Court Opinion

ID: 7807115
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:00:45.074866+00
Date Added: 2024-06-11T16:30:34.333267
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 21‐3370
UNITED STATES OF AMERICA,
                                                   Plaintiff‐Appellee,
                                 v.

PETER ARMBRUSTER,
                                               Defendant‐Appellant.
                     ____________________

         Appeal from the United States District Court for the
                    Eastern District of Wisconsin.
          No. 2:18‐cr‐00130 — Matthew F. Kennelly, Judge.
                     ____________________

   ARGUED AUGUST 3, 2022 — DECIDED SEPTEMBER 7, 2022
               ____________________

   Before SYKES, Chief Judge, and SCUDDER and ST. EVE, Circuit
Judges.
   SCUDDER, Circuit Judge. Peter Armbruster, former Chief Fi‐
nancial Oﬃcer of Roadrunner Transportation Systems, Inc., a
public company, went to trial on criminal charges of securities
fraud, falsifying accounting records, and related counts. The
jury returned a mixed verdict, acquitting him on 11 counts but
convicting on the remaining four. Armbruster now challenges
those convictions, contending that insuﬃcient evidence
2                                                  No. 21‐3370

supports the adverse verdicts. While the case against Arm‐
bruster may not have been open‐and‐shut, a rational jury
could have concluded that the government presented enough
evidence to support guilty verdicts on the challenged counts.
Because the law requires no more, we aﬃrm.
                               I
                               A
    Armbruster, a Certified Public Accountant with prior ex‐
perience working at a Big Four accounting firm, began serv‐
ing as the controller for Dawes Transportation in 1990. When
Dawes merged with Roadrunner in 2005, Armbruster stayed
on as Roadrunner’s Chief Financial Oﬃcer. In the years that
followed, Roadrunner grew rapidly, acquiring nearly 30
transportation companies and going public in 2010. Arm‐
bruster’s responsibilities as CFO included the preparation,
certification, and filing of Roadrunner’s consolidated financial
statements with the Securities and Exchange Commission.
The company’s financial statements—consolidated as they
were—eﬀectively incorporated the financial aﬀairs of certain
of Roadrunner’s subsidiaries, including Morgan Southern, a
Georgia‐based transportation company.
   Consolidating Morgan Southern’s financial statements
proved challenging. At the time of its acquisition by Roadrun‐
ner, Morgan Southern’s own accounting practices were lag‐
ging, with the company not regularly reconciling account bal‐
ances and lacking adequate staﬃng.
    In 2014, Roadrunner’s then‐controller, Brock Even, recog‐
nized these shortcomings and spearheaded an eﬀort to exam‐
ine the accuracy and integrity of Morgan Southern’s financial
accounting and reporting practices. Even enlisted help from
No. 21‐3370                                                  3

two of Roadrunner’s then‐departmental controllers, Bret
Naggs and Mark Wogsland, who traveled to Morgan South‐
ern’s home oﬃce in Georgia to examine the company’s books
and records.
    In November 2014 Stephen Voorhees became Morgan
Southern’s controller. Balance sheet review was a key priority
for him in that position. But when Voorhees left Roadrunner
in April 2016, many deficiencies in Morgan Southern’s ac‐
counting remained unresolved. On his way out, Voorhees
conveyed his key concerns and findings to a group of Road‐
runner accountants, with Armbruster too receiving the infor‐
mation.
    This is where the particulars start to matter. Voorhees
found that Morgan Southern had inflated its balance sheet by
at least $2 million and perhaps as much as $4–5 million. The
overstatement was in part the product of the company carry‐
ing a receivable from IKEA Maersk above its net realizable
value—above the amount Morgan Southern could reasonably
expect to collect. And so too did Voorhees find that Morgan
Southern continued to report (as an asset on its balance sheet)
prepaid taxes when, in fact, the underlying taxes were due
and owing. These circumstances required the two account
balances to be reduced, which, in turn, would have resulted
in an expense against Morgan Southern’s income. It was these
two accounting items that would become a major problem for
Armbruster.
   After Voorhees’s departure in April 2016, Morgan South‐
ern hired Christopher Lacey as its new controller. Lacey
promptly noticed the company’s accounting problems, in‐
cluding the overstatement of the IKEA Maersk receivable and
prepaid taxes account, and relayed his concerns up to
4                                                   No. 21‐3370

