697 F.3d 164 (2nd Cir. 2012), 11-1188-cr, United States v. Colasuonno

Docket Nº:11-1188-cr.
Citation:697 F.3d 164
Opinion Judge:REENA RAGGI, Circuit Judge:
Party Name:UNITED STATES of America, Appellee, v. Philip COLASUONNO, Defendant-Appellant.
Attorney:Daniel W. Levy (Katherine Polk Failla, on the brief), Assistant United States Attorneys, for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for Appellee. Edward S. Zas, Federal Defenders of New York, Inc., New York, NY, for Defendant-Appellant.
Judge Panel:Before: KEARSE, WALKER, and RAGGI, Circuit Judges.
Case Date:October 12, 2012
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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697 F.3d 164 (2nd Cir. 2012)

UNITED STATES of America, Appellee,


Philip COLASUONNO, Defendant-Appellant.

No. 11-1188-cr.

United States Court of Appeals, Second Circuit

October 12, 2012

Argued: Nov. 15, 2011.

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Daniel W. Levy (Katherine Polk Failla, on the brief), Assistant United States Attorneys, for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for Appellee.

Edward S. Zas, Federal Defenders of New York, Inc., New York, NY, for Defendant-Appellant.

Before: KEARSE, WALKER, and RAGGI, Circuit Judges.

REENA RAGGI, Circuit Judge:

Defendant Philip Colasuonno, who stands convicted of substantive and conspiratorial bank fraud and tax crimes, appeals from an amended judgment entered on April 6, 2011, in the United States District Court for the Southern District of New York (Alvin K. Hellerstein, Judge ) resentencing him to four months' imprisonment on the substantive tax count upon a finding that Colasuonno violated his original sentence of probation by willfully failing to pay court-ordered restitution. Colasuonno, who declared bankruptcy after his initial

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sentencing, submits that the automatic stay provision of the United States Bankruptcy Code, see 11 U.S.C. § 362(a), temporarily halted his obligation to pay restitution and barred the district court from revoking his probation for nonpayment. This argument presents us with a question of first impression in this Circuit as to what effect, if any, the Bankruptcy Code's automatic stay provision has on court-ordered conditions of a criminal sentence or proceedings to address violations of those conditions. We conclude that such orders and proceedings fall within an express exception to the automatic stay because they constitute a " continuation of [the] criminal action or proceeding." Id. § 362(b)(1). In the alternative, Colasuonno argues that he relied in good faith on advice of counsel in not paying restitution and that the record evidence does not support the district court's rejection of this defense. Because this argument is also meritless, we affirm the amended judgment of conviction.

Insofar as Colasuonno, who has now completed his four-month incarceratory sentence, asks this court to modify the amended judgment to clarify that he was under no obligation to pay restitution while incarcerated, we dismiss that part of his appeal as unripe for adjudication.

I. Factual Background

A. Colasuonno's Conviction and Initial Sentencing

On November 2, 2006, Colasuonno was found guilty after a jury trial of substantive and conspiratorial bank fraud, see 18 U.S.C. §§ 1344, 1349, relating to deceitfully inflated financial statements that Colasuonno and his brother Dominick submitted to J.P. Morgan Chase in order to secure business loans from that institution. Thereafter, Colasuonno waived indictment and, on June 18, 2007, pleaded guilty to an information further charging him with conspiracy to commit tax fraud and aiding and abetting the preparation of false tax returns. These crimes originated in his " off the books" cash payments to certain employees over the course of five years and in his resulting underpayment of $781,467 in payroll taxes. See 26 U.S.C. § 7206; 18 U.S.C. § 371.

On July 19, 2007, in a consolidated proceeding, the district court sentenced Colasuonno principally to time served (one day) with concurrent terms of five years' supervised release on the two bank fraud counts and the tax fraud conspiracy count, and to a concurrent five years' probation on the false tax preparation count. In explaining its decision not to sentence Colasuonno within the recommended Guidelines prison range of 46 to 57 months for his crimes, the district court cited Colasuonno's serious health problems. The court nevertheless imposed special conditions on Colasuonno's probation, confining him to his home for 46 months and requiring him to pay restitution to the Internal Revenue Service (" IRS" ) in the amount of $781,467. The judgment of conviction directed Colasuonno to cooperate with the IRS in working out a schedule for such repayment.

