U.S. v. Messner

• Decision Date: 19 February 1997
• Docket Number: No. 96-3146,96-3146
• Citation: 107 F.3d 1448
• Parties: Bankr. L. Rep. P 77,282, 46 Fed. R. Evid. Serv. 702, 97 CJ C.A.R. 261 UNITED STATES of America, Plaintiff-Appellee, v. Ronald Roe MESSNER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1448

107 F.3d 1448

Bankr. L. Rep. P 77,282, 46 Fed. R. Evid. Serv. 702,

97 CJ C.A.R. 261

UNITED STATES of America, Plaintiff-Appellee, v. Ronald Roe MESSNER, Defendant-Appellant.

No. 96-3146.

United States Court of Appeals Tenth Circuit.

Feb. 19, 1997.

Stephen M. Joseph, Redmond & Nazar, LLP, Wichita, KS, for Defendant-Appellant.

Montie R. Deer, Assistant United States Attorney (Jackie N. Williams, United States Attorney, with him on the brief), Wichita, KS, for Plaintiff-Appellee.

Before PORFILIO, HOLLOWAY, and ANDERSON, Circuit Judges.

JOHN C. PORFILIO, Circuit Judge.

Defendant Ronald Roe Messner appeals his five-count conviction on a superseding indictment charging violations of 18 U.S.C. § 152 dealing with bankruptcy related crimes. On appeal, he contends the district court erroneously: (1) failed to dismiss two of the charges against him; (2) denied his motion for a new trial on three other charges; (3) allowed expert legal testimony on a legal issue; (4) ordered restitution; and (5) enhanced his sentence. Because the only error we find relates to restitution, we affirm in part and reverse in part.

Mr. Messner filed two petitions for reorganization under Chapter 11 of the Bankruptcy Code in March 1990. The first was filed as a joint personal petition with Ruth Ann Messner, and the second was a corporate petition in the name of Commercial Builders of Kansas, a corporation in which Mr. Messner was an officer and stockholder. As debtor-in-possession in his personal reorganization, Mr. Messner submitted a reorganization plan one year later. The bankruptcy court confirmed this plan in April 1991. The case itself, however, remained open and under administration in the bankruptcy court until November 22, 1994. The corporate reorganization was converted to a liquidating bankruptcy under Chapter 7. That case was still pending upon the date of the filing of the indictment.

Mr. Messner was convicted on counts one, two, three, six, and seven of the superseding indictment. Counts one and two alleged, in 1990, after filing his petition, Mr. Messner twice failed to disclose a partnership interest he had in commercial property. Count three alleged, in 1990, Mr. Messner also failed to disclose a $246,845 promissory note he had assigned to his son for $10 before filing. Count six alleged, in 1992, Mr. Messner concealed his receipt of $10,000 in cash from a pre-bankruptcy contractual interest he had in a residential real estate contract. Count seven alleged, in 1992, Mr. Messner also concealed his receipt of $10,000 in cash from bonds issued to Commercial Builders in 1989. Although neither the real estate interest nor the bonds were disclosed in either of the bankruptcy cases, Mr. Messner concedes they should have been set forth in the statement of financial affairs of his personal petition. ¹

Following the verdict, the court sentenced Mr. Messner to serve a twenty-seven month sentence and pay $72,500 in restitution. We now consider the issues he has raised in his appeal.

I.

In an artfully conceived argument, Mr. Messner asserts the district court should have dismissed counts six and seven because he had no duty to disclose his receipt of assets in 1992. Mr. Messner contends confirmation of the reorganization plan in 1991 dissolved his bankruptcy estate, revesting all estate property--even that which was undisclosed--back to him. As a result, Mr. Messner argues his status as a debtor-in-possession and fiduciary to creditors ended in 1991, terminating his duty of disclosure at that time. He maintains Chapter 11 of the Bankruptcy Code imposes a duty of disclosure only on debtors-in-possession, and he was not a debtor-in-possession in 1992. He therefore insists he was under no duty to disclose his receipt of $20,000 and cannot be guilty of criminal concealment as charged. Admitting the government could have charged him with not reporting the existence of his interest in the real estate contract and bonds in 1990, he emphasizes the government failed to do so. He postulates it is not this court's province to compensate for the government's failure to indict him properly by creating a duty where none exists by statute.

