United States v. Cutter

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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