U.S.A v. Gilbert
| Decision Date | 14 February 2011 |
| Docket Number | CASE NO. 10-CR-20505 |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. Dl CHAD B. GILBERT, D2 THERESA L. GILBERT, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
(Docs. 8 and 17)
Defendants Chad and Theresa Gilbert (hereafter "Defendants") were charged by Information on August 19, 2010. The Information states in pertinent part:
... Chad B. Gilbert and Theresa L. Gilbert, aided and abetted each other, knowingly embezzled and converted to their own use, and without authority sold, conveyed and disposed of, money and things of value of the United States and the U.S. Department of Agriculture, in that, after Chad B. Gilbert and Theresa L. Gilbert gave the United States a security interest in collateral to obtain funds from the U.S. Department of Agriculture, Chad B. Gilbert sold the collateral without the consent of the U.S. Department of Agriculture, and Chad B. Gilbert and Theresa L. Gilbert used the proceeds of the sale for purposes other than to pay their indebtedness to the United States, thereby embezzling and converting the money and things of value of the United States to their own use, all in violation of 18 U.S.C. §§ 641 and 2.
(Doc. 1.) Defendants signed and filed consents to proceed before this magistrate judge. (Docs. 2, 4.)
On September 10, 2010, Defendant Chad Gilbert entered into a Rule 11 Plea Agreement ("plea agreement") with the government (Doc. 8) and on September 29, 2010, Defendant Theresa Gilbert entered into a plea agreement with the government. (Doc. 17.) Chad Gilbert pleaded guilty to the sole count in the Information on September 10, 2010, and Theresa Gilbert pleaded guilty to the sole count in the Information on September 29, 2010. At these times, the plea agreements were taken under advisement and the cases were referred for pre-sentence reports.
After review of the pre-sentence reports, this Court entered an order that cancelled the scheduled sentencing hearings and directed briefing by the parties. (Doc. 21.) The order noted that "questions have arisen as to whether the statute cited in the Information, 18 U.S.C. § 641, properly applies to the offense conduct." (Id.) A second order issued January 14, 2011, clarifying the Court's continuing obligation to determine whether a factual basis exists for a guilty plea until judgment is entered and setting a briefing schedule on the issue of whether the conduct in this case of "[s]elling the collateral without the consent of the U.S. Department of Agriculture" (Doc. 1 at 1) constitutes embezzlement or conversion of a "thing of value of the United States" in violation of section 641 and whether "[u]sing the proceeds of the sale for purposes other than to pay their indebtedness to the United States" (Doc. 1 at 1) constitutes embezzlement or conversion of "money or a thing of value of the United States" in violation of section 641. (Doc. 27 at 6.) The parties submitted briefs (Docs. 31, 32, 33) and these issues are ready for resolution.
Rule 11 of the Federal Rules of Criminal Procedure provides that, "[b]efore entering judgment on a guilty plea, the court must determine that there is a factual basis for the plea." Fed. R. Crim. P. 11(b)(3). The court "should make the factual basis determination '[b]efore entering judgment on a guilty plea'-not, as in other subsections of Rule 11, 'before accepting a plea.'"
United States v. Mobley, 618 F.3d 539, 545 (6th Cir. 2010) (emphasis in original; citations omitted). Therefore, even though guilty pleas have been accepted, the court's obligations "continue until it has entered judgment." United States v. Smith, 160 F.3d 117, 121 (2d Cir. 1998). The court "must assure itself simply that the conduct to which the defendant admits is in fact an offense under the statutory provision under which he is pleading guilty." Id. (citations omitted). "If [the court] decides there was no factual basis for a guilty plea after accepting it, the court should vacate the plea and enter a plea of not guilty on behalf of the defendant." Id.
The statute under which Defendants are charged1 provides in pertinent part as follows:
Whoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any... money, or thing of value of the United States or of any department or agency thereof,...
Shall be fined under this title or imprisoned not more than ten years, or both; but if the value of such property in the aggregate, combining amounts from all the counts for which the defendant is convicted in a single case, does not exceed the sum of $1,000, he shall be fined under this title or imprisoned not more than one years, or both.
