U.S. v. Goodstein

• Decision Date: 14 November 1989
• Docket Number: No. 88-1377,88-1377
• Citation: 883 F.2d 1362
• Parties: Bankr. L. Rep. P 73,158 UNITED STATES of America, Plaintiff-Appellee, v. William GOODSTEIN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1362

883 F.2d 1362

Bankr. L. Rep. P 73,158

UNITED STATES of America, Plaintiff-Appellee, v. William GOODSTEIN, Defendant-Appellant.

No. 88-1377.

United States Court of Appeals Seventh Circuit.

Argued March 30, 1989.

Decided Sept. 11, 1989.

As Amended on Denial of Rehearing and Rehearing En Banc Nov.

14, 1989.

Joan B. Safford, Asst. U.S. Atty., Anton R. Valukas, U.S. Atty., David J. Stetler, Joan Bainbridges, James R. Ferguson, Victoria J. Peters, Asst. U.S. Attys., Crim. Receiving, Appellate Div., Chicago, for plaintiff-appellee.

Julie L. Friedman, Chicago, for defendant-appellant.

Before CUDAHY and EASTERBROOK, Circuit Judges, and HENLEY, Senior Circuit Judge. ^*

CUDAHY, Circuit Judge.

Defendant William Goodstein appeals his conviction for bankruptcy fraud in violation of 18 U.S.C. section 152; conversion of profit sharing funds in violation of 18 U.S.C. section 664; mail and wire fraud in violation of 18 U.S.C. sections 1341, 1343; and interstate transportation of fraudulently obtained securities in violation of 18 U.S.C. section 2314. We affirm his conviction on all counts.

I.

In 1977, defendant Goodstein had been a practicing lawyer for over forty years with considerable experience in bankruptcy law, when he arranged to acquire a business with his long-time cohort, Stanley Karp. Goodstein and Karp agreed to purchase the Paine Company ("Paine"), an Illinois manufacturer of hardware used in the construction industry, from Dan Polos. Goodstein incorporated a holding company, Travcor, Inc., as a vehicle to acquire Paine. The original purchase agreement required Travcor to pay $260,000 for the Paine stock, $240,000 for a covenant not to compete and $5,000 per month to lease the real estate where Paine was located. Goodstein and Karp borrowed substantial funds to meet these financial requirements and to invest working capital in the new enterprise. By 1981, Goodstein had personally invested $200,000 in Paine. Tr. at 205.

Due to a significant decline in the home building industry, the new venture did not prove lucrative. When Travcor fell into default on payments to Polos, Goodstein negotiated refinancing for Paine through Foothill Capital Corporation ("Foothill"). In an effort to rescue Paine (and himself) from imminent financial collapse, Goodstein structured a deal with an acquaintance, Carl Hagle, in which Hagle agreed to manage Paine. According to Goodstein's arrangement with Hagle, if the latter succeeded in generating profits and if he assumed Paine's $200,000 debt to Goodstein, Hagle would be entitled to exercise an option to acquire a controlling interest in Paine. By 1982, Paine was facing immense financial pressures from Polos, who had filed suit for back rent and payments under the purchase agreement, and from Foothill, to which Paine owed over $300,000. Ultimately, on May 5, 1982, Paine filed a voluntary petition under Chapter 11, listing its ten largest unsecured creditors including Polos, and its principal secured creditor, Foothill. Meanwhile, Paine continued to hold Goodstein's $200,000 investment, a portion of which Goodstein had borrowed from third parties. In July and September of 1982, with approval of the bankruptcy court, Paine conducted sales of its assets and applied the proceeds to the outstanding Foothill debt.

By 1983, Hagle had not resuscitated Paine to a financially satisfactory condition as contemplated. Consequently, he resigned without purchasing the controlling stock or assuming Paine's debt to Goodstein pursuant to their agreement. While Paine was in reorganization as debtor-in-possession, Goodstein and Karp embarked on another endeavor to recapture their investments: they met with Robert Caldwell to negotiate a merger of Paine and Caldwell's company, Mid-Northern Industries ("Mid-Northern"). The merger proposal provided that Paine would consolidate its operations with Mid-Northern's at the Mid-Northern facility and that Travcor (Goodstein's ownership vehicle) would transfer ownership and control of Paine to Mid-Northern and, hence, ultimately to Caldwell. In exchange for all the outstanding stock in Paine, Mid-Northern would issue 20 percent of Mid-Northern's stock to Karp, while Paine's outstanding shareholder loans from Karp and Goodstein would be "recast" by Mid-Northern in the form of Mid-Northern corporate notes issued to Karp and Goodstein. See Tr. at 1377-79; Government App. A. According to Karp, Paine was to move its physical property to the Mid-Northern premises "[a]s soon as permission had been secured from the bankruptcy court and from Foothill which was the principal ... creditor." Tr. at 135. The parties agreed that Goodstein was responsible for notifying the bankruptcy court. Id.