Roadrunner’s vice president of finance Heather Hipke and
new Chief Operating Oﬃcer Mike Gettle. Hipke and Gettle
reacted with similar trepidation and raised their own con‐
cerns with Armbruster in the third quarter of 2016.
   On November 14, 2016, Roadrunner filed its 2016 third
quarter Form 10‐Q with the SEC. The filing included the com‐
pany’s consolidated financial statements, which reflected no
adjustments of the carrying values of the two Morgan South‐
ern balance sheet items and, it would turn out, other misstate‐
ments. In short, Roadrunner’s financials did not comply with
generally accepted accounting principles, often shorthanded
GAAP.
    Shortly after that third‐quarter filing, Curt Stoelting (who,
by this point, was Roadrunner’s Chief Executive Oﬃcer)
learned through Gettle of the misstatements in Roadrunner’s
financial statements. Stoelting too reacted with alarm and
promptly informed Roadrunner’s Board of Directors. From
there the dominoes started to fall: Roadrunner informed its
independent auditor, Deloitte & Touche LLP, of the material
misstatements in the third‐quarter financial statements. And
on January 30, 2017, Roadrunner filed a Form 8‐K informing
investors that they could no longer rely on any of the com‐
pany’s financial filings from 2014 or 2015 or its quarterly re‐
ports for the first three quarters of 2016. Roadrunner’s share
price dropped significantly over the next few days. In January
2018 the company filed restated financial statements, report‐
ing a decrease of approximately $66.5 million in net income
over the misstated periods. Roadrunner’s share price plum‐
meted again and in time criminal charges followed.
No. 21‐3370                                                   5

                               B
   Most relevant here are the criminal charges ultimately
brought against Armbruster and two former departmental
controllers, Bret Naggs and Mark Wogsland, alleging various
forms of securities and accounting fraud. An 11‐day jury trial
ensued in federal court in Milwaukee in July 2021, with the
government presenting witness testimony from past and pre‐
sent Roadrunner associates and providing the jury with a
range of documentary evidence, including emails to and from
each defendant and related financial analyses from the rele‐
vant periods. In the end, the jury returned a mixed verdict,
acquitting Naggs and Wogsland on all counts but convicting
Armbruster on four of the 11 charges brought against him.
    Armbruster’s convictions came on two counts of know‐
ingly falsifying Roadrunner‘s accounting records by materi‐
ally misstating the carrying values of the Morgan Southern
IKEA Maersk receivable and prepaid taxes account,
15 U.S.C. §§ 78m(b)(2), (5), id. § 78ﬀ(a), 18 U.S.C. § 2 (Counts
Six and Seven); one count of fraudulently influencing Deloitte
& Touche LLP, Roadrunner’s external auditor, by submitting
a false and misleading management representation letter re‐
lating to the third quarter of 2016, 15 U.S.C. § 78ﬀ(a),
18 U.S.C. § 2 (Count Five); and one count of filing fraudulent
financial statements with the SEC relating to that same quar‐
ter, 18 U.S.C. §§ 1348, 2 (Count Thirteen).
    Armbruster reacted to the jury’s decision by invoking Fed‐
eral Rule of Criminal Procedure 29(c), arguing that the trial
evidence was insuﬃcient, and asking the district court to en‐
ter a judgment as a matter of law in his favor on all counts of
conviction and to set aside the adverse verdicts. He contended
that the government did no more than prove corporate
6                                                  No. 21‐3370

