U.S. v. Elson
| Decision Date | 21 August 2009 |
| Docket Number | No. 07-3778.,07-3778. |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Martin W. ELSON, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: Roger L. Kleinman, McDonald Hopkins LLC, Cleveland, Ohio, for Appellant. Brenda S. Shoemaker, Assistant United States Attorney, Columbus, Ohio, for Appellee. ON BRIEF: Roger L. Kleinman, McDonald Hopkins LLC, Cleveland, Ohio, for Appellant. Brenda S. Shoemaker, Assistant United States Attorney, Columbus, Ohio, for Appellee.
Before KEITH, CLAY, and GIBBONS, Circuit Judges.
Defendant Martin W. Elson appeals the restitution portion of his sentence entered following his plea of guilty to conspiracy to obstruct a grand jury investigation in violation of 18 U.S.C. §§ 371 and 2. After a hearing on the issue of restitution, pursuant to 18 U.S.C. § 3663A, the district court ordered Elson to pay $2,492,424.66 in restitution, jointly and severally with three other individuals convicted of crimes stemming from involvement in the same conspiracy giving rise to Elson's conviction. For the reasons set forth below, we AFFIRM Elson's sentence.
This case arises from the efforts of Richard Schultz to conceal his assets from creditors, the United States Government, and his ex-wife.
As set forth in the third superseding indictment, in the mid-1980s, Schultz filed a lawsuit related to an investment in thoroughbred racehorses. After he was unsuccessful, a California federal court entered judgments in favor of three of Schultz's creditors, totaling $5 million. In response to the judgments, Schultz conspired with numerous individuals to avoid payment to the creditors. The conspiracy sought to defraud Schultz's creditors by using third parties or "nominees" to purchase judgments against Schultz at a discount. To purchase the judgments, the individuals involved in the conspiracy used various incorporated entities, including Judgment Acquisition Corporation ("JAC"), Judgment Procurement Corporation ("JPC"), Judgment Resolution Corporation ("JRC"), and Cedarwood Acquisition Corporation ("Cedarwood"). Elson was among the individuals who controlled these entities at the direction of Schultz. The third-party entities purchased the judgments with Schultz's funds that previously were concealed in offshore accounts. Although Schultz was the true purchaser of the judgments, the nominees did not disclose to the creditors the nature of Schultz's interest. In addition to defrauding judgment holders, the conspiracy sought to defraud Schultz's ex-wife through harassing litigation designed to affect her legal claims against Schultz in various pending court proceedings.
As a lawyer, Elson's participation in the conspiracy primarily consisted of arranging for the purchase of judgments entered against Schultz, generally at a substantial discount, by third parties who were controlled by Schultz.
In 1995, St. Paul Insurance Company ("St.Paul") hired Elson's law firm to collect a 1994 judgment against Schultz valued at approximately $2.7 million. Elson became involved in the matter, and pursued collection of the judgment on behalf of St. Paul, eventually obtaining the garnishment of Schultz's Individual Retirement Account ("IRA"), which was worth approximately $1.3 million. In November 1995, as counsel for St. Paul, Elson represented St. Paul in the sale of its interest in its $2.7 million judgment to Frances McPeak, a co-conspirator, for $450,000.
Also in November 1995, Elson agreed to represent McPeak's entity, JAC. The purpose of JAC was to purchase judgments against Schultz with Schultz's assets. Through his involvement with JAC, Elson assisted Domenic L. Massari, III, another co-conspirator and Schultz's attorney, in arranging for JAC to obtain a garnishment of Schultz's IRA. Elson also negotiated the purchase of a $1.7 million judgment against Schultz in favor of Everan Securities for $611,000. In addition, Elson was involved in the purchase of the "Bryant judgment"—a judgment obtained by Thomas Bourke on behalf of his client, Frank L. Bryant—valued at approximately $2.162 million, for $2 million.
