United States Court of Appeals
For the First Circuit
No. 01-1807
UNITED STATES,
Appellee,
v.
LIONEL CUTTER,
Plaintiff, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph A. DiClerico, U.S. District Judge]
Before
Lynch, Circuit Judge,
Campbell and Magill,* Senior Circuit Judges.
Jonathan R. Saxe, Assistant Federal Public Defender, Federal
Defender Office, for appellant.
Mark E. Howard, Assistant United States Attorney, with whom
Thomas P. Colantuono, United States Attorney, and Donald Feith,
Assistant United States Attorney, were on brief, for appellee.
December 10, 2002
*
Of the Eighth Circuit, sitting by designation.
CAMPBELL, Senior Circuit Judge. Lionel Cutter ("Cutter")
appeals from his conviction and his 20-month sentence in the
district court for concealing assets and making a false oath in
bankruptcy. 18 U.S.C. § 152(1)-(2) (2000). Cutter also appeals
from a $21,000 restitution award to his niece, Adele Bailey
("Bailey"), ordered by the district court. While we affirm his
conviction and sentence, we reverse the district court's
restitution order.
I. Background
Cutter's conviction for making a false oath in bankruptcy
and concealing assets stemmed from statements he made in his
bankruptcy petition, and during subsequent bankruptcy proceedings,
to the effect that he had sold his home to his niece, Bailey, for
$40,000.
In the summer of 1996, to satisfy several outstanding
debts, including approximately $36,000 in taxes and interest owed
the Internal Revenue Service ("IRS"), Cutter placed his home on the
market. At the same time, his twenty year old niece, Bailey, was
preparing to receive $72,500 in settlement of injuries received in
a car accident. Cutter agreed to sell his home to Bailey. To
prepare the necessary paperwork, Cutter hired Attorney Craig Evans
("Evans" or "Attorney Evans"). Cutter informed Evans that the
house, which had earlier been listed for $95,000 (and was
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ultimately appraised for the bankruptcy court at $102,000), was
sold to Bailey for $40,000.
On November 1, 1996, the closing date for the sale of the
house, Cutter instructed Bailey to prepare and deliver a check for
$40,000 to Franklin Savings Bank which held a $26,000 mortgage on
the home. She complied. Bailey, who understood the sale price to
be $72,000, also provided Cutter personally with a check for an
additional $30,000. Cutter, who had since negotiated a settlement
with the IRS, returned the $30,000 check to Bailey, telling her to
instead prepare a check for $18,000 made payable to the IRS.
According to Bailey, Cutter also instructed her to pay him $12,000
in cash in two lump-sum payments of $6,000 over a period of several
weeks. Bailey's bank records show that on two separate occasions
in November 1996 she withdrew $6,000 in cash, and Bailey testified
that she made these cash payments to Cutter. Cutter steadfastly
denied that he received an additional $12,000 from Bailey. In
consideration for the home, Bailey also paid $2,250 in outstanding
property taxes.
On March 20, 1997, Cutter filed for bankruptcy. The
bankruptcy petition was prepared by Attorney Evans, the same
attorney who prepared the real estate documents for the sale of
Cutter's home. In the Statement of Financial Affairs, Evans
reported that Cutter had transferred his home on November 1, 1996,
for $40,000 to his niece Bailey. On the same page listing the sale
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price of his home, Cutter signed his name under the statement: "I
declare under the penalty of perjury that I have read the answers
contained in the foregoing statement of financial affairs and any
attachments thereto and that they are true and correct."
At the section 341 meeting,1 Attorney Timothy Smith
("Attorney Smith"), the appointed trustee for the bankruptcy
estate, questioned Cutter about the transfer of his home to his
niece. Under oath, Cutter reported to Attorney Smith that the
house was sold for $40,000 and that "[$]26,000 went to pay the
mortgage, and we put the money with the remainder of the money to
pay the IRS."