accounting mistakes, not deliberate fraud on his part. The dis‐
trict court denied the motion, reasoning that the government
had presented enough evidence for the jury to reach contrary
conclusions.
                               II
    Armbruster’s appeal is limited. He challenges only the dis‐
trict court’s denial of his post‐verdict motion under Rule 29(c)
contesting the suﬃciency of the government’s evidence on
each count of conviction. But he faces “a nearly insurmounta‐
ble hurdle” succeeding with this challenge, for “we defer
heavily to the jury’s findings and review evidence in the light
most favorable to the government” and will “reverse only
where no rational trier of fact could have found the defendant
guilty.” United States v. Johnson, 874 F.3d 990, 998 (7th Cir.
2017) (cleaned up).
    A. Falsifying Books and Records
    Counts Six and Seven of the operative indictment charged
Armbruster with making false entries in the books, records,
and accounts of a public company—Roadrunner. The district
court instructed the jury that to sustain a conviction on these
two counts, the government had to prove the following four
elements beyond a reasonable doubt: that (1) Roadrunner was
required to file reports with the SEC and to keep accurate
books and records, including as to the financial aﬀairs of Mor‐
gan Southern, a consolidated subsidiary; (2) Armbruster fal‐
sified or directed someone to falsify the account balances in
question, namely the IKEA Maersk receivable (Count Six) and
the prepaid taxes account (Count Seven); (3) those accounts
were required to accurately and fairly reflect Roadrunner’s fi‐
nancial state; and (4) Armbruster acted knowingly and
No. 21‐3370                                                  7

willfully in falsifying the two accounts in question. See
15 U.S.C. §§ 78m(b)(2), (5), id. § 78ﬀ(a), 18 U.S.C. § 2.
    The government’s evidence came on many fronts. First,
the jury heard from several witnesses, ranging from analysts
who reported to Armbruster to executives who were his
peers, regarding his awareness of the Morgan Southern bal‐
ance sheet problems. These witnesses explained that, as early
as 2014, Armbruster had the information he needed to know
that the accounts in question were materially overstated and
needed to be written down, by establishing a reserve or re‐
cording a write oﬀ—either way resulting in Morgan Southern
(and, by extension, Roadrunner) taking a charge against in‐
come. They also expressed the view that Armbruster, as
Roadrunner’s CFO, shouldered ultimate responsibility for the
decision to continue to carry both accounts at the overstated
amounts.
    One such witness was Stephen Voorhees, Morgan South‐
ern’s former controller who oversaw the attempts to help
shore up its accounting practices during the relevant periods.
Voorhees told the jury that he informed Armbruster of the re‐
sults of his assessment of Morgan Southern’s accounting prac‐
tices, including its overstatement of the collectability of the
IKEA Maersk receivable and inflation of the prepaid taxes ac‐
count. He added that Armbruster participated in calls, email
exchanges, and meetings where Morgan Southern’s account‐
ing was discussed. Even more, Voorhees walked the jury
through Roadrunner’s plan to write oﬀ the uncollectable and
overstated account balances over time, describing email
threads with Armbruster that discussed the need to record
material adjustments to both accounts.
8                                                No. 21‐3370

