Free Response to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6

PAUL K. CHARLTON United States Attorney District of Arizona John R. Lopez IV Assistant U.S. Attorney Arizona State Bar No. 019182 Two Renaissance Square 40 North Central, Suite 1200 Phoenix, Arizona 85004-4408 Telephone: (602) 514-7500

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The United States opposes defendant's Motion for an Order of release with conditions pending appeal in this matter. As more fully set forth by the accompanying Memorandum of Points and Authorities, nothing occurred at trial to support a finding by this Court that it committed any error likely to result in reversal, an order of new trial, a sentence excluding any term of imprisonment or a reduced sentence likely to be shorter than the expected duration of the appeal process. Moreover, defendant's lengthy and sustained history of fraud and dishonesty in his financial dealings throughout his adult life present a very real economic danger to the community. Respectfully submitted this 31 st day of January, 2006. PAUL K. CHARLTON United States Attorney District of Arizona S/ JOHN R. LOPEZ IV Assistant U.S. Attorney v. Andrew Taylor, Defendant. United States of America, Plaintiff, CR-04-0809-PHX-NVW UNITED STATES' RESPONSE TO DEFENDANT'S MOTION FOR RELEASE PENDING APPEAL

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 1 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2
S/ JOHN LOPEZ I hereby certify that on January 31, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM /ECF system for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Cameron Morgan 4295 North 75 th Street Scottsdale, AZ 85251 CERTIFICATE OF SERVICE

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 2 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I.

MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION Defendant, in his Motion for Release with Conditions Pending Appeal ("Motion"), raises precisely the same arguments he vigorously argued in his Rule 29 Motion at trial and in his Motion for Judgment of Acquittal and for New Trial. This Court correctly denied Defendant's Motions at trial and after trial, and for all the same reasons, should deny his Motion here; nothing has changed since Defendant's trial, and he makes no new factual or legal arguments in his Motion. Moreover, he cannot show by clear and convincing evidence that he is not an economic danger to the community if left on release, in light of his long continuing pattern of fraudulent and dishonest conduct. II. LEGAL ANALYSIS Title 18, United States Code, Section 3143(b)(1) provides in relevant part that "a person who has been found guilty of an offense and sentenced to a term of imprisonment, and who has filed an appeal" shall be detained unless this Court makes both of the following findings: (A) by clear and convincing evidence that the person is not likely to . . . pose a danger to the safety of any other person or the community if released; and (B) that the appeal . . . raises a substantial question of law or fact likely to result in (I) reversal, (ii) an order for a new trial, (iii) a sentence that does not include a term of imprisonment, or (iv) a reduced sentence to a term of imprisonment less than the total of the time already served plus the expected duration of the appeal process. This Court should make neither of the above findings.

A. Defendant's Present Circumstances and his Past History of Criminal Offenses and Fraudulent Schemes Negate a Finding by Clear and Convincing Evidence that He Will Not Pose a Danger of Economic Harm to the Community. In order to even consider release pending appeal, this Court must as a threshold issue

26 conclude by clear and convincing evidence­evidence that persuades the Court that it is highly 27 28 3

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 3 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

probable­that defendant is not likely to flee or to present a danger to the community. That danger expressly includes economic danger. See United States v. Reynolds, 956 F.2d 192, 192 (9 th Cir. 1992)(holding that "danger" for purposes of 3143(b) release statute may encompass economic harm). Defendant's past conduct and criminal history taken as a whole, 1/ coupled with his present circumstances, preclude this Court's conclusion that he can meet his burden. B. This Court Committed No Error in the Instant Trial and Proceedings Likely to result in Reversal, New Trial or Reduction in Sentence 1. There Was No Reversible Error. To grant defendant's Motion for Release, this Court would have to make a specific finding that it committed error at trial likely to result in reversal. The government submits there is no support in the record for such a finding. Defendant identifies in his Motion his likely bases for appeal, all of which deal with this Court's decision to leave intact the scheme to defraud and false statements as charged in the Indictment. Defendant has litigated this issue several times­in the form of a Rule 29 Motion at and after trial, and in his post-trial Motion for a new trial or for acquittal. Defendant attempted to re-litigate these issues yet a third time in his Objections to the PSIR. At the risk of repeating itself, the government again responds to those contentions. Counts 1-3, False Declarations Made In Bankruptcy, In Violation of 18 U.S.C § 152(3) As Defendant concedes, the Ninth Circuit Court of Appeals, and other appellate courts, have held that the failure to disclose prior bankruptcies constitutes a violation of 18 U.S.C. § 152(3). See U.S. v. Lindholm, 24 F.3d 1078, 1083-85 (9th Cir. 1994); U.S. v. Ellis, 50 F.3d 419, 422-26 (7th Cir. 1995). Nonetheless, Defendant argues that he is entitled to a judgment of acquittal on the false declaration counts because his failure to list previous bankruptcy filings in three of his bankruptcy petitions does not constitute material or fraudulent misrepresentation. Specifically, Defendant argues that his failure to list previous bankruptcies does not constitute material misrepresentations because his prior bankruptcies are

