U.S. v. Edgar

• Decision Date: 09 July 1992
• Docket Number: No. 91-2480NE,91-2480NE
• Citation: 971 F.2d 89
• Parties: UNITED STATES of America, Appellee, v. James EDGAR, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 89

971 F.2d 89

61 USLW 2092

UNITED STATES of America, Appellee, v. James EDGAR, Appellant.

No. 91-2480NE.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 14, 1992.

Decided July 9, 1992.

James Edgar, Lincoln, Neb., argued (Patrick T. O'Brien, on the brief), for appellant.

Counsel who presented argument on behalf of the appellee was Steven Arthur Russell, Lincoln, Neb., argued (Ronald D. Lahners and Steven A. Russel, argued on the brief), for appellee.

Before RICHARD S. ARNOLD, Chief Judge, HEANEY, Senior Circuit Judge, and MAGILL, Circuit Judge.

MAGILL, Circuit Judge.

James M. Edgar appeals the sentence imposed by the district court after a jury found him guilty of bankruptcy fraud and conspiracy to commit bankruptcy fraud. We reverse and remand.

I.

Edgar's conviction for bankruptcy fraud stemmed from his legal representation of Peter Salter. Salter was the owner of Duplitech Corporation, a copying and printing business. Although Duplitech had filed for Chapter 11 bankruptcy protection in 1983, the bankruptcy was still pending in early 1987 when Dan Fuss approached Salter about the possibility of purchasing his business. Edgar, acting as Salter's attorney, handled the successful negotiations for this sale and drew up many of the documents. The final purchase agreement provided that Salter would receive a total of $35,000 up front and a specified percentage of gross receipts over a period of twenty years. This agreement also contained a clause stating that Fuss would pay off or compromise the bankruptcy claims against Duplitech "as the BUYER shall determine in the buyer's sole discretion." Pl.'s Ex. 19. In addition to the purchase agreement, Salter and Fuss entered an employment agreement in which Fuss agreed to employ Salter for a period of seven years with a specified monthly salary that included use of a car. Despite the fact that the assets of Duplitech formally belonged to the bankruptcy estate, neither Edgar nor Salter informed the bankruptcy court of their sale to Fuss. In fact, Edgar structured the sale so that the assets of Duplitech and the proceeds from their sale would be difficult to trace. Salter did not use any of the proceeds he received up front to pay Duplitech creditors.

Approximately seven months after completion of the sale, the bankruptcy court was informed that Salter had sold all of Duplitech's assets to Fuss. In response, the court appointed a trustee to investigate the sale and attempt to recover for the estate either the assets transferred or the value of those assets. The trustee's investigation led to his filing of a civil suit against, inter alia, Edgar and Fuss. Edgar settled his suit for $5000. Fuss, from whom the trustee was attempting to recover either the assets of Duplitech or the value of those assets, settled for $300,000. This settlement amount was based on the present value of the payments Salter was to receive under the purchase agreement and the employment agreement.

The bankruptcy court also informed the FBI of the sale. The FBI's investigation led to the indictment of Edgar for bankruptcy fraud and conspiracy to commit bankruptcy fraud, in violation of 18 U.S.C § § 152 and 371 (1988). ¹ Although Edgar admitted the acts he had taken in connection with the sale of Duplitech's assets, he denied any intent to defraud creditors or to conceal assets of the bankruptcy estate. After a three-week trial, a jury found him guilty on all counts--rejecting Edgar's defense of lack of the requisite criminal intent. Following a sentencing hearing, ² the district court concluded that Edgar's offense level was seventeen, based on a base offense level of six, a seven-level increase for a loss of more than $120,000 but less than $200,000, a two-level increase for violation of the bankruptcy process, and a two-level increase for more than minimal planning. The court denied Edgar's request for a two-level reduction for acceptance of responsibility. With a criminal history category of I, this resulted in a sentencing range of twenty-four to thirty months. The court denied Edgar's request for a downward departure from this range, and sentenced Edgar to twenty-four months incarceration, three years supervised release, and $25,000 restitution.

Edgar now appeals his sentence. He claims that the district court erred in denying a two-level reduction for acceptance of responsibility, in denying a downward departure from the sentencing range, and in calculating the loss caused by his fraud. We discuss each of his claims in turn.

II.

A. Acceptance of Responsibility

The Sentencing Guidelines provide that the court may reduce the defendant's offense level by two "[i]f the defendant clearly demonstrates a recognition and affirmative acceptance of personal responsibility for his criminal conduct." U.S.S.G. § 3E1.1(a). We give great deference to the district court "when reviewing its evaluation of a defendant's acceptance of responsibility, and will disturb the district court's decision only if it is without foundation." United States v. Russell, 913 F.2d 1288, 1295 (8th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 1687, 114 L.Ed.2d 81 (1991).