    The jury also heard the testimony of Heather Hipke, Road‐
runner’s vice president of finance who worked alongside
Armbruster. Hipke explained that she provided Armbruster
with the results of Christopher Lacey’s eﬀorts to reconcile
particular Morgan Southern accounts, including the IKEA
Maersk receivable and prepaid taxes account. She told the
jury that around the time the findings of Morgan Southern’s
accounting troubles came to light, Roadrunner was under
meaningful pressure from its bank and debt servicer to
demonstrate financial soundness. Much like Voorhees, Hipke
stated that final responsibility for Roadrunner’s accounting
and financial reporting rested with Armbruster as the com‐
pany’s CFO.
    Perhaps even more damaging was Hipke’s testimony
about a November 2016 meeting—the so‐called whiteboard
meeting. This meeting occurred shortly before Armbruster
submitted a letter to Deloitte representing that he had no
knowledge of material misstatements or irregularities in
Roadrunner’s financial accounting and reporting. At that
meeting, Mike Gettle, then Roadrunner’s executive vice pres‐
ident, listed on a whiteboard the many accounting challenges
the company faced, including those with respect to Morgan
Southern accounts receivable and prepaid taxes. He then em‐
phasized the need to make adjustments to allow the company
to report both account balances in accordance with GAAP.
Part of the government’s evidence was a photo taken of the
whiteboard itself, which showed Gettle’s handwritten chart‐
ing of Roadrunner’s pressing accounting problems, including
the overstated carrying values of the two Morgan Southern
accounts.
No. 21‐3370                                                 9

   Hipke’s testimony went even further. She explained to the
jury how she had been feeling frustrated for some time at
Armbruster’s apparent lack of concern with resolving Road‐
runner’s accounting problems. By her account, Armbruster
repeatedly kicked the can down the road—every time Mor‐
gan Southern’s problems were raised, he asked for more dili‐
gence instead of addressing the issue by adjusting the unsup‐
ported carrying values of the assets in question.
   Hipke was not the only witness to tell the jury that Road‐
runner waited too long to record the necessary adjustments to
the Morgan Southern accounts. Multiple other witnesses,
from a financial analyst to Christopher Lacey (Morgan South‐
ern’s former controller), testified that Roadrunner persisted
during the relevant periods with overstating the account bal‐
ances. These witnesses strongly suggested all of this occurred
with Armbruster’s knowledge.
    To fortify its case against Armbruster, the government in‐
troduced into evidence various documents speaking to his
knowledge of Roadrunner’s accounting for the Morgan
Southern items in question. One set of documents consisted
of an email and attachments that Armbruster forwarded from
his Roadrunner email account to his personal account in No‐
vember 2016. The email showed that earlier that month—
around the time Mike Gettle held the whiteboard meeting
identifying, among other accounting concerns, the Morgan
Southern balance sheet items—Armbruster had found a 2014
email informing him of the overstatements with the exact two
accounts in question. The 2014 email, in short, showed that
Armbruster knew for some time that Roadrunner’s consoli‐
dated balance sheet overstated the carrying values of the two
assets in question.
10                                                No. 21‐3370

     The government also presented even more specific email
chains from 2014 to 2016 that included Armbruster and en‐
tailed other Roadrunner accountants discussing the need to
adjust the IKEA Maersk and prepaid tax accounts. To be sure,
some of the emails reflected only discussions about Morgan
Southern’s accounting problems. But others specifically iden‐
tified and discussed the overstatements in the carrying values
of the IKEA Maersk receivable and prepaid taxes. While the
government did not present direct evidence that Armbruster
read these emails, everyone agreed that he received them.
    Consider, for example, a May 2014 email from Connor
Kursel, a Roadrunner financial analyst, to a group of account‐
ants, including Armbruster. Attached to the email was a
spreadsheet with the notation “probably a full write oﬀ” next
to the IKEA Maersk receivable line item. Other email chains
showed Roadrunner accountants discussing the need to ad‐
just the Morgan Southern accounts, including one exchange
from Bret Naggs confirming that Armbruster had the ultimate
decision‐making authority and had directed an accountant
not to record any write downs to the account balances as they
stood in June 2015.
    All of this evidence was enough to support the jury’s ver‐
dict on the Counts Six and Seven books and records charges.
Given the corroboration from various sources of evidence,
from the multiple witnesses at diﬀerent levels of Roadrun‐
ner’s accounting and finance department to the documents
spanning several years, the jury could—and did—reasonably
find that Armbruster knowingly and willfully allowed the
Morgan Southern IKEA Maersk receivable and prepaid taxes
account to remain overstated in the company’s accounting
No. 21‐3370                                                  11