The Court has before it defendant's Pre-Sentence Investigative Report chronicling his prior offenses and conduct; the government will not recite that list here. 4

1/

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 4 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

a matter of public record and that they are not fraudulent misrepresentations because he allegedly did nothing to conceal their existence. Defendant's arguments fail as a matter of fact and law. Materiality - In arguing that his false statements were not material, Defendant misstates the trial testimony of government witness Richard Cuellar. Contrary to Defendant's Motion, Mr. Cuellar indicated that the bankruptcy trustee heavily relies on the honest and complete disclosure of debtors in their filings, including their listing of prior bankruptcies and their listings of assets, in making decisions. Mr. Cuellar stated that this was particularly true before 2001, because the bankruptcy court's electronic records system did not include all prior filings of a debtor until after that time, and therefore the court and the trustee did not have the ability to search the database for an accurate indication of all prior debtor filings. Mr. Cuellar made the point more than once that, because of the overwhelming number of Chapter 13 and Chapter 7 filings in the district, and the small trustee staff who must manage them, the system out of necessity depends on honest filing by the debtor. Mr. Cuellar also testified that both prior filings and the listing of significant assets like a $400,000 aircraft or a $120,000 per year partnership interest would be material to the decisions of the trustee moving forward. Mr. Cuellar's testimony concerning the bankruptcy trustee's reliance on debtors' honest disclosure sets forth precisely the reasons that the Ninth Circuit has held that the failure to disclose prior bankruptcy filings in subsequent petitions constitutes a material misrepresentation. See Lindholm, 24 F.3d at 1084 ("Failure to disclose the filing of prior bankruptcy petitions hinders a bankruptcy judge's ability to make an informed and accurate determination of the debtor's purpose for filing the bankruptcy petition as well as the debtor's general status . . . [and] could impede an investigation into a debtor's financial affairs (e.g. a creditor)." Accordingly, under any standard, the evidence presented at trial demonstrated that Defendant's failure to disclose his previous bankruptcy filings constitutes a material misrepresentation. Fraudulent Intent- Defendant contends that he did not fraudulently omit his previous bankruptcy filings from subsequent petitions because they were a matter of public record and he did not attempt to conceal his previous filings. Defendant also argues that his failure to disclose his prior bankruptcies did not cause financial loss to creditors. Defendant's arguments fail as a matter of fact.

5

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 5 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

