Court Opinion

ID: 2967534
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:47:11.732849+00
Date Added: 2024-06-11T11:43:14.477697
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA,               
                 Plaintiff-Appellee,
                 v.                              No. 00-4882
WILLIAM E. BUTNER,
              Defendant-Appellant.
                                        
UNITED STATES OF AMERICA,               
                 Plaintiff-Appellant,
                 v.                              No. 00-4918
WILLIAM E. BUTNER,
               Defendant-Appellee.
                                        
           Appeals from the United States District Court
     for the Western District of North Carolina, at Statesville.
              Richard L. Voorhees, District Judge.
                          (CR-98-215-V)

                      Argued: December 6, 2001

                      Decided: January 15, 2002

   Before WIDENER, NIEMEYER, and MOTZ, Circuit Judges.

Affirmed in part, reversed in part, and remanded by published opin-
ion. Judge Motz wrote the opinion, in which Judge Widener and
Judge Niemeyer joined.
2                     UNITED STATES v. BUTNER
                             COUNSEL

ARGUED: Edward Theodore Hinson, Jr., Richard Blair Fennell,
JAMES, MCELROY & DIEHL, P.A., Charlotte, North Carolina, for
Appellant. Thomas Richard Ascik, Assistant United States Attorney,
Asheville, North Carolina, for Appellee. ON BRIEF: Robert J. Con-
rad, Jr., United States Attorney, Asheville, North Carolina, for Appel-
lee.

                             OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

   William Eugene Butner appeals, challenging his convictions for
bankruptcy fraud and conspiracy to commit bankruptcy fraud in vio-
lation of 18 U.S.C. §§ 37 and 152(1). Finding no error, we affirm both
convictions. The government cross appeals, contending that the dis-
trict court erred in sentencing Butner. Because the district court
ignored undisputed evidence in assessing the loss amount and refused
to increase Butner’s offense level for abuse of a judicial process, we
vacate the sentence and remand for resentencing.

                                  I.

   The crimes involved in this case grew out of the bankruptcy of
Johnson Brothers Truckers ("Johnson Brothers"). Butner, a lawyer in
solo practice, co-owned both Johnson Brothers and a related com-
pany, Amtruc, with Raymond Gerald Johnson. Butner also repre-
sented Johnson Brothers, and Johnson was its president.

   In the early 1990s both companies ran into financial and tax trou-
ble. Amtruc had to file for Chapter 11 bankruptcy protection in late
1991, and in the same period, Johnson Brothers had failed to make
payroll tax payments to the IRS. With IRS approval, Amtruc took
over some aspects of Johnson Brothers’s business. Amtruc paid John-
son Brothers’s payroll, all Johnson Brothers employees went to work
for Amtruc, and for a time, the IRS accepted payroll tax payments
from Amtruc for Johnson Brothers. Johnson, Butner, and Butner’s
                      UNITED STATES v. BUTNER                       3
wife each helped Johnson Brothers financially as well; the company
owed money to all of them. Eventually, however, despite this assis-
tance, Johnson Brothers ran into more serious trouble when Amtruc
fell behind in the tax payments.

   On July 18, 1992, Johnson Brothers itself filed a bankruptcy peti-
tion under Chapter 11. On May 5, 1993, the bankruptcy court
appointed Samuel Gorham as the company’s bankruptcy trustee and
orally ordered that the case be converted involuntarily from Chapter
11 reorganization to Chapter 7 liquidation. Johnson Brothers
requested reconsideration of the conversion and the bankruptcy court
scheduled a hearing on the request for May 11 and May 25, instruct-
ing Gorham to make a recommendation as to conversion by May 25.

   In order to determine whether to recommend conversion to Chapter
7, Gorham contacted Johnson Brothers’s major creditors, including a
bank and the IRS. He also met with Johnson and Butner. Butner told
Gorham that he had earlier given Johnson Brothers money in
exchange for the right to collect payment on some of its debts, and
that he had since been "factoring" the company’s receivables, or tak-
ing payments that were made on the debts he had purchased. The
bankruptcy schedule for Johnson Brothers did not mention any factor-
ing agreement, and Gorham concluded that Butner did not have a
legitimate secured interest in Johnson Brothers that would entitle him
to a share of the company’s receivables — "this was not a typical fac-
toring arrangement."

  On May 24, the day before the bankruptcy hearing resumed, Butner
deposited $26,866.80 in checks made payable to Johnson Brothers
Truckers (or slightly different versions of that name) into a bank
account entitled "Wm. E. Butner Special Account."