Because it appeared that the house had been sold for less
than its full value, Attorney Smith instituted a fraudulent
conveyance action against Bailey to recover the property for the
benefit of the creditors.2 To prepare for the action, the estate,
through Attorney Michael Askenaizer ("Attorney Askenaizer"),
conducted a Rule 2004 examination in which Cutter testified.
Attorney Askenaizer asked Cutter if the house was sold for $40,000,
to which Cutter replied "yes and no." Cutter explained that the
1
11 U.S.C. § 341 (1993 & Supp. VIII) requires "within a
reasonable time after the order for relief . . . the United States
trustee shall convene and preside at a meeting of creditors."
2
11 U.S.C. § 548(a)(1)(B) (1993 & Supp. VIII) allows a trustee
to avoid any transfer in interest of the debtor that was made
within one year of the filing of the petition if the debtor
"received less that reasonably equivalent value in exchange for
such transfer."
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price included $40,000 plus Cutter's outstanding IRS taxes and
property tax. The disclosure of these additional amounts raised
the disclosed sale price to approximately $60,000. To support the
revised sale price, Bailey, through Attorney Evans, submitted an
affidavit to the court averring that she had bought the house for
$58,000.
The estate and Bailey settled the fraudulent conveyance
action. Bailey agreed to pay the estate $20,000. To do so, she
was forced to sell the house. The house, appraised for the
bankruptcy court at approximately $102,000, sold for $87,500.
On September 28, 2000, Cutter was indicted on one count
of concealing assets in a bankruptcy proceeding in violation of 18
U.S.C. § 152(1) and one count of making a false oath in bankruptcy
in violation of 18 U.S.C. § 152(2).3 After a two-day jury trial,
the jury convicted Cutter under both counts. The district court
thereafter sentenced him to a 20-month imprisonment; and ordered
him to pay Bailey $21,000 in restitution - $20,000 representing the
3
18 U.S.C. § 152 provides:
A person who -
(1) knowingly and fraudulently conceals from a custodian,
trustee, marshal, or other officer of the court charged with
control or custody of property, or, in connection with a case
under Title 11 . . . any property belonging to the estate of
a debtor;
(2) knowingly and fraudulently makes a false oath or account
in or in relation to any case under Title 11 . . . shall
be fined under this title, imprisoned not more than five
years, or both.
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amount she paid to the bankruptcy estate and $1,000 to compensate
her for attorney fees. This appeal followed.
II. Discussion
A. Sufficiency of the Evidence
Cutter contends that there was insufficient evidence that
he "knowingly" made a false oath in bankruptcy.4 While Cutter
concedes that he had sold his home for more than the $40,000 he
listed on his bankruptcy petition, he contends he was unaware the
bankruptcy petition was inaccurate. He argues that Attorney Evans'
testimony shows his lack of awareness and undercuts the
government's other evidence.
It is the jury's role, however, not that of appellate
courts, to weigh the evidence. Evans conceded that during the
period he represented Cutter he was suffering from severe
depression that adversely affected his memory of events. Even at
face value, moreover, Evans' testimony was less helpful to Cutter
then Cutter now contends. His testimony did not unequivocally
contradict the proposition that Cutter had knowingly provided a
false oath in the bankruptcy proceeding. When asked on direct
4
To support a conviction for making a false oath in bankruptcy
under 18 U.S.C. § 152(2) the prosecution is required to establish
(1) the existence of bankruptcy proceedings; (2) that a false
statement was made in the proceedings under penalty of perjury; (3)
as to a material fact; and (4) that the statement was knowingly and
fraudulently made. Cutter concedes that the $40,000 figure listed
on his petition was false; he contends, however, that he was
unaware of the error when he signed the petition.
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examination whether Cutter reviewed the petition prior to signing
it, Evans merely responded: "I don't have any recollection that he
took the form and went over it in any detail." Evans testified
that when he prepared the paperwork for the real estate transaction
Cutter informed him the house had sold for $40,000, a
misrepresentation upon which Evans said he relied when completing
the bankruptcy petition. Evans' testimony did not explain the
false statements that Cutter provided at the section 341 meeting
and during the Rule 2004 examination.
