Opinion ID: 691991
Heading Depth: 2
Heading Rank: 2

Heading: False Statements in a Bankruptcy Case

Text: 7 The jury found Mr. Ellis guilty on two counts of knowingly and fraudulently mak[ing] a false declaration, certificate, verification, or statement in a bankruptcy case in violation of the criminal bankruptcy fraud statute, 18 U.S.C. Sec. 152. These counts arose from Mr. Ellis' failure to list his prior bankruptcies on his 1989 (count I) and 1991 (count II) petitions. In order to sustain a conviction on this charge, the government must establish that (1) a bankruptcy proceeding existed under Title 11; (2) the defendant made a statement relating to the proceeding; (3) the proceeding was under penalty of perjury; (4) the statement related to a material matter; (5) the statement was false; and (6) the statement was made knowingly and fraudulently. See 1 Collier on Bankruptcy p 7A.02(a) (Lawrence P. King ed., 15th ed. 1984). Mr. Ellis challenges his convictions on counts I and II on the grounds that (1) his omissions are not false statements and (2) even if Mr. Ellis' omissions constitute false statements, the government failed to prove that Mr. Ellis made them knowingly and fraudulently. 8 Section 152 is a congressional attempt to cover all 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 the creditors. Goodstein, 883 F.2d at 1369 (quoting In re May, 12 B.R. 618, 625 (Bankr.N.D.Fla.1980)). Therefore, Sec. 152 criminalizes the conduct of those who knowingly and fraudulently transfer or conceal the property of a debtor. Its scope reaches beyond the wrongful sequestration of a debtor's property and also encompasses the knowing and fraudulent making of false oaths or declarations in the context of a bankruptcy proceeding. United States v. Key, 859 F.2d 1257, 1259-60 (7th Cir.1988). [T]he essence of the offense under Sec. 152 is the making of a materially false statement or oath with the intent to defraud the bankruptcy court. Id. at 1260. 9 Mr. Ellis' challenge to his bankruptcy fraud convictions primarily rests upon his contention that the evidence was insufficient to establish that Mr. Ellis acted knowingly and fraudulently when he omitted to make any mention of his prior bankruptcy filings on the petitions in question. Mr. Ellis merely left blank the questions which inquired about prior bankruptcies. In evaluating this submission we first must determine whether an omission constitutes a false statement under Sec. 152.
10 We have not had occasion to address the question of whether the omission of prior bankruptcies from a petition constitutes a false statement under Sec. 152. However, our colleagues in the Ninth Circuit have addressed a similar situation. In United States v. Lindholm, 24 F.3d 1078 (9th Cir.1994), the debtor had falsely entered none on a bankruptcy petition when he was instructed to list his prior bankruptcy filings. Id. at 1085. The debtor also made false statements by selectively listing one previously filed petition and actively omitting to mention the other petitions previously filed. Id. The Ninth Circuit held that the debtor's actions were sufficient to sustain his convictions under 18 U.S.C. Sec. 152. It noted his false statement (none) but also stated that, [i]n any event, an omission is the equivalent of a false statement. Id. (citation omitted). The government urges us to adopt the reasoning of Lindholm. 11 Although we have not confronted previously whether failing to disclose prior bankruptcies constitutes a false statement under Sec. 152, we have found that omissions of other material information may support a conviction under Sec. 152. In United States v. Cherek, 734 F.2d 1248 (7th Cir.1984), cert. denied, 471 U.S. 1014, 105 S.Ct. 2016, 85 L.Ed.2d 299 (1985), the president and principal shareholder of a corporation failed to list an automobile as an asset on the corporation's bankruptcy petition. We held that this omission was sufficient to support a conviction for bankruptcy fraud: Section 152 properly imposes sanctions on those who preempt a court's determination [of the status of an asset] by failing to report the asset. Id. at 1254. 