The government takes the opposite position maintaining the bonds and real estate contract remained in the bankruptcy estate after confirmation of the reorganization plan, continuing Mr. Messner's duty of disclosure as a debtor-in-possession. According to the government, undisclosed property does not revert back to the debtor upon confirmation, but instead remains in the Chapter 11 estate until either dealt with under a reorganization plan or abandoned. To have avoided criminal liability here, the government suggests Mr. Messner should have petitioned the bankruptcy court to reopen the reorganization case to determine whether the assets should be administered for the benefit of creditors or abandoned. To hold otherwise, the government argues, would encourage debtors to conceal assets until confirmation of the reorganization plan, frustrating the full disclosure and fresh start principles of the bankruptcy process.

Because the district court's denial of Mr. Messner's motion to dismiss counts six and seven was based on its interpretation of 18 U.S.C. § 152(7), we review its decision de novo. United States v. Wood, 6 F.3d 692, 694 (10th Cir.1993). Applying de novo review, we believe the district court properly concluded the counts should not have been dismissed.

Proper review of this issue must begin with the applicable language of the statute under which Mr. Messner was charged:

Whoever, either individually or as an agent or officer of any person or corporation, ... with intent to defeat the provisions of title 11, knowingly and fraudulently transfers or conceals any of his property or the property of such other person or corporation ... [is guilty of bankruptcy fraud].

18 U.S.C. § 152(7) (1978) (emphasis added).

Recitation of the statutory language immediately emphasizes the fallacies in defendant's argument. The first fallacy is that § 152(7) does not apply to him because the money he acquired after confirmation belonged to him and not the estate. The very language of § 152(7) itself makes clear culpability will attach to a concealment of a person's own property if done for the purpose of defeating bankruptcy. Therefore, whether the assets from which the money was derived vested in Mr. Messner or remained in the estate is not significant. Moreover, the plan itself defines the assets of Mr. Messner's estate as: "All personal and real property of the debtor, whether tangible or intangible, ... as defined in § 541 of the Bankruptcy Code." Article II, paragraph 2.4, of the plan. Therefore, when coupled with 11 U.S.C. § 541(a)(6), which includes in a bankruptcy estate the "proceeds" of estate assets, this provision of the plan swept into the estate and the plan itself the money defendant received as proceeds of estate property.

This factor is important because the money Mr. Messner received did not simply appear in his hands. He received it because it was derived from tangible or intangible assets he held prior to the filing of either bankruptcy petition. At the very least, then, this money had to have been the proceeds of estate property by law and by definition.

Even if the plan were not so encompassing, the reach of § 541(a)(6) is. It attaches to any after-acquired property of the estate and makes that property subject to bankruptcy jurisdiction. Although, in general, property not owned by a debtor until after the filing of a bankruptcy petition is not includable in the bankruptcy estate, an exception exists for after-acquired property comprised of the proceeds of estate property. See 5 Lawrence P. King, Collier on Bankruptcy, § 541.17 (15th ed. 1996). Thus, even though the money received by Mr. Messner subsequent to the confirmation of his plan was not itself an asset at the time of the filing of his petition, it was subject to disclosure as proceeds of such assets.

We also note another fallacy in Mr. Messner's defense. Contrary to his fundamental hypothesis, the confirmation of the plan did not terminate the bankruptcy proceedings. Indeed, under Article VIII of the plan itself, the bankruptcy court retained jurisdiction over the case "for one year after the date of the entry of the order of confirmation." Moreover, the plan provided the debtor with specific powers and responsibilities after confirmation. In fact, the government maintains the Messner case was not finally closed until November 22, 1994, a date after the transactions which form the basis for counts six and seven. Thus, Mr. Messner cannot claim the confirmation of the plan closed the Chapter 11 case and dissolved any fiduciary responsibility he had as debtor-in-possession.

Because Mr. Messner failed to make the required disclosure, even if the money were nominally his property, he defeated the purpose of bankruptcy by failing to amend his bankruptcy filings or otherwise disclose the receipt of the funds. In this case, the bankruptcy purpose was to marshal the assets of the estate for payment to creditors in accordance with the terms of the plan. Because Mr. Messner retained the money, $20,000 was not distributed under the plan as it should have been; hence, the purpose of the bankruptcy was defeated.

II.

Mr. Messner argues his right to a fair trial on counts one, two, and three was prejudiced by evidence pertinent to counts six and seven, which should have been dismissed before trial. He contends the government's evidence on the dismissable counts ruined his credibility, devastating his defense to the first three counts.

We review the district court's denial of Mr. Messner's motion for a new trial under the abuse of discretion standard of review. United States v. Evans, 42 F.3d 586, 593 (10th Cir.1994). Applying that standard, we will reverse the district court only if it "made a clear error of judgment or exceeded...