Viewed in the light most favorable to the prosecution,
the evidence permitted a rational jury to find that Cutter
knowingly made a false oath in bankruptcy. Jackson v. Virginia,
443 U.S. 307, 319 (1979); United States v. Woodard, 149 F.3d 46, 56
(1st Cir. 1998), cert. denied, 525 U.S. 1138 (1999). When Cutter
signed the bankruptcy petition he represented, under the penalty of
perjury, that all the information was correct. His signature
appears on the same page as, and just below, the incorrect sales
price. The transcript of the section 341 meeting reveals that
Cutter stated, under oath, that he had sold the house for $40,000,
and intimated that he used the proceeds remaining after payment of
the mortgage to pay his tax obligation to the IRS. It was not
until the 2004 examination that Cutter admitted that Bailey had
paid at least $60,000 for the home - $40,000 payment to Franklin
Savings Bank, $18,000 to the IRS, and property taxes in excess of
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$2,000. Even this statement by Cutter was incorrect. The jury
heard Bailey testify that she had paid $72,000 for the property
including two cash payments of $6,000 each made directly to Cutter.
Bailey's testimony was corroborated by her bank statements.5
As there was ample evidence from which the jury could
conclude that Cutter knowingly made a false oath in a bankruptcy
proceeding in violation of 18 U.S.C. § 152(2), we need not address
Cutter’s secondary argument that his conviction for concealing
assets must fall as well.
B. Base Level Offense Enhancement
Cutter is likewise unpersuasive that the district court
erred when it enhanced his sentence by four levels based on an
intended loss calculation. See U.S.S.G. § 2F1.1(b)(1)(E) (2001).
A district court's findings of intended loss are reviewed only for
clear error. See United States v. Robbio, 186 F.3d 37, 43 (1st
Cir.), cert. denied, 528 U.S. 1056 (1999). We have said that "a
party dissatisfied with [a] sentencing court's quantification of
5
The facts of this case can easily be distinguished from those
in United States v. McCormick, 72 F.3d 1404 (9th Cir. 1995), on
which Cutter relies. In reversing the defendant's conviction for
bankruptcy fraud, the Ninth Circuit noted that Tracey, the wife of
the primary debtor, was not involved in the preparation of the
petition. Here, Cutter provided the incorrect sales figure used on
the petition. In addition, Tracey's signature did not appear on
the bankruptcy schedule where the omitted bank account should have
been listed. In contrast, Cutter's signature is on the same page
as the false information. Finally, there was uncontradicted
testimony that Tracey did not read the petition prior to signing
it. There is no such evidence here.
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the amount of loss . . . must go a long way to demonstrate clear
error." United States v. Rowe, 202 F.3d 37, 42 (1st Cir. 2000)
(internal quotations omitted).
In determining that the intended loss fell within the
$20,000 to $40,000 range, the district court offered three
different rationales: (1) that the intended loss was $32,000 - the
$72,000 that Bailey actually paid for the house minus the $40,000
reported by Cutter on the bankruptcy petition; (2) that the
intended loss was the $20,000 Bailey paid into the bankruptcy
estate plus her $1,000 in attorneys fees; or (3) that the intended
loss was the $12,000 paid in cash to Cutter by Bailey, plus the
approximately $14,000 in cash that Cutter and his wife received
after their mortgage was satisfied, plus the $943 that was held in
escrow and paid to the Cutters by the bank. In opposing the
calculation, Cutter insists that the intended loss was limited to
$12,000 - reflecting the cash payment made from Bailey to Cutter.
We believe the district court's calculation of an
intended loss between $20,000 and $40,000 was amply supported. The
commentary to section 2F1.1 states that the loss "need not be
determined with precision[,] the court need only make a reasonable
estimate of the loss, given the available information." U.S.S.G.
§ 2F1.1, cmt. n.9; see also United States v. Blastos, 258 F.3d 25,
30 (1st Cir. 2001).