In this case, the evidence presented at trial showed that Defendant filed several bankruptcies, in part, to frustrate or defeat landlords' eviction actions with automatic stay protections. Specifically, in June 1998, Defendant filed a bankruptcy petition to stay an eviction order from Mr. Lal's rental property. In May 1999, Defendant again used an automatic bankruptcy stay to avoid eviction. Defendant's subsequent bankruptcy filings and automatic stays were used to frustrate and defeat Mr. Lal's 1999 judgment against Defendant, which Mr. Lal ultimately lost because he failed to renew his judgment after years of unsuccessful collection efforts. Defendant also used his fourth bankruptcy petition in May 2000 to stay an eviction action by another landlord, Mr. Heller, who sought to evict Defendant for failure to make his rental payments. Mr. Heller's attorney, Maureen Henry, testified that she was able to recover against Defendant after more than a year of aggressive litigation, including stay relief in the bankruptcy court. Defendant had continued to live on Mr. Heller's property during the pendency of this litigation. Similarly, Defendant filed a fifth bankruptcy petition in April 2003 when he failed to make mortgage payments on his house. In addition, the evidence also showed that Defendant's bankruptcy filings had even frustrated the Internal Revenue Service, which had classified his unpaid taxes as uncollectible. Defendant's fraudulent intent is also evidenced by his failure to pursue his bankruptcy plans. Of Defendant's five bankruptcies at issue in this case, four were dismissed involuntarily for failure to make required filings or payments. Defendant did not have a single successful bankruptcy discharge. The government's witness, Mr. Cuellar, testified that frequent bankruptcy filings coupled with a consistent failure to follow through with bankruptcy plans and payments may represent evidence of a debtor's fraudulent intent. That is precisely what the evidence showed in this case. Moreover, Mr. Cuellar testified that, had Defendant disclosed his serial bankruptcy filings in his subsequent petitions, the bankruptcy trustee may have recommended that his subsequent bankruptcy petitions be dismissed. Finally, Defendant's fraudulent intent is further demonstrated by his failure to list an increasing number of previous bankruptcy filings with each subsequent petition. In his January 2000 petition (Count 1), Defendant failed to include one previous bankruptcy filing; in his May 2000 petition (Count 2), Defendant failed to include two previous bankruptcy filings; and in his 2003 petition (Count 3), 6

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 6 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Defendant failed to include three previous bankruptcy filings. Defendant's failure to include his previous filings, in conjunction with his serial filings to defeat eviction actions by his landlords and an IRS tax lien, and his failure to disclose substantial assets, provide sufficient evidence of Defendant's fraudulent intent. Accordingly, the evidence presented at trial demonstrated Defendant's fraudulent intent in failing to disclose his previous bankruptcy filings. The Ninth Circuit is highly unlikely to reverse this Court on its findings here. Count 4 - False Declarations Made In Bankruptcy, In Violation of 18 U.S.C § 152(3) Defendant contends that there is insufficient evidence to sustain his conviction on Count 4 for his failure to disclose in his bankruptcy schedules his interest in a bank account (No. 4961-6674) because he did not sign his "amended schedules." Defendant's amended schedules are not at issue in Count 4. His original schedules, filed June 16, 2000, are at issue. Defendant signed his original schedules, which did not disclose the bank account. The evidence presented at trial demonstrated that Defendant filed bankruptcy on May 30, 2000. The next day, Defendant opened up a bank account (No. 4961-6674) and immediately transferred $4,500 into the account. On June 12, 2000, Defendant received a $20,000 wire transfer into the account. On June 16, 2000, Defendant filed his bankruptcy schedules, which he signed under penalty of perjury. Defendant failed to disclose his interest in the bank account in his bankruptcy schedules. On July 5, 2000, Defendant received a $179,980 wire transfer into the account and later engaged in a series of transactions through which funds were deposited into, and withdrawn from, this account. Mr. Cuellar, the attorney for the U.S. Bankruptcy Trustee, testified that the bankruptcy court needs to know about any bank accounts a petitioner has, or has recently closed, in order to consider the assets and to use the account information as an investigative tool. The fact that Defendant opened the bank account the day after he filed his petition, moved assets through the account during the pendency of his bankruptcy, and failed to disclose the bank account or the assets in his bankruptcy schedules, which he signed under penalty of perjury, establishes Defendant's material and fraudulent failure to disclose the bank account. Accordingly, ample evidence existed to 7