In late August 1983, Foothill discovered that Paine had transferred its accounts receivable collections to an unauthorized account and had transferred some equipment to Mid-Northern's location without notice to Foothill or to the bankruptcy court, thereby allegedly jeopardizing Foothill's security interest in certain collateral. On August 30, 1983, Foothill filed a motion with the bankruptcy court objecting to Paine's transfers. Before the motion was heard, Foothill engaged in negotiations with Goodstein and drafted a tentative letter agreement consenting to Paine's relocation on the condition that Paine first sell its telephone system product line and apply the proceeds to the Foothill debt. The proposal stated that "Paine may take preparatory steps in pursuance [of the agreement], with Foothill's consent, prior to closing of the sale of the 'telephone lines.' " Appellant's Supp.App. at 3, 18. In addition, the proposal required approval of the bankruptcy court to effectuate the terms of the agreement. Id. at 4-16, 19.

On or about September 25, 1983, without having reached a final agreement with Foothill, without having consummated the sale of the telephone system, without having notified any creditors and without having obtained permission of the bankruptcy court, Goodstein, Karp and Caldwell proceeded to move additional Paine equipment and all the Paine inventory to the Mid-Northern premises. Thereafter, both a relocation agreement and a purchase agreement for the telephone system were back-dated to September 14, 1983.

On September 27, 1983, Foothill filed a complaint in the bankruptcy court objecting to the relocation on the ground that Foothill had consented to the move only upon the condition that Paine sell its telephone system, which it had failed to do. See id. at 21-24. Thereafter, Paine and Foothill again entered negotiations and ultimately, on October 4, 1983, submitted to the bankruptcy court an agreed order purporting to prospectively approve the relocation, although, in fact, the move had already occurred. The court approved the submitted order the same day. Id. at 33-35.

In the spring of 1984, the unrelenting Goodstein/Karp/Caldwell confederacy made a final desperate effort to salvage Paine. Caldwell acquired DuPage Boiler Works ("DuPage"), a well-established, "cash-rich" manufacturer of steel water tanks. DuPage maintained a non-contributory profit sharing plan (the "Plan") for its employees, providing for lump sum payments of benefits. Goodstein assumed the position of director and corporate secretary of DuPage. In October 1984, Goodstein, expressing exasperation at the protracted litigation, reassured Foothill that Paine's outstanding debt to Foothill (approximately $471,000) would be liquidated by December 2, 1984. Tr. at 364-68; Government Ex. Terras 30. Thereafter, Caldwell appointed himself as the trustee of the DuPage Plan, which previously had been administered by the Union Mutual Life Insurance Company ("Union Mutual"). Pursuant to an agreement negotiated by Goodstein, Union Mutual wired $350,000 from the DuPage profit sharing account to the Harris Bank of Naperville. These funds were deposited into an account entitled "DuPage Boiler Works Profit Sharing Account," with respect to which Caldwell was the signatory.

Meanwhile, Goodstein and Foothill had agreed to restructure the Paine debt. Paine was to make three payments in December 1984 for a total of $155,000, then $20,000 a month until the debt was retired. Tr. at 369-70; Government Ex. Terras 31. These payments were made according to schedule with funds from the DuPage profit sharing account in Naperville. Checks were also issued from this account directly to Goodstein, who used the funds to discharge some of his personal debts. Tr. at 1431, 1460, 1463; Government App. K. As the government established at trial, such use of the DuPage Plan funds violated the terms of the Plan as well as ERISA.

On December 20, 1984, Caldwell amended the DuPage Plan by deleting the beneficiaries' option to receive a lump sum payment. Tr. at 1323; Government App. D. The government presented evidence at trial that this amendment also was contrary to the terms of the Plan and to ERISA. Beginning in early 1985, several beneficiaries of the DuPage Plan demanded payment of their benefits. Goodstein informed them that the law did not permit lump sum payments and that, in lieu of such payments they would receive five equal installments. Throughout the bankruptcy proceedings, Goodstein continued to provide spurious excuses to disgruntled Plan beneficiaries and to reassure them that payments would be forthcoming.

Paine continued to default on its payments to Foothill even after several restructured financing agreements. In the summer of 1985, Goodstein called Union Mutual requesting another $175,000 from the DuPage profit sharing funds still on deposit there. He sent a letter enclosing an authorization signed by Caldwell to expedite the withdrawal and requested that the proceeds be addressed to him personally by express mail. Tr. at 846-47; Government Ex. UNM 26, 27. Union Mutual sent the check to Goodstein and it was deposited in the Naperville DuPage profit sharing account. See Government App. D. On August...