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Loss is defined as the "value of the money, property, or
services unlawfully taken." U.S.S.G. § 2F1.1, cmt. n.8. Cutter
concealed from the bankruptcy court the receipt of approximately
$32,000 when he stated in his petition, and at the section 341
meeting, that he sold his home for only $40,000. See United States
v. Dolan, 120 F.3d 856, 870 (8th Cir. 1997) (using value of assets
concealed to determine intended loss in bankruptcy fraud). This
figure is not a great deal higher than the approximately $28,000
that Cutter realized on the sale of his house after deducting the
sums used for the retirement of his mortgage, payment of taxes,
settlement with the IRS of back due taxes, and payment of the
Registry of Deeds fees. See United States v. Stein, 233 F.3d 6, 17
(1st Cir. 2000), cert. denied, 532 U.S. 943 (2001) (upholding an
intended loss calculation based on the defendants' net gain over
the mortgage and expenses). Either way, the four-level enhancement
stands.
Cutter contends that any loss calculation should not
include the $18,000 paid to the IRS or the over $2,000 that went to
pay property taxes because that money was used to pay creditors of
the estate. Because the funds went to creditors of the estate, he
says he could not have intended a loss to the estate. Cutter
maintains that this court's decision in Rowe supports this
proposition. 202 F.3d at 42.
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Cutter's argument is without merit. As already noted,
the record supports an intended loss greater than $20,000, even if
one excludes the mortgage and taxes. Even then, Cutter personally
stood to net in excess of $20,000 by concealing the buyer's total
payment of $72,000 for the property. Rowe is not to the contrary.
In Rowe a district court's loss calculation was deemed erroneous
because the court's loss estimation "was inconsistent with the
record and had no discernible connection to the amounts that both
the government . . . and Rowe . . . had proposed." Id.
C. Restitution
Lastly, Cutter contends that the district court erred
when it found that Adele Bailey was a victim of Cutter's crime and
ordered restitution to her in the amount of $21,000 - representing
the $20,000 Bailey was required to pay to the estate in settlement
of its fraudulent conveyance action against her and the $1,000 she
paid to an attorney to represent her in that action. Restitution
orders are customarily reviewed for abuse of discretion, and the
subsidiary findings of fact for clear error. United States v.
Paradis, 219 F.3d 22, 24 (1st Cir. 2000); United States v. Hensley,
91 F.3d 274, 277 (1st Cir. 1996). To the extent that a challenge
to a restitution order hinges on a legal question, however, the
sentencing court's answer to that question is reviewed de novo.
United States v. Vaknin, 112 F.3d 579, 585 (1st Cir. 1997).
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For fraud offenses, such as the ones for which Cutter was
convicted, the Mandatory Victim Restitution Act ("MVRA"), 18 U.S.C.
§ 3663A (2000), governs restitution. See United States v. Richard,
234 F.3d 763, 770-71 (1st Cir. 2000). Section 3663A(a)(1) requires
a district court to order a defendant to make restitution to the
victim, defined as any "person directly and proximately harmed as
a result of the commission of the offense for which restitution may
be ordered." § 3663A(a)(2). The offenses here, "for which
restitution may be ordered," were concealing assets and making a
false bankruptcy oath in violation of 18 U.S.C. § 152(1) and (2).
According to Cutter, Bailey is not a victim within the
meaning of § 3663A because she was not directly and proximately
harmed by the bankruptcy fraud offenses for which he was convicted.
Cutter explains that Bailey was required to pay $20,000 to the
estate because she had purchased the house for less than fair
value. Her liability to the estate did not depend on Cutter's
having sworn falsely on his bankruptcy petition to the $40,000 sale
price nor did it stem from his concealment of assets from the
bankruptcy estate. According to Cutter, even if he had correctly
listed the sale price as $72,000, the sale to Bailey would still
have been for less than fair value and Bailey would and could have
been successfully sued in an adversary proceeding for a fraudulent
conveyance and forced to make up the difference. Conversely, had
the concealed $72,000 sale price represented the property's fair
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market value, Bailey would not have been required to pay an
additional sum to the estate even though Cutter had misrepresented
and concealed the true sale price. In short, the criminal conduct
for which Cutter was prosecuted and convicted was not the "cause"
of Bailey's $20,000 "loss" from settlement of the adversary
proceeding.
