Opinion ID: 695554
Heading Depth: 2
Heading Rank: 2

Heading: Violation of Judicial Process

Text: 17 Next, Mr. Michalek argues that the district court erred in ordering the two-level enhancement for violation of a judicial process. He claims that the district court's reasoning would apply to all cases of bankruptcy fraud. This result, Mr. Michalek submits, is inconsistent with the Guidelines' focus on offender conduct. In response, the government contends that Mr. Michalek's position is contrary to the existing case law. To resolve this issue, we must determine whether the term judicial process, as used in U.S.S.G. Sec. 2F1.1(b)(3)(B), includes bankruptcy proceedings. We review the district court's analysis of this question of guideline interpretation de novo. See United States v. Tai, 41 F.3d 1170, 1174 (7th Cir.1994); see also United States v. Mumford, 25 F.3d 461, 465 (7th Cir.1994). 18 The two circuits that have confronted this issue have held that Sec. 2F1.1(b)(3)(B) applies to violations of 18 U.S.C. Sec. 152 when debtors have concealed assets after filing for bankruptcy. See United States v. Bellew, 35 F.3d 518, 520 (11th Cir.1994) (per curiam); United States v. Lloyd, 947 F.2d 339, 340 (8th Cir.1991) (per curiam). We believe that these decisions accurately reflect the intent of the Congress and the Sentencing Commission. Accordingly, we join those circuits in holding that the enhancement is appropriate in circumstances such as those that confront us in this case. 19 At the threshold of our analysis, it is useful to note that the applicable guideline, Sec. 2F1.1, is a dragnet guideline that sweeps within its ambit a great number of offenses involving dishonesty found in the federal criminal code and elsewhere in federal statutes. It covers many offenses that impact our society in a variety of ways. 10 Consequently, the guideline is structured to require the district court to tailor the imposed sentence to the actual crime committed by the particular defendant before the court. The district court must make the punishment fit the crime or, to be more precise, to reflect accurately the intent of the Congress with respect to the seriousness of each of the many proscribed acts. The base offense level of this guideline, standing alone, is not reflective of any of the offenses to which it must be applied. The district court necessarily must take into account the specific offense characteristics applicable to the defendant's conduct. These specific offense characteristics expand drastically the permissible punishment depending on the amount of the monetary loss. Additional increases in punishment are mandated if the offense involved more than minimal planning, involved multiple victims, or if the defendant, in the course of the fraud or deceit, held himself out as the representative of a charitable, educational, religious, or governmental entity. Increasing the risk of serious bodily harm or of harm to a financial institution will also increase the permissible punishment, as will the concealment of the fraud through the use of foreign banks. Finally, additional punishment is permitted when the defendant violates any judicial or administrative order, injunction, decree, or process. See U.S.S.G. Sec. 2F1.1(b)(3)(B). 20 The offense committed by Mr. Michalek, bankruptcy fraud in violation of 18 U.S.C. Sec. 152, is among the crimes that the Commission has mandated be controlled by this guideline. As noted above, Sec. 2F1.1(b)(3)(B) authorizes courts to enhance the base offense level of a defendant's sentence if the crime involved violation of any judicial or administrative order, injunction, decree, or process not addressed elsewhere in the guidelines. The imposition of the Sec. 2F1.1(b)(3)(B) enhancement is hardly impermissible double counting. Section 2F1.1 is a very broad guideline that covers a variety of crimes involving fraud, deceit, forgery, and certain types of counterfeiting. It necessarily must be adjusted through the use of the specific offense characteristics. The fact that this enhancement might apply in a great number of cases 11 where a debtor conceals assets does not establish that Sec. 2F1.1(b)(3)(B) is somehow flawed. Rather, it demonstrates that such violations of 18 U.S.C. Sec. 152, in their most basic form, involve a higher level of culpability, and thus deserve greater punishment, than some of the other crimes that correspond to Guideline Sec. 2F1.1. 