records and, in turn, in Roadrunner’s consolidated balance
sheet during the relevant periods.
   B. Securities Fraud
    Count Thirteen charged Armbruster with violating the
federal securities laws by making false and misleading state‐
ments to Roadrunner shareholders about the company’s fi‐
nancial condition in its third quarter 2016 Form 10‐Q. The dis‐
trict court instructed the jury that to prove the allegations in
Count Thirteen the government had to prove these three ele‐
ments beyond a reasonable doubt: that (1) there existed a
scheme or artifice to defraud Roadrunner’s shareholders, in‐
dependent auditors, regulators, lenders, and the investing
public about the company’s stock; (2) Armbruster knowingly
executed that scheme; and (3) he acted with the intent to de‐
ceive and cheat. See 18 U.S.C. §§ 1348, 2.
    The government relied on much of the evidence support‐
ing the Counts Six and Seven books and records charges to
prove the Count Thirteen securities fraud charge. No more
evidence was required. The jury had enough to conclude that
Armbruster knowingly allowed the company’s 3Q‐2016 fi‐
nancial statements to include material misstatements by leav‐
ing the Morgan Southern IKEA Maersk and prepaid tax ac‐
counts overstated, as reflected in Roadrunner’s consolidated
financial statements.
   On this charge, too, the jury could have aﬀorded great
weight to Heather Hipke’s testimony about the November
2016 whiteboard meeting. She explained that Armbruster at‐
tended the meeting and that the group’s discussion addressed
multiple accounting issues, including the two assets at Mor‐
gan Southern. The jury could therefore reasonably infer that,
12                                                 No. 21‐3370

by attending the meeting, Armbruster—as Roadrunner’s
CFO—was well aware of these accounting matters. The jury
also heard testimony from a Roadrunner investor who ex‐
plained feeling misled by the company’s reporting of its fi‐
nancial condition and results of operations in the 3Q‐2016
Form 10‐Q.
     C. Fraudulently Influencing Accountants
    Finally, Count Five charged Armbruster with misleading
Roadrunner’s external auditor by supplying Deloitte &
Touche with a false management representation letter. The
district court instructed the jury that this charge required the
government to prove the following five elements: that (1)
Roadrunner was an issuer of securities required by law to file
reports with the SEC; (2) Armbruster was an oﬃcer (such as a
principal financial or accounting oﬃcer) of Roadrunner; (3)
he directly or indirectly coerced, misled, manipulated, or
fraudulently influenced Deloitte, an independent public or
certified public accountant, while it was engaged in an audit
or review of Roadrunner’s financial statements; (4) he misled
Deloitte knowing that his actions could result in filing mate‐
rially misleading financial statements; and (5) he acted know‐
ingly and willfully. See 15 U.S.C. § 78ﬀ(a), 18 U.S.C. § 2; see
also 17 C.F.R. § 240.13b2–2(b).
    As with many of the other charges, Armbruster did not
contest the suﬃciency of government’s proof on many ele‐
ments of Count Five. Foremost, he did not dispute that, as
Roadrunner’s CFO, he signed the November 14, 2016 letter to
Deloitte representing that he had provided accurate and com‐
plete information about the company’s financial condition as
of September 30, 2016. Accordingly, the government’s focus
at trial was on showing that Armbruster deliberately withheld
No. 21‐3370                                                   13