   At the May 25 hearing, Gorham recommended that the Johnson
Brothers case be converted to Chapter 7 bankruptcy, and the bank-
ruptcy court so converted it. Gorham then became the Chapter 7
trustee, whose job was no longer to keep Johnson Brothers running
but to liquidate its assets. From May 25 on, all mail for Johnson
Brothers was to be forwarded to Gorham, and the company’s bank
accounts were frozen.
4                      UNITED STATES v. BUTNER
   However, on that same day — May 25 — Johnson Brothers noti-
fied its clients that it was now doing business as "Johnson Truckers"
and that the "name change" should have no other impact on "how we
do business." On June 4, 1993, Johnson filed articles of incorporation
for "Johnson Truckers," giving the address of the trucking terminal
Johnson Brothers owned. Amtruc too began to use the name "Johnson
Truckers" on some of its invoices, but there was no change, from at
least one client’s perspective, in the company’s business or personnel.

   When Gorham visited the Johnson Brothers property several times
in June and July 1993, he thus observed a trucking business going on
at the site. Butner and Johnson led Gorham to believe that a legitimate
separate company was running the business at Johnson Brothers’s for-
mer location. Although Johnson Brothers owned the terminal, the
building had such bad environmental problems that Gorham aban-
doned the property rather than selling it, so it remained available for
use by Amtruc and "Johnson Truckers." In addition, although the
bankruptcy schedule listed more than 50 tractors and trailers as assets
of Johnson Brothers, Johnson and Butner told Gorham that Amtruc
actually owned the vehicles and that Johnson Brothers only leased
them. Accordingly, Gorham did not try to sell the tractors and trailers,
which also remained available for use by Amtruc and "Johnson
Truckers."

   Even when he came to suspect that Amtruc was not a legitimate
separate business, Gorham did not move to pierce the corporate veil
to obtain Amtruc’s assets, because he understood from multiple
sources that its financial problems were as bad as those of Johnson
Brothers. He continued to work toward liquidation in other ways,
including receiving checks for Johnson Brothers not only by mail but
also by hand from Johnson, whom some truckers paid in person.

   Meanwhile, from May 27 to December 4, 1993, Butner deposited
to his own "special account" checks totaling nearly $400,000, made
payable to Johnson Brothers, Amtruc, or various versions of these
names. Butner maintained that in doing so he acted pursuant to his
"factoring" agreement with Johnson Brothers, and sent Gorham a
copy of a "factoring agreement" with the company. However, Gorham
testified not only that he saw no evidence of a valid factoring arrange-
ment but also that he knew nothing about the deposits Butner made
                       UNITED STATES v. BUTNER                        5
to the special account from May 24 to December 4, 1993, and never
authorized them.

   Gorham resigned as trustee in August 1994, still ignorant of But-
ner’s deposits. His successor trustee took a more aggressive approach,
including initiating adversarial litigation against Butner in the bank-
ruptcy court. In 1995, through subpoenas issued as part of that litiga-
tion, the later trustee discovered the 1993 deposits to Butner’s
"special" account. He moved to pierce the corporate veil to hold But-
ner, Johnson, Amtruc, and "Johnson Truckers," among others, liable
for the debts of Johnson Brothers.

   On December 31, 1996, after considering evidence including the
deposits involved in this case, the bankruptcy court held Butner, John-
son, Amtruc, and "Johnson Truckers" all liable for the debts of John-
son Brothers. The bankruptcy court explained that "[t]hese entities’
finances were so intertwined that even attempting to diagram why one
would owe the other becomes an absurdity," that "[m]oney and debts
flow between all of these entities and the principals, usually without
adequate documentation to understand the transactions," and that
"[a]ssets and liabilities were shifted back and forth to present what
ever picture was needed at a particular time."

   A year and a half later, in August 1998, a grand jury indicted But-
ner, who ultimately faced one count of conspiracy to commit bank-
ruptcy fraud and eight counts of bankruptcy fraud. Each fraud count
concerned a particular group of payments: the pre-conversion deposits
of $26,866.80 on May 24, 1993 formed the basis for count 2, and var-
ious post-conversion deposits formed the bases for counts 3 through
9. Count 1, the conspiracy count, charged Butner with conspiracy to
commit bankruptcy fraud from May 24, 1993 through December 26,
1996, by concealing from the bankruptcy custodians and transferees
checks belonging to Johnson Brothers in the approximate amount of
$419,470.80, the total amount of the sums involved in all eight fraud
counts.

