Opinion ID: 588107
Heading Depth: 2
Heading Rank: 1

Heading: Elements of Bankruptcy Fraud

Text: 9 The concealment offense with which Grant was charged under the indictment in this case required proof beyond a reasonable doubt that Grant knowingly concealed property of his chapter 7 estate from the chapter 7 trustee, with specific intent to defraud creditors. See United States v. Guiliano, 644 F.2d 85, 87 (2d Cir.1981) (Bankruptcy Act case). 3 Grant contends that the government failed to establish beyond a reasonable doubt that (1) the concealed Stobart prints were property of the chapter 7 estate, (2) Grant acted with the requisite specific intent to defraud creditors, and (3) the prints were of substantial value to the estate.
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11 Grant first contends that the government failed, as a matter of law, to establish that the Stobart prints were property belonging to the [chapter 7] estate. 18 U.S.C. § 152. Relying on the relation back doctrine developed under the Bankruptcy Act of 1867 (and its successor statutes) [hereinafter Bankruptcy Act], Grant contends that his conviction must be set aside in light of the trustee's post-concealment abandonment of the Stobart prints. According to Grant, the putative abandonment revested title in the same entity which held it at the commencement of the case and any interim concealment of the prints was nullified retroactively. 4 12 As Grant's relation back claim is raised for the first time on appeal, we review for plain error, see, e.g., United States v. Dietz, 950 F.2d 50, 55 (1st Cir.1991) (as a general rule, appellant may not switch horses mid-stream and raise new legal arguments not made the basis for objections in the district court), affording appellate relief only from  ' particularly egregious errors ... that seriously affect the fairness, integrity or public reputation of judicial proceedings.'  United States v. Griffin, 818 F.2d 97, 100 (1st Cir.) (quoting United States v. Young, 470 U.S. 1, 15, 105 S.Ct. 1038, 1046, 84 L.Ed.2d 1 (1985) (quoting United States v. Frady, 456 U.S. 152, 102 S.Ct. 1584, 71 L.Ed.2d 816 (1982))), cert. denied, 484 U.S. 844, 108 S.Ct. 137, 98 L.Ed.2d 94 (1987). 5 Assuming the trustee did abandon any interest of the chapter 7 estate in the Stobart prints allegedly concealed by Grant, a dubious proposition at best, see supra note 4, we conclude nonetheless that the doctrine of relation back is unavailing, as it is logically and legally inapposite to a criminal prosecution for concealing property belonging to [a chapter 7] estate arising under the Bankruptcy Code. 13 We note at the outset that the doctrine of relation back has been recognized in bankruptcy proceedings for more than a century, yet Grant has not cited to a criminal case in which the doctrine was applied. No less significantly, the doctrine originated within the very dissimilar framework of the Bankruptcy Act, and its application in relation to these chapter 7 proceedings under the Bankruptcy Code would serve none of the benign purposes for which it was fashioned. Rather, its extension to criminal proceedings for bankruptcy fraud arising out of a chapter 7 case would disserve the interests of justice which the relation back doctrine was designed to serve. See, e.g., Wallace v. Lawrence Warehouse Co., 338 F.2d 392, 394 n. 1 (9th Cir.1964) ([Relation back] is a fiction, and a fiction is but a convenient device, invented by courts to aid them in achieving a just result. It is not a categorical imperative, to be blindly followed to a result that is unjust.); Rosenblum v. Dingfelder, 111 F.2d 406, 409 (2d Cir.1940) (Relation back may be considered in the nature of a fiction which may be used if it fits the case at hand). 14 The bankruptcy doctrine of relation back was designed to assimilate the technical niceties of common law notions of title to the title vesting provisions of the Bankruptcy Act. See generally 4A James W. Moore, Collier on Bankruptcy pp 70.05, 70.42, at 69-75, 499-516 (14th ed. 1978) [hereinafter 4A Collier]. The technical rigidity of common law conceptions of title required that title at all times repose in some ascertainable person or entity. Id. at 73. Under the Bankruptcy Act, however, title to non-exempt property did not pass from the bankrupt by operation of law until the appointment and qualification of the trustee in bankruptcy, often weeks or months after the filing of the petition in bankruptcy. There being no alternative repository for the title of the bankrupt during the gap period preceding the qualification of the trustee in bankruptcy, the vesting mechanism of the doctrine of relation back became the fictional device whereby the trustee in bankruptcy acceded retroactively to the title held by the bankrupt as of the date of bankruptcy. 