. § 152(5)—to provide broad protection against people interfering with creditors rights under the Bankruptcy Code. In support of this contention, Johns also cites several prototypical § 152 cases, in which creditors or debtors attempt to hide or transfer assets so as to cheat the bankruptcy system and prevent the equitable distribution of a debtor’s limited property. See, e.g., United States v. Arthur, 582 F.3d 713 (7th Cir. 2009) (finding sufficient evidence to support a verdict convicting a couple of bankruptcy fraud when a husband transferred property to his wife in an attempt to hide the property from creditors); Persfull, 660 F.3d 286 (finding sufficient evidence to convict two brothers of bankruptcy fraud where one brother transferred property to another to keep the property out of the reach of creditors). The government cites no cases in which an individual is found guilty of bankruptcy fraud despite the fact that all creditors received the full amount of the obligation that was owed to them. It nonetheless argues that under the Chapter 13 plan, the Ten Hoves only had to pay 70% of their debt to creditors, but after they sold their home to Banks, the creditors received 100% of the debt owed. The government argues that this contradicts one of the central purposes of the Bankruptcy Code, which is to give debtors a fresh start. See In re Bogdanovich, 292 F.3d 104, 107 (2d Cir. 24 No. 11-3299 2002); In re Andrews, 80 F.3d 906, 909-10 (4th Cir. 1996); In re Christensen, 193 B.R. 863, 866 (N.D. Ill. 1996). According to the government, the jury could have found that there was no actual agreement between Banks and the Ten Hoves under which the Ten Hoves would have to pay back the inflated equity —$30,000 —upon the sale of their home. Thus, they had a right to that equity, the government suggests, and its use to pay off their creditors at a higher rate than they would have paid under the Chapter 13 plan defeated the purpose of giving the Ten Hoves a “fresh start.” We are not persuaded by this argument. For one, in each of the cases that consider a debtor’s “fresh start” to be of central importance to bankruptcy proceedings, 18 U.S.C. § 152 is not at issue. Further, a finding that the Ten Hoves did not agree to pass on their “equity” at the closing of the sale of their house would not be supported by the evidence. Arthur Ten Hove himself testified that he was aware of the fact that he would not keep any equity at closing. Thus, the money used to pay off the Ten Hoves’ creditors was not money that they would have been able to keep otherwise; rather, it was a part of the manufactured equity that Johns and Banks created through their scheme. The Ten Hoves, therefore, were not in a worse position then if the bankruptcy proceeding went as planned, and their ability to have a “fresh start” was not interrupted. This, however, does not end our inquiry, for we do accept the government’s broader argument that Johns intended to defeat the Bankruptcy Code by disregarding the Trustee’s role in the Ten Hoves’ bankruptcy plan. No. 11-3299 25 Pursuant to the Bankruptcy Code, the trustee or the Bankruptcy Court was supposed to approve of any sale of the Ten Hoves’ property that was not a part of their bankruptcy payment plan. Johns was aware of this, and he was also told by a staff attorney in the trustee’s office that the sale of the Ten Hoves’ home was not approved. By continuing with the sale anyway, and thus flouting the dictates of the Bankruptcy Code, Johns intended to defeat the Ten Hoves’ bankruptcy payment plan, and thus the Bankruptcy Code in gen- eral. This notion finds support in early 20th century case law interpreting a precursor to the current Bankruptcy Code. In Knapp and Spencer Co. v. Drew, the Eighth Circuit held, “The appellant in taking the money from the bankrupt after proceedings in bankruptcy had been instituted against him violated the spirit and purpose of the bankruptcy act by attempting to prevent the administration of the estate by the proper court. . . .” 160 F. 413, 416 (8th Cir. 1908) (emphasis added). While Knapp involved a prototypical bankruptcy fraud case—one in which a creditor seeks to gain more than he would under the bankruptcy plan, thus defeating the intent of equitable distribution—the violation is stated in broader terms, suggesting that any improper interference with bankruptcy proceedings could violate the provision at issue. Similarly, in In re Payman, the Second Circuit held that “whoever prevents [the administration of a bankrupt estate] even by equal distribution to those assumed to be creditors frustrates the proceeding.” 40 F.2d 194, 195 (2d. 1930) (emphasis added). The relevancy of these cases is obviously lessened by their age, but the 26 No. 11-3299 point is as cogent now as it was then: the Bankruptcy Code envisions that a trustee will administer an individual’s plan to reorganize, and if a third party attempts to operate outside of that prescribed method, the Bankruptcy Code is frustrated. Johns’ actions were similar to those of the appellants involved in Knapp and Payman in that they directly contradicted the planned administration of the Ten Hoves’ estate. While some of the central goals of the Bankruptcy Code were still upheld by the sale of the Ten Hoves’ home (i.e., the payment of creditors and the removal of the Ten Hoves from Bankruptcy Court), the planned administration of the Ten Hoves’ estate was knowingly interrupted by Johns, and thus it is fair to say that he intended to defeat the provisions of Chapter 11. We therefore find the evidence sufficient for the conviction of Johns under count four.