   At trial, the Government introduced evidence as to each deposit,
including the actual checks and the books of Amtruc and of Johnson
Brothers. At the close of the Government’s case, the district court dis-
missed seven fraud counts (counts 3-9) — all of those concerning
6                      UNITED STATES v. BUTNER
checks deposited after the May 25 conversion to Chapter 7. The Gov-
ernment had conceded that no testimony linked these checks to spe-
cific work done before the conversion. Accordingly, the district court
held that the Government had not made its case that Butner had fraud-
ulently concealed those checks. The Government has not appealed
that ruling.

   At trial, Butner maintained that the "factoring" arrangement was
legitimate, and that because he had told Gorham about the "factoring"
arrangement at their first meeting, he had not concealed the later
deposits to his special account. However, in addition to Gorham’s tes-
timony that he had known nothing about the deposits, Johnson testi-
fied that before conversion, Butner had described his financial
relationship to Johnson Brothers as a "loan," not as "factoring," and
that Butner had falsified the "factoring agreement" sent to Gorham,
creating it after conversion and backdating it.

   In instructing the jury as to the conspiracy count and the remaining
fraud count, the district court read to the jury the substantive parts of
the indictment concerning the seven dismissed counts (but not the
charges themselves). The facts recounted in this portion of the indict-
ment concerned deposits made between May 25, 1993, and December
4, 1993. The jury convicted Butner on both the conspiracy count and
the remaining fraud count.

   At sentencing, the district court set the loss amount attributable to
Butner’s conduct at $26,866.80, based on the amount of the payment
involved in the single pre-conversion fraud conviction, and omitted
the additional $392,604 charged in the conspiracy count. Noting that
the jury verdict did not bind the court on loss amount, because "the
conspiracy conviction does not necessarily entail a finding as to the
loss amount beyond the $26,000 figure," the court ruled that "[t]he
connection of the checks to the conspiracy, that is beyond the $26,000
figure [the pre-conversion payment] as opposed to the trucking busi-
ness operated after conversion was not established by the preponder-
ance of the evidence."

   The district court refused to increase Butner’s offense level for
abuse of the process of the bankruptcy court, under the 1998 version
of Sentencing Guideline § 2F1.1(b)(4)(B). U.S. Sentencing Guidelines
                      UNITED STATES v. BUTNER                        7
Manual (U.S.S.G.) § 2F1.1(b)(4)(B) (1998). Citing a law-review arti-
cle on the applicability of the guideline, the court reasoned that "the
process enhancement should not be applied in a garden variety bank-
ruptcy fraud case like this."

   On the basis of Butner’s resulting offense level of 12, the district
court sentenced him to six months’ community confinement and six
months’ home confinement as part of three years of supervised
release.

                                  II.

  Butner attacks his convictions on two grounds.

   First, he contends that the Government presented insufficient evi-
dence of his intent and the fact of concealment to support either con-
viction. A jury verdict "must be sustained if there is substantial
evidence, taking the review most favorable to the Government, to
support it." Glasser v. United States, 315 U.S. 60, 80 (1942); United
States v. Mitchell, 209 F.3d 319, 324 (4th Cir. 2000) (citation omit-
ted). Given the circumstances surrounding the deposits, Butner’s posi-
tion as an insider and substantial unsecured creditor of Johnson
Brothers, Gorham’s testimony, and the jury’s opportunity to weigh
Butner’s credibility as well as that of the other witnesses, we have no
trouble concluding that sufficient evidence supported the verdict as to
concealment and as to Butner’s intent in making the deposits.

   Second, Butner contends that the district court erred in reading to
the jury portions of the indictment describing Butner’s post-
conversion deposits. The argument is equally meritless. The conspir-
acy charge included the post-conversion deposits, and specifically
incorporated all of the paragraphs of the indictment that described
them, as overt acts charged in connection with the conspiracy.
Accordingly, the jury properly considered the evidence with respect
to all of those payments, in connection with the conspiracy charge.

  Therefore, we reject Butner’s attacks on his conviction.

                                 III.

   The Government cross appeals, challenging two rulings that
affected Butner’s offense level at sentencing: the determination of
8                      UNITED STATES v. BUTNER
loss amount and the refusal to apply a two-level increase for abuse of
the judicial process. We consider each in turn.

                                  A.

   The Government argues that the district court should have included
the full amount charged in the conspiracy count in the loss amount
when sentencing Butner. The Government initially maintains that the
jury verdict finding Butner guilty of conspiracy requires this result.
We disagree. The district court properly ruled that the jury’s conspir-
acy verdict did not necessarily mean that it found beyond a reasonable
doubt that Butner had conspired with respect to the post-conversion
deposits, because its verdict might have rested solely on Butner’s pre-
conversion deposit. Nevertheless, the court did err in omitting the
amounts of the post-conversion deposits from the loss amount,
because it completely overlooked certain uncontroverted evidence,
which established that the post-conversion deposits were conduct rel-
evant to the conspiracy for sentencing purposes.