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 7 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

support the jury's verdict on this false declaration count against Defendant, and the Ninth Circuit is unlikely to disturb that verdict. Count 6 - Concealment In Violation of 18 U.S.C. §152(1) As the government set forth during Defendant's Rule 29 Motion at trial, more than sufficient evidence was presented from which, viewed in the light most favorable to the government, the jury could and did find beyond a reasonable doubt all of the elements were satisfied for Defendant's concealment conviction. The government herein revisits the evidence for each element: 1. A proceeding in bankruptcy existed - count 6 required proof that a proceeding was pending on or about November 1, 2000, the time of the concealment. Certified bankruptcy Court documents were admitted showing that Defendant's fourth bankruptcy, Number 00-5726, was initiated on or about May 30, 2000, and was not dismissed until April, 2001. 2. A property interest belonged to the bankruptcy estate - the jury heard testimony from AIS partner Robbie Robinson that Defendant acquired a partnership interest in AIS in or about May, 2000, which he still had in November, 2000. Defendant did not dispute this testimony, or the documentary evidence of the partnership agreement. The jury also received the stipulation of Donald Milne that he gave Defendant his interest in the BD-10 aircraft in or about May, 2000, as well as the FAA records recording Defendant's acquisition of a BD-10 in or about that same month. Finally, the jury heard from and saw records from witness Mark Sherman, who testified that he bought the BD-10 from Defendant in early 2001, after many months of discussion. Finally, the jury saw mortgage application documents and other evidence demonstrating that Defendant owned and claimed to own the BD-10 during the relevant time period. 3. Defendant concealed the property interest at issue from the bankruptcy trustee - the jury received Defendant's original schedule of assets for bankruptcy 4, as well as his November 1, 2000, amended schedule, neither of which listed the AIS partnership interest nor the BD-10 aircraft. The jury also heard from Richard Cuellar, attorney for the United States Bankruptcy Trustee for the District of Arizona, who testified that on Chapter 13 bankruptcies, as well as many others, the trustee relies principally on the truth and completeness of the debtor's schedule of assets to determine the debtor's property. 8

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 8 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

4. The concealment was knowing and fraudulent - the jury received ample evidence from which it could conclude, especially in the light most favorable to the government, that Defendant's concealment of AIS and the BD-10 was knowing and fraudulent. First, the jury had before it evidence that this was Defendant's fourth Chapter 13 bankruptcy in the span of less than 2 years, and from that they could infer that he was learning how to "work the system from his repeated experiences with filing." Second, the jury heard from Lawrence Hirsch, Defendant's bankruptcy attorney during bankruptcy 4, who testified that as a matter of course he provides all bankruptcy clients with a complete set of worksheets for all assets, including partnership assets and aircraft assets, with the instruction to list all assets, so that he can properly file amended schedules; Mr. Hirsch testified that he worked exclusively with Defendant on preparing his schedules, and that Defendant never told him about the AIS or BD-10 interests. Third, the jury saw the amended schedules, wherein Defendant had listed other changes to his asset ownership since the original schedule, such as the disgorgement of his Jeep Cherokee to the creditor in August, 2000. From this evidence, the jury could see that Defendant knew and understood that he was to list on his amended schedule of assets the changes in his ownership that had occurred since he filed his initial schedule, and that he did so when the changes were advantageous to his bankruptcy proceedings. Fourth, the jury saw bank records showing that just before he filed Bankruptcy 4, Defendant established a checking account at BankOne, which he also never disclosed on his schedules, and which he used to funnel all of the money associated with and gained from the AIS and BD-10 transactions­nearly $650,000 in all. The jury also saw from the bank records that immediately after bankruptcy 4 was dismissed, Defendant stopped using the Bank One account and began using his previously disclosed bank account to move the remaining BD-10 and AIS money. Fifth, the jury heard from Robbie Robinson that Defendant declined to draw on the $120,000 salary to which the AIS partnership agreement entitled him during the pendency of the bankruptcy, and declined to give AIS his social security number, but that he did not renounce his interest in the salary owing. Taken in the light most favorable to the government, the jury could certainly find that Defendant took such action with the intent to defraud his creditors and the trustee by keeping from them the existence 9