18 U.S.C. § 641. The elements of this offense are: "(1) that the money or property belonged to the government"; (2) "that the defendant fraudulently appropriated the money or property to his own use or the use of others"; and (3) "that the defendant did so knowingly and willfully with an intent to either temporarily or permanently deprive the owner of the use of the money or property." United States v. McRee, 7 F.3d 976, 980 (11th Cir. 1993).
Section 641codified the common law crimes of larceny and embezzlement and requires the same elements as its common law predecessors. Morrisette v. United States, 342 U.S. 266, n.28, 72 S. Ct. 240, 96 L. Ed. 288 (1952); United States v. Donato-Morales, 382 F.3d 42, 47 (1st Cir. 2004). Embezzlement is the fraudulent conversion of the property of another by one who is already in possession of it. In re Sherman, 603 F.3d 11, 13 (1st Cir. 2010). Larceny is the trespassory taking and carrying away of the personal property of another with the intent to steal it. United States v. Peterson, 394 F.3d 98, 106 (2d Cir. 2005). Thus, the specific intent to deprive the United States of the use or enjoyment of money or property owned by the United States remains an element of the offenses charged under this section. Donato-Morales, 382 F.3d at 47.
In the instant case, Defendants received a loan from the U.S. Department of Agriculture (hereafter "USDA") and the "loan was secured by collateral, primarily cattle, pledged to the United States."2 (Plea Agreements, Doc. 8 at 2 (Chad); Doc. 17 at 2 ()). The Information specifically states that Defendants "gave the United States a security interest in collateral." (Doc. 1 at 1.) Defendants then allegedly "sold the collateral, knowing that [they] did not have permission from the government to do so, " and failed to "us[e] the money to pay their financial obligation to the government." (Doc. 8 at 2; Doc 17 at 2.)
The question before the Court is whether the conduct of selling collateral in which the government possesses a security interest and failing to use the proceeds of the sale to pay off the debt owed to the government constitutes embezzlement or conversion of government property orfunds. Several courts have found that possession of a security interest in property does not equate to ownership, and thus have concluded that section 641 does not apply in a factual setting such as this case. In United States v. Tana, 618 F. Supp. 1393 (S.D.N.Y. 1985), the defendant was charged under section 641 with converting equipment and other assets in which the United States government had a security interest. The court held that the indictment failed to allege conduct in violation of section 641, reasoning as follows:
The Government contends that its security interest is "a thing of value" and that the removal of the property converted its interests.... The Government asserts that a security interest is an intangible property interest, the theft of which is subject to the same proscription. This is plainly wrong.
A security interest is an inchoate interest in property; the property may be tangible or intangible. Cases dealing with the distinction between tangibles and intangibles do not bear on the issue of whether a security interest in property, whether tangible or intangible, constitutes a "thing of value" within the meaning of section 641.
Tana, 618 F. Supp. at 1395-96. The Seventh Circuit expressed its agreement with Tana in a 1994 published case. United States v. Howard, 30 F.3d 871, 876 (7th Cir. 1994) ( ).
In the instant case, the government strenuously argues that there is no support for the holdings of Tana and Howard in the Sixth Circuit, and couples that argument with an assertion that the Sixth Circuit "broadly" interprets section 641. (Gov't's Resp., Doc. 33 at 3.) In support, the government cites two Sixth Circuit cases, United States v. Foulks, 905 F.2d 928, 930 (6th Cir. 1990); and United States v. Haranda, 162 Fed. App'x 485 (6th Cir. 2006) (per curiam opinion affirming United States v. Haranda, 333 F. Supp. 2d 618 (E.D. Mich. 2004)), for the proposition that governmental supervision and control over the disposition of money or property, or areversionary interest therein, rather than ownership or title, is required for a violation of section 641.3
The Sixth Circuit has, however, clearly held in a published case that section 641 is to be narrowly construed and that federal ownership, not merely a lesser federal interest, is required for prosecution under section 641. In United States v. Klingler, 61 F.3d 1234 (6th Cir. 1995), a case arising from this...
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