6 15 The relation back mechanism principally at issue in the present case--the title revesting mechanism--was designed to afford retroactive relief from random inequities visited upon third parties during the pre-abandonment period occasioned by the unsynchronized interaction between the title vesting scheme ordained under Bankruptcy Act § 70 and the appointment and qualification of the trustee in bankruptcy under Bankruptcy Act §§ 44(a), 45, 50(b) & (k), 11 U.S.C. §§ 72(a), 73, 78(b) & (k). 7 During the pre-abandonment period, the bankrupt was able to effect transfers to third parties who could be required by the trustee in bankruptcy to disgorge the property which was the subject of the transfer. See, e.g., Bankruptcy Act §§ 21(g), 70(d), 11 U.S.C. §§ 44(g), 110(d). In the event of an abandonment of the subject property by the trustee, the title revesting mechanism served to enable the interim transferee to assert the rights acquired by virtue of the interim transfer from the bankrupt. 16 The principal raison d'etre of the vesting mechanism no longer obtains under the Bankruptcy Code. The commencement of a voluntary chapter 7 case establishes a chapter 7 estate to which virtually all property interests of the debtor pass by operation of law. See Bankruptcy Code §§ 301, 302, 541(a), 11 U.S.C. §§ 301, 302, 541(a). The chapter 7 estate becomes the immediate repository for whatever title the debtor held at the commencement of the case, precluding the gap period which arose in proceedings under the Bankruptcy Act. Given the demise of the gap period, and the fact that title no longer vests in the trustee, the continuing vitality of the ancillary revesting mechanism is questionable as well. 8 Thus, the technical hurdles obstructing Grant's attempt to deploy a coherent relation back theory are insurmountable. 17 Perhaps more importantly, however, neither relation back mechanism was designed to insulate bankruptcy fraud, either in the bankruptcy proceeding itself or in any related criminal proceeding. Like other criminal statutes, section 152 is intended to deter the outlawed conduct. See, e.g., Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 423 (3d Cir.) (§ 152 intended to deter nondisclosure of assets), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988); see also Stuhley v. Hyatt, 667 F.2d 807, 809 n. 3 (9th Cir.1982). Section 152 promotes efficient bankruptcy administration and an equitable allocation of the assets of debtor estates by criminalizing efforts to preempt a neutral and informed assessment by the trustee as to the status and value of the debtor's legal, equitable, and possessory interests in property at the commencement of the case. See United States v. Cherek, 734 F.2d 1248, 1254 (7th Cir.1984) (It is a reasonable reading of 18 U.S.C. § 152 to conclude that the statute requires a bankrupt to disclose the existence of assets whose immediate status in bankruptcy is uncertain ... [e]ven if the asset is not ultimately determined to be property of the estate under the technical rules of the Federal Bankruptcy Code), cert. denied, 471 U.S. 1014, 105 S.Ct. 2016, 85 L.Ed.2d 299 (1985). If the debtor's schedules omit or camouflage an asset, the chapter 7 trustee is disabled from exercising an informed judgment as to whether the debtor had a sufficient legal, equitable, or possessory interest to permit and warrant its liquidation for the benefit of creditors. 18 The present case exemplifies a type of harm the bankruptcy fraud statute was designed to prevent. Although Grant vigorously argues that all the Stobart prints were abandoned by the trustee, their settlement agreement is more naturally interpreted as an abandonment of the two Stobart prints located and inventoried at the Grant residence, and not the five or six other Stobart prints allegedly removed on November 20, 1987. See supra note 4. It is sufficient to note that Grant's concealment of Stobart prints on November 20, 1987, put the trustee at a significant disadvantage in ascertaining the nature and value of the chapter 7 estate's interest in these prints. See In re Tarpley, 4 B.R. 145, 146 (Bankr.M.D.Tenn.1980) (abandonment revocable where trustee lacked knowledge or sufficient means of knowledge) (emphasis added). 19 The entire experience under the Bankruptcy Act reveals no recorded instance in which the doctrine of relation back was utilized to exonerate a bankrupt (or anyone else) from criminal responsibility for concealing property from a trustee in bankruptcy. The benign fiction that an abandonment reinstates the title the debtor held at the date of bankruptcy was designed to minimize injustice to third parties, not invite it. Similarly, as the doctrine of relation back lies in the realm of theoretics, its capacity to reform reality doubtless did not extend to undoing Grant's removal and concealment of the Stobart prints while they remained property of the chapter 7 estate, any more than an abandonment of property purposely ruined by fire could restore the premises, undo the arson, or exonerate the arsonist. 20