   In determining the loss amount, a sentencing court may consider
relevant conduct that has not been charged and proven at trial, if it is
shown by a preponderance of the evidence at sentencing. U.S.S.G.
§§ 1B1.3 & cmt. n.1, 2F1.1(b) (2000). The district court ruled that the
Government had failed to meet this standard in showing the "connec-
tion" of each post-conversion deposit to the conspiracy. Framed as a
factual finding, the ruling was actually based on undisputed facts.
Although quantity is often a disputed factual issue in setting the loss
amount, see U.S.S.G. § 2F1.1(b) cmt. 9, here the amount of each pay-
ment was not in doubt. Nor were there other factual disputes; rather,
both sides agreed on the number of deposits, the payees of the checks
deposited, the dates of deposit, the person who deposited them, the
absence of any other evidence as to what services each check covered,
and the content of the bankruptcy court’s ruling. Because the ruling
that the Government failed to prove the "connection" of each post-
conversion check to the conspiracy constitutes a legal ruling on undis-
puted facts, not a factual finding, we review it de novo. United States
v. Ruhe, 191 F.3d 376, 390 (4th Cir. 1999).

  Our de novo review of the record reveals that when the district
court ruled that the "connection" between Butner’s admitted post-
                       UNITED STATES v. BUTNER                         9
conversion deposits and the conspiracy had not been proven, it over-
looked two sources of evidence as to whether each check that was
deposited after conversion belonged to Johnson Brothers (and thus as
to whether each check was linked to the conspiracy). First, many of
the checks were payable to Johnson Brothers — a strong indication
that the money they represented belonged to Johnson Brothers. Sec-
ond, the bankruptcy court had determined that the three companies,
Johnson Brothers, Amtruc, and Johnson Truckers, were really one
company during the entire relevant period. That finding linked all of
the checks to the bankrupt estate and to the conspiracy and was
admissible evidence at sentencing. See United States v. Tatum, 943
F.2d 370, 381-82 (4th Cir. 1991) (exploring possible effects of prior
bankruptcy judgments on future federal criminal proceedings). Thus,
undisputed evidence linked each post-conversion check to the con-
spiracy, and no evidence to any other effect appears in the record.
Accordingly, all of the available evidence, without dispute, combined
to link each deposit charged in the conspiracy conviction to the con-
spiracy. Each deposit was therefore relevant conduct, and the district
court should have included all of the deposits as part of the loss
amount under Sentencing Guidelines 1B1.3 and 2F1.1(b).

                                   B.

   The government also contends that the district court erred in refus-
ing to increase Butner’s offense level for abuse of the judicial process.
U.S.S.G. § 2F1.1(b)(4)(B).

   The district court applied the 1998 version of the guideline, which
provided for a two-level increase in offense level for a violation of
"any judicial or administrative order, injunction, decree, or process
not addressed elsewhere in the guidelines." U.S.S.G. § 2F1.1(b)(4)(B)
(1998). The circuits had divided on the question of whether to apply
this guideline to bankruptcy fraud. Compare United States v. Saacks,
131 F.3d 540, 543-46 (5th Cir. 1997) (yes); United States v. Guthrie,
144 F.3d 1006, 1009-11 (6th Cir. 1998) (same); United States v.
Michalek, 54 F.3d 325, 330-33 (7th Cir. 1995) (same); United States
v. Lloyd, 947 F.2d 339, 340 (8th Cir. 1991) (per curiam) (same);
United States v. Welch, 103 F.3d 906, 907-08 (9th Cir. 1996) (per
curiam) (same); United States v. Messner, 107 F.3d 1448, 1457 (10th
Cir. 1997) (same); United States v. Bellew, 35 F.3d 518, 519-20 (11th
10                     UNITED STATES v. BUTNER
Cir. 1994) (per curiam) (same), with United States v. Shadduck, 112
F.3d 523, 528-30 (1st Cir. 1997) (no); United States v. Thayer, 201
F.3d 214, 226-28 (3d Cir. 1999) (same); and United States v. Carro-
zella, 105 F.3d 796, 799-802 (2d Cir. 1997) (same, in dictum), rev’d
in relevant part by United States v. Kennedy, 233 F.3d 157 (2d Cir.
2000) (rejecting dictum in Carrozella and joining the majority of cir-
cuits, shortly after Butner’s sentencing). Whether the guideline
applied to every case of bankruptcy fraud was certainly disputed, and
we had not spoken on the issue.