In 1998, after learning that a grand jury was investigating Schultz's fraudulent activities, Elson "prepared documents that purported to reflect an intent for" the purchasers of the judgments against Schultz "to collect on the civil judgments against ... Schultz." (J.A. 329.) For example, Elson filed briefs on behalf of JAC in the Ninth Circuit "purporting to be adverse to Schultz." (Id.) Although Elson represented to the courts and to the grand jury that the nominees' purchases of the judgments against Schultz were legitimate transactions, Elson "knew that the nominees were acting in part to obstruct the grand jury investigation." (J.A. 330.)1
On January 30, 2003, a grand jury returned a thirty-two-count second superseding indictment charging Elson, along with numerous other individuals, with conspiracy to defraud the United States, money laundering, wire fraud, mail fraud, tax fraud, and criminal forfeiture. With respect to Elson, the grand jury returned a third superseding indictment. Count one charged Elson with conspiracy to commit mail fraud in violation of 18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 1343, in addition to other fraud charges. As in the second superseding indictment, the grand jury charged that the object of the conspiracy was to defraud or attempt to defraud Schultz's creditors. Count two charged Elson with money laundering in violation of 18 U.S.C. §§ 1956(a)(1)(B)(i) and 2. Finally, count three charged Elson with conspiracy to obstruct justice in violation of 18 U.S.C. §§ 371 and 2.
On April 9, 2004, Elson pled guilty to count three of the third superseding indictment—conspiracy to obstruct justice—in exchange for the government dismissing the remaining counts in the indictment. In the plea agreement, Elson agreed to "pay restitution to victims of the conspiracy to defraud orchestrated by Richard Schultz" pursuant to 18 U.S.C. § 3663(a)(1)(A). (J.A. 209.) The plea agreement also provided that Elson, "recognizing that in limited circumstances he could have the right to appeal the sentence imposed, hereby knowingly, voluntarily and expressly waives the right to appeal his sentence on any ground." (J.A. 208.) At the plea hearing, the government clarified that Elson had "reserved the right ... to contest at a sentencing hearing who a victim may be and whether they were harmed; and, if so, how much." (J.A. 322-23.)
On April 21, 2006, the district court sentenced Elson to a term of imprisonment of two months, and an additional eight months of home detention. The district court found that Elson did not have the ability to pay a fine, but would be "required to pay restitution to the victims of the fraud." (J.A. 351.) At the restitution hearing held later that day, the government presented several witnesses to establish the losses incurred by each victim as a result of the conspiracy. John Patrick Mazza, an attorney for St. Paul, testified that St. Paul incurred approximately $1.7 million in losses. In support of its restitution claim, St. Paul submitted a victim statement prepared by Kenneth Spence, the vice-president and general counsel for St. Paul at the time the sale of the judgment occurred.
Thomas Bourke also testified regarding the losses he sustained. According to Bourke, he represented Frank L. Bryant in an action against Schultz, and obtained a substantial judgment on behalf of his client. When Bryant became unable to pay his legal fees, the law firm agreed to collect the attorney fees out of his judgment against Schultz, and Bourke therefore acquired an interest in Bryant's judgment. Bourke testified that Schultz's use of "shill corporations and nominees" forced him to litigate in several states to locate Schultz's assets, requiring Bourke to pay substantial amounts in legal fees and travel costs. At the hearing, Bourke acknowledged that in 1998 he had agreed to sell his $2,052,000 judgment for $2 million, and to release civil claims against Schultz, Massari, Elson, and McPeak. According to Bourke, the 1998 settlement agreement did not address restitution payments. On cross-examination, Bourke testified that he also sold an attorney-fee claim he had pending in California court for $962,000 to Elson as part of the settlement, and acknowledged that he was requesting those same fees in his restitution petition. In addition, Bourke agreed that he was aware of most aspects of the fraud as alleged in the indictment at the time he entered into the settlement.
Following the hearing, in an extensive written order addressing the parties' post-hearing objections, the district court found Elson and three other convicted co-conspirators jointly and severally liable for $2,492,424.66 in restitution. The district court concluded that St. Paul was entitled to $1,748,000, and that Bourke should receive $744,424.66. Elson timely appealed, challenging only the restitution portion of his sentence.2 On appeal, Elson argues that the district court applied the wrong statute in ordering restitution. Elson also contends that restitution was improper as to St. Paul because St. Paul was not a victim of the conspiracy to obstruct the grand jury investigation. With respect to the amount of restitution ordered, Elson argues that the government failed to prove the victims' losses by a preponderance of the evidence, and that the district court improperly awarded restitution for the attorney fees incurred by Bourke.
Whether a restitution order is permitted under the law is subject to de novo review. United States v. Johnson, 440 F.3d 832, 849 (6th Cir.2006).
Elson argues that the district...
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