This court emphasized the necessity for an adequate
causal link between the criminal offense and the loss in United
States v. Vaknin, 112 F.3d 579 (1st Cir. 1997). While a different
statute, the Victim and Witness Protection Act ("VWPA"), 18 U.S.C.
§ 3663 (2000), was in issue in Vaknin, the causation language of
the MVRA is the same as that in the VWPA, making it appropriate for
us to turn to Vaknin for guidance here.6 See United States v.
Simmonds, 235 F.3d 826, 831 n.2 (3d Cir. 2000) (applying circuit
6
We recognize that Vaknin was interpreting the pre-1990
version of the VWPA that only allowed a district court to order
restitution if an individual was directly and proximately harmed by
the offense of conviction. Congress amended the VWPA in 1990 to
provide that a victim also included "any person directly harmed by
the defendant's criminal conduct in the course of the scheme,
conspiracy, or pattern" if the offense "involves as an element a
scheme, conspiracy, or pattern of criminal activity." Thus, "the
outer limits of a VWPA § 3663(a)(2) restitution order encompass all
direct harm from the criminal conduct of the defendant which was
within any scheme, conspiracy, or pattern of activity that was an
element of any offense of conviction." United States v. Hensley,
91 F.3d 274, 276 (1st Cir. 1996). Because the offense at issue
here does not involve as an element a conspiracy or pattern of
criminal activity, we are not concerned with this aspect of the
definition of victim. The issue here is whether Bailey was
directly and proximately harmed by the offense of conviction. To
address this question, Vaknin remains an appropriate guide.
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precedent under VWPA to interpretation of MVRA); United States v.
Mancillas, 172 F.3d 341, 342 (5th Cir. 1999) (per curiam) (same).
In Vaknin, we pronounced two "bedrock principles" regarding
restitution orders. 112 F.3d at 589. First, restitution should
not be ordered if the loss would have occurred regardless of the
defendant's misconduct underlying the offense of conviction.
Second, restitution is inappropriate if the conduct underlying the
conviction is too far removed, either factually or temporally, from
the loss. From these principles, we created the following
causative standard:
This means, in effect, that the government
must show not only that a particular loss
would not have occurred but for the conduct
underlying the offense of conviction, but also
that the causal connection between the conduct
and the loss is not too attenuated (either
factually or temporally). A sentencing court
should undertake an individualized inquiry:
what constitutes sufficient causation can only
be determined case by case, in a fact-specific
probe.
Id. at 589-90. This standard reflects the Supreme Court's
pronouncement that restitution awards are limited to "the loss
caused by the specific conduct that is the basis of the offense of
conviction." Hughey v. United States, 495 U.S. 411, 413 (1990)
(interpreting the language "direct and proximate cause" in the
VWPA); see also Mancillas, 172 F.3d at 342 (finding Hughey
applicable to the identical language in the MVRA).
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As noted, Cutter argues that the government has failed to
establish that, but for the conduct underlying his conviction,
Bailey would not have suffered a loss. The government counters
only that the evidence proved that the trustee initiated the
adversary proceeding against Bailey because of Cutter's false
statement that he sold his home for $40,000. The district court
did not elaborate its own reasons for describing Bailey as a victim
and for awarding restitution to her. Thus, it is not clear what
facts the district court may have considered sufficient to satisfy
the causation standard.