   A few days before Butner’s sentencing, the Sentencing Commis-
sion amended the relevant guideline. The new version endorses the
majority interpretation of the old guideline, explicitly applying the
increase to a "misrepresentation or other fraudulent action during the
course of a bankruptcy proceeding." U.S.S.G. § 2F1.1(b)(4)(B)
(2000); see also U.S.S.G. § 2F1.1(b)(4)(C). The existence of the new
guideline was mentioned at sentencing, but the district court did not
rely on it or discuss its applicability.

   Although it did not so argue below, the Government maintains that
the district court should have applied the new guideline. We disagree.
Application of the new guideline would cause ex post facto harm to
Butner, by "mak[ing] more burdensome the punishment for [his]
crime[s], after [their] commission." United States v. Neilssen, 136
F.3d 965, 969 (4th Cir. 1998) (internal quotation marks and citation
omitted); see also U.S.S.G. § 1B1.11(a), (b)(1).

   Of course, if a change in a guideline is clarifying rather than sub-
stantive, the sentencing court should consider the new guideline in
applying the old guideline. U.S.S.G. § 1B1.11(b)(2). An amendment
is substantive if "it works a substantive change in the operation of the
guideline in this circuit, [with] . . . the effect of changing the law in
this circuit." United States v. Capers, 61 F.3d 1100, 1110 (4th Cir.
1995). In determining whether an amendment is clarifying or substan-
tive, the Sentencing Commission’s characterization of it is relevant
though not conclusive. Id. at 1109-13. Likewise, whether the amend-
ment changes a guideline’s commentary or its actual text is relevant
though not conclusive; amendments to the commentary on a guideline
may be substantive, see, e.g., id. at 1112-13, and amendments to the
                        UNITED STATES v. BUTNER                         11
text of a guideline may be merely clarifying. See, e.g., United States
v. Deigert, 916 F.2d 916, 917-18 (4th Cir. 1990) (per curiam).

   Before the amendment at issue in this case, our circuit had no bind-
ing precedent on the guideline’s applicability to bankruptcy fraud.
Moreover, the amendment introduced an entirely new and separate
provision to the guideline’s actual text, and the Sentencing Commis-
sion did not describe it as clarifying, U.S.S.G. app. A at 68 (2000).
In another case in which this court had no precedent contrary to an
amendment, in light of that silence, we "accept[ed] the Commission’s
characterization" that an amendment to the guideline’s commentary
was clarifying. Neilssen, 136 F.3d at 970. In this case, given that the
later guideline constitutes an entirely new provision (not just new
commentary), and given the pre-amendment lack of authority in this
circuit, we again accept the Commission’s characterization of the
amendment, this time its refusal to find the amendment clarifying.
Accordingly, the district court properly based its sentence on the old
guideline without reference to the 2000 amendment.

   However, we believe that the district court erred in interpreting the
old guideline. The pre-amendment version of § 2F1.1(b)(4)(B) clearly
provided for a two-level increase in offense level if a defendant vio-
lated "any judicial or administrative order, injunction, decree, or pro-
cess not addressed elsewhere in the guidelines." U.S.S.G.
§ 2F1.1(b)(4)(B) (1998). Bankruptcy is a judicial process not
addressed elsewhere in the guidelines; the bankruptcy process exists
to protect debtors and depends on frank voluntary submissions. More-
over, holding that the guideline does not apply to violators of the pro-
cess of the bankruptcy court "fail[s] to make any distinction between
the most pedestrian federal fraud offense and bankruptcy fraud with
all of its implications of a scheme to dupe the bankruptcy court, the
trustee, and the creditor or creditors of the debtor, i.e., the entire fed-
eral system of bankruptcy." Saacks, 131 F.3d at 543-44. Accordingly,
we believe, as eight other circuits have held, that bankruptcy fraud
constituted an abuse of "judicial . . . process" under U.S.S.G.
§ 2F1.1(b)(4)(B) (1998). The district court erred in holding to the
contrary.

                                   IV.

   For the reasons given, we affirm Butner’s convictions. We reverse
his sentence, and remand for resentencing with a loss amount of
12                    UNITED STATES v. BUTNER
$419,470.80 and a two-level increase in the offense level for abuse of
a judicial process.

                            AFFIRMED IN PART, REVERSED AND
                                         REMANDED IN PART