12 21 We cannot accept the argument that the enhancement ought not apply because the defendant did not violate an identifiable order, injunction, decree or process. Such a contention overlooks an essential difference between bankruptcy proceedings and other types of litigation. Although expressing its views in an abbreviated per curiam opinion, the Court of Appeals for the Eighth Circuit put its collective finger on this essential concept when it pointed out that the defendant had sought protection from his creditors under the shelter of bankruptcy and then had abused the bankruptcy process and hindered the orderly administration of the bankruptcy estate by concealing assets. Lloyd, 947 F.2d at 340. A bankruptcy proceeding is not just another transitory cause of action that serves to adjudicate the rights and obligations of individuals. It is a special procedure by which the debtor seeks the protection of federal law from his creditors. In order to gain that protection, he must submit his property to the jurisdiction and active supervision of the bankruptcy court which acts through its trustee. As our colleague Judge Selya of the First Circuit has noted, the broad grant of jurisdictional authority, combined with the operation of the automatic stay provision, 11 U.S.C. Sec. 362, provides the court and its trustee with the authority and the responsibility to administer the assets of the bankrupt estate. See Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 114 (1st Cir.1994); accord Edwards v. Armstrong World Indus., Inc., 6 F.3d 312, 316 (5th Cir.1993) (noting that the automatic stay provisions of the Bankruptcy Code enable bankruptcy courts to take control of all of the assets of the debtor giving the court opportunity to survey the landscape of debtor's financial condition), cert. granted in part, --- U.S. ----, 114 S.Ct. 2099, 128 L.Ed.2d 661 (1994). 13 22 For the Eighth Circuit in Lloyd, the gravamen of bankruptcy fraud was that the defendant had abused the process of the bankruptcy court. In United States v. Linville, 10 F.3d 630, 632-33 (9th Cir.1993), the Court of Appeals for the Ninth Circuit set forth an analysis that indicated its agreement with the approach of the Eighth Circuit. Linville did not involve a bankruptcy matter but rather an administrative warning issued by the Department of Agriculture. Although rejecting the imposition of the enhancement in that context, our colleagues on the Ninth Circuit contrasted the situation before them with that before the Eighth Circuit in Lloyd. In analyzing Sec. 2F1.1(b)(3)(B), the Ninth Circuit noted: 23 Courts interpreting this enhancement provision have upheld its application to violations of formal judicial orders which resulted from adversarial proceedings. For example, in United States v. Lloyd, 947 F.2d 339, 340 (8th Cir.1991), the court approved the imposition of an offense level increase under the section based on defendant's abuse of the judicial bankruptcy process by concealing assets in a Chapter 11 proceeding. The court reasoned that even though defendant had not violated a specific court order, he had violated a specific adjudicatory process. 24 10 F.3d at 632. By citing the bankruptcy proceedings in Lloyd as an example of an adversarial proceeding, and by paraphrasing Lloyd's determination that such proceedings constitute judicial process, see 947 F.2d at 340, the Ninth Circuit indicated its agreement with the Eighth Circuit that bankruptcy proceedings involved the kind of formalities that undergird orders, injunctions and decrees. Linville, 10 F.3d at 633. 25 The Eighth Circuit's view that fraudulent representations to the bankruptcy court and its trustee violate the judicial process of the court is consistent with the realities of bankruptcy practice. Even if we were to depart from that view, however, the imposition of the enhancement would still be appropriate. The falsehoods submitted by the defendant to the court were, as the Court of Appeals for the Eleventh Circuit has pointed out in United States v. Bellew, 35 F.3d 518 (11th Cir.1994), in direct violation of the requirements of the rules and forms of the Bankruptcy Rules to declare truthfully all assets and liabilities. In a bankruptcy adjudication, this requirement is, as the Eleventh Circuit pointed out, in the context of formal, adversary court proceedings. Id. at 521. 26 In any event, we cannot overlook the fact that the defendant's conduct violated the automatic stay provision, 11 U.S.C. Sec. 362. Although the automatic stay is imposed initially not by judicial decree but by legislative command, it would exalt form over substance to maintain that the stay is not, for purposes of this guideline, a judicial order. The stay is imposed automatically in order to give the bankruptcy court an opportunity to assess the debtor's situation and to embark on an orderly course in resolving the estate. In short, the stay is to ensure the orderly conduct of a judicial proceeding. The stay is therefore under the control of the bankruptcy court and may be lifted or modified after the court has had an opportunity to examine the adequacy of protections for creditors' interests and other equitable considerations. In re McGaughey, 24 F.3d 904, 906 (7th Cir.1994); see also In re Vitreous Steel Prods. Co., 911 F.2d 1223, 1231-32 (7th Cir.1990); In re Boomgarden, 780 F.2d 657, 660 (7th Cir.1985). It would be difficult to find a judicial order more explicit or conduct more violative of that order. 27 Accordingly, we conclude that the district court committed no error when it imposed this enhancement.