21 Grant challenges the sufficiency of the government's evidence that the Stobart prints were property belonging to [his chapter 7] estate, within the meaning of 18 U.S.C. § 152, clause 1. 9 The present contention reduces to the basic proposition that particular elements of the prosecution's case, viewed in isolation, were inconclusive on the issue of the ownership of the Stobart prints. 10 Of course we review the evidence as a whole and in context, not in piecemeal isolation. United States v. Geer, 923 F.2d 892, 894 (1st Cir.1991) (per curiam); United States v. Kaplan, 832 F.2d 676, 679 (1st Cir.), cert. denied, 485 U.S. 907, 108 S.Ct. 1080, 99 L.Ed.2d 239 (1987). The determination whether a debtor held a legal, equitable, or possessory interest in property at the commencement of the case requires the fact-finder to evaluate all relevant direct and circumstantial evidence relating to the property and to the intent of the debtor. See, e.g., Provencher v. Berman, 699 F.2d 568, 572-73 (1st Cir.1983) (fact-finder considers evidence relating to such criteria as the source of funds, donative intent); accord In re Sommer, 28 B.R. 95, 95-97 (Bankr.D.Colo.1983) (relevant factors may include the source of funds used to acquire the property, the record title, actual possession, intent of purchaser, payment of taxes, and maintenance of the property). 22 The government introduced evidence that (1) Grant signed most of the invoices as the purchaser, 11 (2) a Summit employee represented to its insurer that the Stobart prints were owned by Grant, (3) at least two prints were stored in the Grant residence, (4) Grant's chapter 11 schedules listed 15 prints & photographs ... located at 92 State Street as his personal property, 12 and (5) during the chapter 7 proceedings, Grant testified under oath that the Stobart prints belonged to him. 13 23 Our review of a criminal defendant's challenge to an unfavorable jury verdict allegedly based on insufficient evidence is a deferential one: 24 We assess the sufficiency of the evidence as a whole, including all reasonable inferences, in the light most favorable to the verdict, with a view to whether a rational trier of fact could have found the defendant guilty beyond a reasonable doubt. We do not weigh witness credibility, but resolve all credibility issues in favor of the verdict. The evidence may be entirely circumstantial and need not exclude every reasonable hypothesis of innocence; that is, the factfinder may decide among reasonable interpretations of the evidence. 25 United States v. Lopez, 944 F.2d 33, 39 (1st Cir.1991) (quoting United States v. Batista-Polanco, 927 F.2d 14, 17 (1st Cir.1991)). Viewed in the light most favorable to the verdict, there was ample evidence that Grant acquired at least six Stobart prints in his own right, maintained them as his own, and well knew at the time of their removal that the prints belonged to his chapter 7 estate.
26 Grant insists that there was not enough evidence from which the jury could have concluded, beyond a reasonable doubt, that he removed the Stobart prints from his residence with the specific intent to defraud creditors. Analogizing to adversary proceedings under Bankruptcy Code § 727, 14 Grant contends that a debtor normally will not be denied a discharge based on allegations of fraudulent concealment if the property was scheduled or otherwise disclosed to the trustee during the early stages of the bankruptcy proceedings. See, e.g., In re Hirengen, 112 B.R. 382, 385 (Bankr.D.Mont.1989); In re Wolmer, 57 B.R. 128, 131-32 (Bankr.N.D.Ill.1986). The attempted analogy ultimately depends on the establishment of three theses: (1) Grant disclosed the Stobart prints in the schedules attached to the voluntary chapter 11 petition filed in March 1987; (2) Grant was never disabused of the good faith understanding that he was authorized, as the agent of the displaced chapter 11 debtor in possession, to use property of the chapter 7 estate and to remove the prints from the Grant residence; and (3) Grant arranged to return the prints immediately upon learning that their removal was not authorized. Our review reveals sufficient record evidence for finding, beyond a reasonable doubt, that Grant, with the requisite fraudulent intent, removed and continued to conceal the prints. 27 First, the manner of Grant's disclosure of the prints did not preclude a jury finding that he subsequently concealed them. The crime of concealment includes withhold[ing of] knowledge or prevent[ing] disclosure or recognition.  United States v. Turner, 725 F.2d 1154, 1157 (8th Cir.1984) (§ 152 case) (emphasis added). Grant scheduled 15 prints & photographs ... located at 92 State Street as his own property, neither providing a means of identifying any particular print, nor stating the total number or the individual or overall value of the prints. Since it was (and remains) impossible to determine from the property schedules how many Stobart prints were located at 92 State Street (or their identity and value), the schedules made no disclosure which would preclude the requisite fraudulent intent to conceal the prints removed from the Winchester residence on November 20, 1987. 