12 The reasoning of Cherek is compatible with that of Lindholm and that reasoning ought to govern this case. In determining the appropriate disposition of a petition, a bankruptcy court must first be provided with a complete record of the debtor's accounts and credit history. A material omission on a bankruptcy petition impedes a bankruptcy court's fulfilling of its responsibilities just as much as an explicitly false statement. The bankruptcy courts depend on petitioners to provide truthful and complete information. These courts have the right to expect that the petitions filed will reflect accurately the financial situation of the petitioner. The bankruptcy adjudicatory process simply cannot function properly if petitioners are not honest about their credit history. When honesty is absent, the goals of the civil side of the system become more expensive and more elusive. 1 Collier on Bankruptcy p 7A.01(4)(a). 13 The importance of the debtor providing accurate information is illustrated by the fact that bankruptcy courts routinely deny discharges to petitioners who omit material facts about their credit history. See In re Yonikus, 974 F.2d 901, 904 (7th Cir.1992) (affirming revocation of discharge under 11 U.S.C. Sec. 727(d)(2): Debtors have an absolute duty to report whatever interests they hold in property.). The courts impose such a penalty because they require complete and accurate information to allow the trustee and creditors to trace the debtor's financial history from a reasonable period in the past to the present. In re McCall, 76 B.R. 490, 497 (Bankr.E.D.Pa.1987). Creditors should not be forced to undertake an independent investigation of a debtor's affairs; rather, they have a right to be supplied with dependable information on which they can rely in tracing a debtor's financial history. Meridian Bank v. Alten, 958 F.2d 1226, 1230 (3d Cir.1992). Section 727 makes complete financial disclosure a condition precedent to the privilege of discharge, see Broad Nat'l Bank v. Kadison, 26 B.R. 1015, 1018 (D.N.J.1983), in order to preserve the goal of fair dealing between the debtor and creditors. In re Zell, 108 B.R. 615, 627 (Bankr.S.D.Ohio 1989). 2 14 Criminal sanctions for bankruptcy fraud are designed to set basic rules for participation in the civil bankruptcy process. 1 Collier on Bankruptcy p 7A.01(4)(a). Thus, Sec. 152 quite reasonably sets the expectation that debtors ought to disclose every material fact about their credit history, including prior bankruptcy filings. In this regard, it complements the policy of the bankruptcy statute that honesty and fair dealing are prerequisites to seeking the protection of the bankruptcy courts. 3 15 This case vividly demonstrates the potential for abuse that exists when a debtor is less than fully forthcoming with this relevant information: Mr. Ellis was able to secure three Chapter 7 discharges within a period of seven years, despite the prohibition contained in 11 U.S.C. Sec. 727(a)(8). 4 Furthermore, had the bankruptcy court been cognizant of Mr. Ellis' full history of repetitive filings, he would not have succeeded in almost continuously staying the collection efforts of his creditors for eleven years. Leaving blank the question concerning prior bankruptcy filings on Mr. Ellis' 1989 and 1991 petitions had the same practical effect as if Mr. Ellis had affirmatively replied none. Therefore, if we are to be faithful to the congressional intent, omissions of this type must be treated, for purposes of Sec. 152, in the same manner as blatantly false statements.