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 9 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

of his AIS and related salary interest until the bankruptcy was dismissed, and then collect all of the accrued money after he was discharged from bankruptcy. Sixth, the jury received evidence that during the pendency of bankruptcy 4, the concealed assets had a net value in excess of five times the total combined creditor claims against Defendant. The jury certainly could find from that and other evidence that his concealment was with the intent to defraud the trustee and creditors. Seventh, the jury received Defendant's mortgage application forms from early 2001, in which Defendant properly listed the AIS and aircraft assets and their values. Defendant's inclusion of those assets where they were advantageous to him, because they showed his liquidity and might therefore persuade a lender to give him money, demonstrate to the jury that he knew the importance of those assets and the effect that listing them, or not listing them, would have on his bankruptcy trustee. In fact, Mr. Cuellar testified that had such assets been listed on Defendant's schedules, the trustee's decision on whether to even allow Defendant to proceed in bankruptcy may well have been different, as he would have had far more than necessary assets to satisfy all creditors and thus may not have needed protection. For all of these reasons, ample evidence existed to support the jury's verdict on the concealment count against Defendant, and the Ninth Circuit is unlikely to disturb it. Counts 7-10, Bankruptcy Fraud In Violation of 18 U.S.C. §157(1-2) Similarly, the jury had before it ample evidence, when taken in the light most favorable to the government, from which it could find Defendant committed bankruptcy fraud as charged. The following evidence satisfies each of the listed elements: 1. Defendant had come up with a scheme to defraud the bankruptcy trustee and or his creditors The jury had before it evidence of Defendant's serial filings of his five Chapter 13 petitions (as well as a sixth Chapter 13 petition introduced by Defendant himself), all filed in rapid succession, with no successful discharges among them. The jury also saw Defendant's pattern of filing just when he had exhausted his creditors' patience and had no further recourse, and at least in one case his filing of bankruptcy 4 while bankruptcy 3 was still pending, just after he had received notice that bankruptcy 3 and its protective stay were about to be dissolved. The jury had before it Defendant's repeated pattern of 10

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 10 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

omitting previous bankruptcy filings, as well as his omission of the most significant assets he owned, which could easily have satisfied all creditors several times over, and the bank account in which he kept the proceeds from those assets. The jury also heard the evidence that every time Defendant filed a new bankruptcy petition, he would effectively send his major creditors back to square one in their collection attempts, which ultimately had the effect of at least one creditor­the IRS­giving up on trying to collect more than $70,000 in debts Defendant owed. Another creditor, landlord Bharat Lal, did not give up on trying to collect his 1998-99 debt of over $20,000, but Defendant's own witness, attorney Allan NewDelman, told the jury that Lal's claim had been defeated in Defendant's sixth and pending bankruptcy, because Lal had waited too long to renew his 1999 judgment against Defendant. The jury certainly could infer that Defendant planned to out wait his creditors with the assistance of the protective stays he kept obtaining every time he filed for bankruptcy, with no intention of repaying Lal or others. 2. Defendant filed or caused to be filed the bankruptcy petitions or supporting documents in issue the charged bankruptcy petitions for bankruptcies 3, 4, and 5, as well as the amended schedules for bankruptcy 4, were introduced into evidence and not contested by Defendant. 3. The petitions or documents were filed for the purpose of executing the scheme to defraud For all of the reasons listed in the false declaration and concealment sections of this response, the jury could easily conclude that Defendant made these filings for the purpose of prolonging the serial filings of bankruptcy and obtaining undeserved stay protection, with no intention of paying his creditors or complying with bankruptcy rules. Defendant had several times over the amount he needed to repay all his creditors in full in 2000 and 2001, but he concealed those assets, instead falsely declaring to the bankruptcy court that he had resolved his creditor issues in order to gain dismissal of bankruptcy 4. He then took the concealed assets and bought a luxury house, as well as furniture and other luxury items. His creditors, including Mr. Lal, the IRS and several other smaller businesses, remain unpaid to this day. The jury certainly could conclude from evidence of Defendant's pattern of conduct that he intended to use the bankruptcy process to fraudulently defeat his creditors. III. CONCLUSION 11

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 11 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

For the reasons set forth above, the government respectfully requests that the Court deny Defendant's Motion. Respectfully submitted this 31st day of January, 2006. PAUL K. CHARLTON United States Attorney District of Arizona S/ JOHN R. LOPEZ IV Assistant U.S. Attorney

12

Case 2:04-cr-00809-NVW

Document 126

Filed 01/31/2006

Page 12 of 12