Cutter's assertion that his misconduct underlying the
offense of conviction was not the "but-for cause" of Bailey's loss
finds support in the testimony of Attorney Smith, the bankruptcy
estate trustee. When asked whether he would have initiated an
adversary proceeding if the bankruptcy petition had stated that
Bailey had bought the house for $72,000, Attorney Smith replied
that he would have initiated an adversary proceeding because the
sale price of the house was still below the appraised value of
$102,000. According to Attorney Smith's testimony, the appraised
value "formed the basis of our settlement for the $20,000 we
ultimately recovered." During his testimony, Attorney Smith
emphasized that the provisions of 11 U.S.C. § 548, allowing the
bankruptcy trustee to set aside a conveyance, are triggered if the
property is sold for less than fair value. The debtor need not
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have made a false oath or attempted to conceal assets for the
trustee to set aside the transfer.
The government presented no evidence countering Attorney
Smith's testimony. It argued at the sentencing hearing that Bailey
was a victim of Cutter's fraudulent conduct because "the trustee
initiated an adversary proceeding in the defendant's bankruptcy in
order to recover [Cutter's home]" and "it was the transfer of this
property to Adele Bailey that was the focus of the defendant's
fraudulent acts." But while the transfer of the property from
Cutter to Bailey may have created the occasion for Cutter's false
oath and concealment, the latter acts were not necessary to
establish Bailey's $20,000 liability to the bankruptcy estate. To
prevail in the fraudulent conveyance action, the trustee only
needed to show that Cutter in fact received less than fair value
for the property and that he was insolvent on the date he
transferred the property to Bailey. 11 U.S.C. § 548(a)(1)(B)(i)-
(ii). Thus, as Attorney Smith testified, whether Cutter
subsequently understated the correct sales price of his home in his
bankruptcy petition was immaterial to the trustee's initiation and
settlement for $20,000 of the fraudulent conveyance action against
Bailey.
Given these facts, we cannot say that the government
established that Bailey's loss would not have occurred but for the
conduct underlying the offense of conviction. Vaknin, 112 F.3d at
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589. Attorney Smith's testimony indicates that Bailey would have
been liable for the $20,000 regardless of Cutter's criminal
misconduct, and in any event, her liability was not dependent upon
it. To be sure, Attorney Smith testified that the factors that
especially attracted his attention, leading the trustee to file a
fraudulent conveyance action, were the low sales price listed in
Cutter's bankruptcy petition (as contrasted with an earlier $95,000
asking price) and the further fact that the house had been sold to
a relative. In the sense that the $40,000 sales price aroused the
trustee's suspicion, one might say that Cutter's criminal conduct
bore some connection to the fraudulent conveyance action brought
against Bailey. But this linkage is far too attenuated. Vaknin,
112 F.3d at 589-90. The basis for the trustee's $20,000 recovery
from Bailey was the difference between the property's market value
- in the neighborhood of $100,000 - and the $72,000 purchase price
paid by Bailey. There is no evidence that Bailey was directly or
proximately harmed by Cutter's bankruptcy misrepresentation. We
find, therefore, no basis for awarding restitution to Bailey for
the $20,000 she paid back to the estate or the $1,000 she paid in
attorney's fees. Bailey had, in fact, received property worth more
than she paid for it; her "loss" consisted of no more than paying
back the sum necessary to reimburse the bankruptcy estate for the
fair market value of what she received.
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We realize that it may well be that Bailey, who was
youthful and inexperienced, was pushed into an inappropriate
financial transaction by her uncle, Cutter. Had Cutter been
solvent, she would, of course, have benefitted by receiving
property at a bargain price. But given his insolvency, he could
not sell her the property at a discount. Because she lacked
sufficient funds to pay the full value of the property she
ultimately had to sell it at a loss. But even assuming Bailey was
in some sense led down a primrose path by Cutter, her loss was not
due to the particular crimes of which Cutter was convicted - the
false bankruptcy oath and concealment of assets. Section 3663A
provides only for restitution for the benefit of the victims of the
specific crimes of which a defendant is convicted, not for
restitution on broad equitable principles for other misleading or
even fraudulent conduct.
III. Conclusion
Cutter's conviction and sentence is affirmed. The
$21,000 restitution award is reversed and the case is remanded for
action consistent with this opinion.
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