Prior to being found guilty by a jury, Edgar denied any intent to defraud the creditors. Only after the jury returned its verdict of guilty did Edgar voluntarily relinquish his license to practice law and state that he accepted the jury's verdict of guilty and thought that it was correct. The district court did not clearly err in denying the reduction based on Edgar's refusal to admit an essential element of bankruptcy fraud before his conviction. U.S.S.G. § 3E1.1, comment. (n. 2); see also, e.g., United States v. Stuart, 923 F.2d 607, 613 (8th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 1599, 113 L.Ed.2d 662 (1991) (no acceptance of responsibility reduction when defendant put the government to its burden of proof at trial by denying any intent to distribute a controlled substance); United States v. Sloman, 909 F.2d 176, 182 (6th Cir.1990) (no acceptance of responsibility reduction when defendant gave statements to officers and expressed regret over what happened, but never admitted any fraudulent intent).

B. Downward Departure

The Sentencing Guidelines allow a court to depart downward from the applicable sentencing range if the court finds " 'that there exists [a] ... mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines....' " U.S.S.G. § 5K2.0, p.s. The district court's ruling that it could depart from the sentencing range only if it found that such a mitigating circumstance existed was a correct interpretation of the guidelines. ³ See United States v. Johnson 08 F.2d 396, 399 (8th Cir.1990). The district court's conclusion that no such mitigating circumstance existed in this case, and thus it did not have a basis for departure, was an exercise of discretion that is not reviewable. See, e.g., United States v. Evidente, 894 F.2d 1000, 1004 (8th Cir.), cert. denied, 495 U.S. 922, 110 S.Ct. 1956, 109 L.Ed.2d 318 (1990).

C. Amount of Loss

Under the Sentencing Guidelines, the offense level for fraudulent conduct is increased according to the amount of loss. The amount of loss used to increase the offense level may be either the amount of loss the defendant intended to inflict or the actual loss resulting from the fraudulent conduct, whichever is greater. ⁴ U.S.S.G. § 2F1.1, comment. (n. 7); see also, e.g., United States v. Smith, 951 F.2d 1164, 1166 (10th Cir.1991). In this case, the district court found that the intended loss was the value of Duplitech as a going concern. The court further concluded that the only reliable evidence of Duplitech's value was the $300,000 settlement between Fuss and the bankruptcy trustee, and the present value of the payments Salter was to receive under the purchase agreement and the employment agreement. An accountant calculated that the present value of these payments was about $270,000. ⁵ Based on this evidence, the court estimated that Duplitech's value was in the range of $270,000 to $300,000. The court then subtracted $100,000 from this amount because the court found that Edgar intended Fuss to pay the bankruptcy creditors approximately $100,000. Sentencing Tr. at 17-18 (held June 17, 1991). These calculations resulted in an intended loss of approximately $170,000 to $200,000. Because this amount exceeded the actual loss of approximately $75,000, the court concluded that the appropriate loss range was $120,000 to $200,000, resulting in a seven-level increase. U.S.S.G. § 2F1.1(b)(1)(H).

As the above facts make clear, the calculation of loss in a bankruptcy fraud case can be rather complicated. It is thus not surprising that the district court made both some correct and some incorrect assumptions in calculating the loss. The district court correctly used the greater of the intended loss and the actual loss to calculate the offense level increase. The court also did not err in using the going-concern value of Duplitech rather than its liquidation value in calculating the value of the concealed assets. There was no proof that the creditors would have recovered only the liquidation value of Duplitech if it had not been sold to Fuss without the bankruptcy court's approval. Additionally, the court properly concluded that the present value of the amount Fuss was willing to pay for Duplitech is a valid measure of Duplitech's value. It is well established that the fair market value of a business as a going concern is "that price a willing seller could secure from a willing buyer." Albrecht v. Herald Co., 452 F.2d 124, 131 (8th Cir.1971); see also Malley-Duff & Assocs. v. Crown Life Ins. Co., 734 F.2d 133, 148 (3d Cir.), cert. denied, 469 U.S. 1072, 105 S.Ct. 564, 83 L.Ed.2d 505 (1984); Banco Nacional De Cuba v. Chase Manhattan Bank, 505 F.Supp. 412, 459-60 (S.D.N.Y.1980), rev'd on other grounds,...