from Deloitte information about the overstated Morgan
Southern balance sheet items.
   A rational jury could have concluded that the government
proved this charge beyond a reasonable doubt. Go back once
again to Heather Hipke’s testimony and, in particular, her re‐
counting for the jury discussions with Armbruster prior to his
signing the 3Q‐2016 management representation letter. She
described the conversations, including the November 2016
whiteboard meeting, in which accountants discussed with
Armbruster their concerns about many aspects of Roadrun‐
ner’s accounting, including the Morgan Southern issues.
     For his part, Deloitte’s audit partner, Adam Krasnoﬀ, tes‐
tified that he would have expected to learn of the concerns
Armbruster, Hipke, and Gettle harbored with respect to
Roadrunner and Morgan Southern’s overstated account bal‐
ances. Krasnoﬀ explained that he was alarmed to learn about
the whiteboard meeting and related email correspondence.
   Lastly, the government went even further by presenting
exhibits and drawing out testimony establishing Arm‐
bruster’s vast accounting experience. This testimony would
have allowed the jury to infer that Armbruster understood his
responsibility to communicate honestly with auditors and
that he knowingly shirked his duty by signing a management
representation letter that failed to notify Deloitte of the clear
concerns many within Roadrunner held about the two ac‐
counts in question. We have no diﬃculty seeing this evidence
as suﬃcient under the deferential standard guiding our re‐
view on appeal.
14                                                 No. 21‐3370

                              III
    Armbruster urges an altogether diﬀerent perspective on
the trial evidence. To his mind, the government’s proof on the
counts in question was too general—not specific enough to
show that he knew of the exact balance sheet items at the heart
of those charges. He emphasizes that, as CFO, he operated at
a higher level, removed from the many details that often ac‐
company financial accounting, and held only a broader view
of Roadrunner’s accounting practices, without any
knowledge of highly particular concerns that others held
about two relatively small accounts for just one of the com‐
pany’s many subsidiaries. He likewise observes that, as CFO,
he received waves of emails with attachments, but that reality
alone was not enough to establish that he ever learned of the
specific problems at the heart of the counts of conviction. He
adds that any decision not to write down the account balances
aligned with his established practice of holding oﬀ on record‐
ing material adjustments until the company had a complete
opportunity to analyze the accounts in question—work he
says never finalized before 2017.
    Armbruster’s contentions run headlong into the highly
deferential standard governing our review of the jury’s con‐
trary conclusions. We sit not to reweigh evidence, assess wit‐
ness credibility, or assign probabilities to what perspective on
the government’s case was most persuasive. To the contrary,
we must “construe the evidence in the light most favorable to
the government” and “will reverse a conviction only where
the record is devoid of evidence from which a reasonable jury
could find guilt beyond a reasonable doubt.’’ United States v.
Godinez, 7 F.4th 628, 638 (7th Cir. 2021) (cleaned up). Arm‐
bruster falls short of clearing this very demanding—indeed
No. 21‐3370                                                 15

“nearly insurmountable”—appellate hurdle. United States v.
Elizondo, 21 F.4th 453, 470 (7th Cir. 2021).
    The arguments Armbruster presses on appeal are the same
ones he urged the jury to accept. And all throughout the trial
he vigorously and extensively cross‐examined witnesses to
undermine the government’s evidence, especially as to
whether he harbored the requisite knowledge and intent for a
conviction on any count. In the end, though, the jury found
against him. And the jury’s mixed verdict strongly suggests it
parsed and weighed the evidence carefully, only to reach dif‐
ferent conclusions on diﬀerent counts.
    Doubtless the government did not present the jury with a
single piece of evidence in which Armbruster admitted to the
fraud or otherwise was caught red‐handed committing it. But
the law did not impose that evidentiary burden on the gov‐
ernment. Indirect evidence is allowed, and time and again we
have recognized that the government can prove the mental
state element of fraud charges with circumstantial evidence.
See United States v. Lundberg, 990 F.3d 1087, 1095 (7th Cir.
2021) (emphasizing that intent to defraud may be proven by
circumstantial evidence and the fair inferences drawn from
such evidence); United States v. Coscia, 866 F.3d 782, 795 (7th
Cir. 2017) (“Recognizing that it is usually diﬃcult or impossi‐
ble to provide direct evidence of a defendant’s mental state,
we allow for criminal intent to be proven through circumstan‐
tial evidence.”) (cleaned up).
   In the final analysis we see no reason to second guess the
jury’s decision and therefore AFFIRM.