B. Colasuonno's Initial Failure To Pay Restitution Prompts a Court-Ordered Schedule for Monthly Payments

For almost a year after sentencing, Colasuonno made not a single payment toward the restitution ordered by the district court. This prompted the district court to issue a summons requiring Colasuonno to appear and to answer a charge that he had failed to abide by a condition of his probationary sentence. A number of hearings ensued at which Colasuonno, who had a monthly income of $7,059 dollars from Social Security benefits and private disability insurance, disputed whether

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he could be compelled to use the insurance payments to satisfy restitution.1 The district court resolved this question against Colasuonno and, on December 12, 2008, ordered that, beginning January 15, 2009, Colasuonno pay 15% of his monthly income— $1,058.55— toward restitution. When Colasuonno's attempts to secure a stay or modification of this payment schedule proved unsuccessful, he started to make the ordered payments, so that by July 15, 2009, he had paid approximately $6,630 in restitution.

C. Colasuonno Files a Chapter 7 Bankruptcy Petition

On July 24, 2009, without notice to either the district court or the Probation Department, Colasuonno and his wife jointly filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York. See 18 U.S.C. § 3563(a)(7) (requiring defendant on probation to notify court of any material change in economic circumstances that might affect ability to pay restitution).

When, on September 3, 2009, Colasuonno again moved in the district court for modification of his restitution schedule, citing financial hardship, he made no mention of the pending bankruptcy petition, much less did he indicate that it would affect his ability to pay restitution. On October 21, 2009, the district court denied modification, observing that Colasuonno's professed financial hardship arose from his " own choices and preferences," including his expenditures on " unnecessary luxuries." Order Denying Request for Modification of Restitution Payment Schedule at 3, No. 05-cr-1110 (Oct. 21, 2009), ECF No. 112.

That same day, Colasuonno moved pro se for reconsideration, for the first time revealing his bankruptcy filing but not arguing that it relieved him of his obligation to pay restitution on the schedule set by the court. The district court granted reconsideration on October 27, 2009, and directed Colasuonno to provide further information about his financial condition. Instead, Colasuonno filed a notice of appeal, divesting the district court of jurisdiction. Subsequently withdrawing that appeal, Colasuonno again sought reconsideration of the restitution payment schedule, which the district court denied on January 20, 2010, without prejudice to renewal " after good faith negotiations, providing full knowledge to the [bankruptcy] trustee." Endorsed Letter Ruling, No. 05-cr-1110 (Jan. 20, 2010), ECF No. 117.

D. The Probation Violation Proceeding

Colasuonno continued making full restitution payments through November 2009. Although the district court never reduced the ordered monthly payment, from December 2009 through February 2010, Colasuonno paid only $300 per month toward restitution, after which he ceased paying restitution altogether. In total, he had paid $11,949 toward the ordered $781,467 restitution.

In April 2010, some nine months after filing for bankruptcy, Colasuonno first suggested— to his probation officer— that the automatic stay afforded by the Bankruptcy Code relieved him of any obligation to pay restitution. On October 20, 2010, the district court issued a summons for Colasuonno to appear and to answer the charge that he had violated his probation by failing

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to make a good faith effort to pay the ordered restitution.

In defending against the charged violation, Colasuonno's counsel argued in the alternative that (1) " the automatic stay should allow [Colasuonno] to forego restitution payments until the bankruptcy court rules on a reorganization," and (2) Colasuonno did not willfully violate probation because he relied in good faith on his bankruptcy counsel, who advised him that he need not pay restitution while the automatic stay was in effect.2 Robert M. Baum Letter to Judge Hellerstein at 2 (Jan. 5, 2010) (unavailable on ECF).

On February 18, 2011, the district court conducted an evidentiary hearing at which both Colasuonno's wife and his bankruptcy counsel testified concerning the advice provided. The district court rejected Colasuonno's advice-of-counsel defense, finding that he had failed fully to disclose to bankruptcy counsel relevant facts about his restitution obligation, specifically, that payment was a condition of a criminal sentence. The district court further ruled that the automatic stay of the Bankruptcy Code did not operate to halt Colasuonno's obligation to comply with conditions of his criminal sentence, including the condition of payment of restitution. Accordingly, it found Colasuonno in violation of probation.

E. Colasuonno's Resentencing

On March 17, 2011, after affording the parties an opportunity for briefing and oral argument, the district court revoked Colasuonno's probationary sentence and, reviewing the sentencing factors specified in 18 U.S.C. § 3553(a), resentenced Colasuonno on the substantive tax crime of conviction to four months' imprisonment followed by a one-year term of...

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