16 Mr. Ellis next argues that the evidence is insufficient to establish that his omission of the information regarding his prior bankruptcy filings was done with the requisite criminal intent. Intent to defraud the bankruptcy court is required to sustain a conviction under Sec. 152. See Key, 859 F.2d at 1260. Mr. Ellis urges two reasons to bolster his contention that the evidence is insufficient to support a finding of knowing and fraudulent intent. We shall examine each. 17 First, Mr. Ellis claims that the government did not prove that he signed either petition. Both petitions are signed Harry Ellis. No witnesses testified to verify either of these signatures. However, the record contains other evidence that the signatures were indeed those of the defendant. Wendy Albee verified Mr. Ellis' signature on another document admitted into evidence, an application for a HUD-insured loan. In addition, the 1989 petition contains Mr. Ellis' true social security number, the same address that was listed on Mr. Ellis' 1986, 1987, and 1988 bankruptcy filings, and the name of his actual employer at that time. The 1991 petition also contains Mr. Ellis' true social security number; it also lists an address which Patricia Waters, Mr. Ellis' former girlfriend, testified was Mr. Ellis' true address at that time. 18 Mr. Ellis also submits that, even if it is sufficiently established that he signed the petitions, the prosecution failed to prove that he actually read and understood the contents of either petition. We believe that the jury was entitled to decide whether the signature evidenced Mr. Ellis' understanding of the substance of the document. 19 It is of course true that many people sign documents--even solemn documents reciting that the signer signed with knowledge of the contents and under penalty of perjury ... without reading them. This is a fact of life for a jury to consider in determining how likely it is that a defendant who signed a document knew what was in it. 20 United States v. White, 879 F.2d 1509, 1511 (7th Cir.1989), cert. denied, 494 U.S. 1027, 110 S.Ct. 1471, 108 L.Ed.2d 609 (1990). [T]he issue should be whether the total circumstances, including but not limited to the bare fact of the defendant's signature, warrant a confident inference that the defendant knew what he was signing. Id. When the totality of the circumstances, including Mr. Ellis' numerous prior bankruptcy filings, is evaluated in the light most favorable to the government, it is clear that the evidence is sufficient to sustain the conviction. Mr. Ellis had filed for bankruptcy at least six times before he submitted the 1989 petition. The jury was entitled to conclude that he was familiar with the questions asked on these petitions, including the question concerning prior bankruptcies. 21 Mr. Ellis argues, however, that the location and language of the inquiry regarding prior bankruptcies varied greatly from form to form--implying that he easily could have missed or overlooked the question on any given form. This submission was a matter for the jury to evaluate. It certainly was not irrational for it to reach the decision that it did reach and, consequently, we shall not disturb its finding. On the basis of the record, it appears that Mr. Ellis played a very active role in the management of his personal finances. He filed bankruptcy petitions at least eight times. Mr. Ellis met with an attorney, Steven Fritzshall, to discuss at least one of his petitions--the 1989 Chapter 13 petition (at issue in count I). Fritzshall testified at trial that he obtained the information in the 1989 petition from a personal interview with Mr. Ellis. Fritzshall also testified that he left the answer to the prior bankruptcies question blank because Mr. Ellis told him he had no prior bankruptcies. Finally, Fritzshall observed that he charged Mr. Ellis $1,000, his standard fee for firsttime filers. The jury's conclusion that Mr. Ellis was familiar with the contents of the petitions and intentionally omitted any mention of his prior bankruptcies has a solid basis in the record. We shall not disturb it. 22 Mr. Ellis submits that the prosecution failed to demonstrate that his omissions were not mistakes by either him or his attorneys. An inadvertent error would not support a violation of Sec. 152 because the statute proscribes only false statements that are made knowingly and fraudulently. In support of his position, Mr. Ellis notes that the prosecution did not call Ayesha Hakeem, the attorney who prepared Mr. Ellis' 1991 petition, to establish that Mr. Ellis withheld information about his prior bankruptcies from Hakeem. Also, Mr. Ellis argues that he was denied an opportunity to explain the omission on his 1991 petition to the bankruptcy court because the court dismissed the petition while he was out searching for his attorney. 23 In evaluating this submission, we need only note that circumstantial evidence is sufficient to prove the fraudulent intent required to secure a conviction under Sec. 152. See Goodstein, 883 F.2d at 1370. The evidence before the jury in this case certainly supports the conclusion that the omissions in question were no mistake. Mr. Ellis filed for bankruptcy eight times between 1980 and 1991; he used four different social security numbers in making those filings. Disclosure of either the 1986 or the 1987 Chapter 7 discharges would have made Mr. Ellis ineligible for a Chapter 7 discharge in 1991. Mr. Ellis' long history of bankruptcy filings would have likely influenced the court's decision regarding his 1989 Chapter 13 petition. Thus, Mr. Ellis possessed a strong motive to conceal fraudulently his prior bankruptcies from the court. 24