15 28 Second, the evidence was sufficient to support a finding, beyond a reasonable doubt, that Grant knew that the chapter 7 conversion deprived him of any authority to remove property of the chapter 7 estate. The jury would have been entitled to conclude that a reasonable person in Grant's position, having been informed only a few hours earlier that the trustee suspected that items had been removed from Summit's offices, and having agreed to an immediate inventory of the contents of the Grant residence, would understand, either as a lay person or as an attorney, that he was not authorized to remove property from the residence prior to the inventory. In addition, Linda Young, who served successively as counsel to the chapter 11 creditors committee and the chapter 7 trustee, testified at trial that the legal consequences of the chapter 7 conversion were discussed with Grant and his attorney during their meeting at 92 State Street on the morning of November 20, 1987, just a few hours before Grant removed the Stobart prints from the Winchester residence. Among the matters discussed was the fact that the trustee was solely responsible for taking possession of all of the assets of the various corporations and Mr. Grant. (Emphasis added). 29 Third, the jury was not required to ascribe conclusive weight or import to Grant's testimony that he arranged to have the prints returned to the Winchester residence shortly after the trustee learned of their removal. Further, if the jury chose to credit Grant's testimony that he made arrangements to return the prints to the Grant residence, it was not required to conclude that the chapter 7 trustee was so informed. Moreover, in neither event did Grant's testimony preclude a finding that he removed the prints with the requisite fraudulent intent to conceal, even if he returned them after their removal had been discovered. Although the replacement of removed property may be probative evidence of a lack of fraudulent intent, it is not dispositive. See United States v. Klupt, 475 F.2d 1015, 1018-1019 (2d Cir.1973) (return of property not dispositive under § 152); see also United States v. Rodriguez-Cardona, 924 F.2d 1148, 1151 (1st Cir.) (proof of continuing criminal intent unnecessary; it is sufficient to prove that a defendant had the necessary intent at the time of the offense.) (emphasis added), cert. denied, --- U.S. ----, 112 S.Ct. 54, 116 L.Ed.2d 31 (1991). Given the highly incriminating circumstantial evidence, see supra at pp. 801-02, the jury was entitled to conclude that Grant possessed the requisite fraudulent intent to conceal the prints at the time he removed them from the Grant residence and thereafter.
30 Grant contends that section 152 implicitly requires that the concealment involve a substantial amount of property material to the chapter 7 estate, see United States v. Key, 859 F.2d 1257, 1261 (7th Cir.1988), which must be determined in relation to the overall value of the estate. 16 Relying on the victim loss calculation made at sentencing, see U.S.S.G. § 2F1.1, Grant argues that the government at best may have proven concealment of two Stobart prints worth $100, which must be considered too insubstantial a value, as a matter of law, in relation to a debtor estate of $3,000,000 to $4,000,000. 17 31 Grant cites no authority for the suggested substantiality requirement and nothing in the language of section 152 supports it. See Kanner v. United States, 21 F.2d 285, 287 (2d Cir.1927) (value of concealed property is not an essential element of the conduct criminalized under § 152); cf. United States v. Solomonson, 908 F.2d 358, 364-65 (8th Cir.1990) (unnecessary to prove actual financial loss to victim under bank fraud statute). 18 Furthermore, as the overriding prophylactic aim of the bankruptcy fraud statute is to deter and punish conduct which would inhibit the ability of the trustee, as distinguished from the debtor, see Bankruptcy Code § 542(a), 11 U.S.C. § 542(a); see also supra pp. 805-06, to determine whether property of the estate is of sufficient value to warrant liquidation and distribution for the benefit of creditors, we do not find the substantiality claim compelling in the present circumstances. 19 32 Finally, a careful review of the record convinces us that there was sufficient evidence to support a jury finding, beyond a reasonable doubt, that Grant concealed as many as eight or nine Stobart prints. 20 Additionally, the jury was not required to credit the liquidation-valuation evidence presented by Grant, rather than the much higher cost or market value evidence introduced by the government. 21