U.S. v. Izydore

• Decision Date: 08 February 1999
• Docket Number: No. 97-50537,97-50537
• Parties: 51 Fed. R. Evid. Serv. 495 UNITED STATES of America, Plaintiff-Appellee, v. Mark IZYDORE; Harry Schreiber, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 213

167 F.3d 213

51 Fed. R. Evid. Serv. 495

UNITED STATES of America, Plaintiff-Appellee, v. Mark IZYDORE; Harry Schreiber, Defendants-Appellants.

No. 97-50537.

United States Court of Appeals, Fifth Circuit.

Feb. 8, 1999.

Joseph H. Gay, Jr., U.S. Atty., San Antonio, TX, for Plaintiff-Appellee.

George McCall Secrest, Jr., Bennett & Secrest, Houston, TX, for Izydore.

Marcia Gail Shein, Law Office of Marcia G. Shein, Atlanta, GA, for Schreiber.

Appeals from the United States District Court for the Western District of Texas.

Before WIENER, BARKSDALE and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

Appellants Harry Schreiber ("Schreiber") and Mark Izydore ("Izydore") were convicted on one count of conspiracy to commit wire fraud and bankruptcy fraud, and numerous counts of the substantive offenses of wire fraud and bankruptcy fraud. On appeal they challenge the propriety of their convictions and sentences. We vacate two of the appellants' convictions for wire fraud, affirm all the appellants' other convictions, and vacate their sentences for resentencing on remand.

I. FACTS

Marhil Manufacturing ("Marhil") was a family-run business in Smithville, Texas, that manufactured doors, hatches, and other closures for the marine industry. The company was owned by JoAnn Copeland, Joe Copeland, and Mrs. Copeland's son, Craig Wallace ("Wallace"). In the late 1980s Marhil encountered financial difficulties and was forced to file for bankruptcy under Chapter 11 of the United States Bankruptcy Code. 11 U.S.C. § 1101, et seq. In an effort to turn the company around, Marhil began an active search for outside investors who could provide operating capital for the business. Wallace, who was Marhil's president at the time, subsequently was introduced to the appellants. Negotiations ensued and the parties eventually agreed that the appellants' company, Westminster Financial ("Westminster"), would provide Marhil with the capital it needed pursuant to a stock subscription agreement.

Under the terms of the agreement Westminster was to purchase 185 shares of Marhil stock for the sum of $185,000. The proceeds from the sale were to be used to pay Marhil's creditors and otherwise fund its plan of reorganization. The sale was scheduled to occur on September 10, 1990. Thereafter, it was agreed that Westminister would establish a $250,000 line of credit for Marhil, which would be used to fund business operations.

Shortly after the stock subscription agreement was incorporated into the bankruptcy court's order confirming Marhil's plan of reorganization, the appellants formed Marhil Acquisition Corp. ("MAC"), a Colorado corporation, and opened several bank accounts in Florida for MAC, and a second company, M.C.M. Acquisitions Corp., Inc. Izydore then arranged to have Marhil's receivables factored through Goodman Factors, Inc. by falsely representing himself as the president of Marhil. The proceeds from the factoring were subsequently transferred to MAC's bank account in Florida. In all, the appellants factored $378,487 worth of Marhil's receivables.

In addition to factoring Marhil's receivables, the appellants instructed Wallace to apply for a progress payment from National Steel and Shipbuilding Co. ("NASSCO"), a company for which Marhil was manufacturing marine closures under a substantial contract. ¹ NASSCO complied with the request and sent Marhil a progress payment of $197,490. On the appellants' instructions Wallace forwarded the payment to appellants, who deposited it in the MAC bank account in Florida. It was later determined that no portion of the progress payment was ever used to complete the NASSCO project. Instead, some of the money went to the personal expenses of the appellants; credit card balances; homes in Aspen, Colorado and West Palm Beach, Florida; and Schreiber's BMW, to name a few. When asked to account for the funds, the appellants claimed, amongst other things, that $25,000 had been paid to a company called Michellette Corp., and that $35,000 had gone to a law firm named Jacobson & Lambert, P.A. Those statements were later shown to be false.

By December 1990, the appellants had still not purchased Marhil's stock as required by the subscription agreement and the reorganization plan. Consequently, a creditor filed suit seeking to rescind the bankruptcy court's order confirming the plan of reorganization. At a subsequent hearing before the bankruptcy court, the appellants claimed that $225,000 had been deposited in Marhil's account, that checks had been issued to all creditors, and that the new Marhil stock had been issued in accordance with the reorganization plan. After taking that testimony, the bankruptcy court continued its consideration of the matter until January 17, 1991.

On January 15, 1991, Wallace received a fax from Schreiber stating that Schreiber had stopped payment on a check that had been issued to one of its creditors. Wallace then learned that Schreiber had used a blank check that Wallace had given him for incidental expenses to withdraw the $225,000 deposit. At the January 17 hearing, the bankruptcy court was presented with compelling evidence that the appellants' representations at the previous hearing were false. Accordingly, the court revoked the plan of reorganization and appointed a Chapter 11 trustee to oversee Marhil's operations. On a subsequent audit of Marhil's books, the trustee discovered that the appellants had stolen $108,000 from Marhil. The trustee's attempts to save the business were unavailing; she was forced to close Marhil based on its inability to meet its business obligations.

On September 19, 1995, a grand jury indicted the appellants on nine counts. Count one charged the appellants with conspiracy to commit wire fraud and bankruptcy fraud, in violation of 18 U.S.C. § 371. Counts two through six charged the appellants with committing wire fraud in violation of 18 U.S.C. § 1343, and aiding and abetting wire fraud in violation of 18 U.S.C. § 2. Counts seven through nine charged the appellants with bankruptcy fraud in violation of 18 U.S.C. § 152, and aiding and abetting bankruptcy fraud in violation of 18 U.S.C. § 2. The case went to trial and a jury convicted the appellants on all counts. The district court subsequently sentenced Izydore to 60 months imprisonment and Schreiber to 120 months. The appellants now appeal their convictions and sentences.

II. CHALLENGES TO EVIDENTIARY RULINGS

The appellants argue that the district court committed reversible error by allowing Bettina Whyte ("Whyte"), the bankruptcy trustee, to give opinion testimony regarding the legality of the appellants' conduct. At trial, when asked to characterize the $108,500 that the appellants owed Marhil, Whyte stated "[the money] was taken, and it was not legally taken in my opinion, which was what I said in my report to the court." Whyte was not testifying as an expert witness when she made this statement. The appellants timely objected to Whyte's statement, and asked the court to strike it from the record. The district court overruled the objection.

We review a district court's decision to admit evidence under the abuse of discretion standard. United States v. Wallace, 32 F.3d 921, 927 (5th Cir.1994). However, we will not reverse a district court's evidentiary rulings unless substantial prejudice results to the complaining party. Fed.R.Evid. 103(a); Munn v. Algee, 924 F.2d 568, 573 (5th Cir.), cert. denied, 502 U.S. 900, 112 S.Ct. 277, 116 L.Ed.2d 229 (1991). The burden of proving substantial prejudice lies with the party asserting error. FDIC v. Mijalis, 15 F.3d 1314, 1318 (5th Cir.1994).

In this appeal the appellants assert that Whyte's statement is inadmissible because it constitutes a legal conclusion regarding the ultimate issue of their guilt. They argue that her testimony was particularly prejudicial given her role as court-appointed trustee. In the government's view, Whyte's statement merely explains the circumstances surrounding her attempt to recover the missing funds, and does not reflect a judgment on the criminal guilt or innocence of the appellants.

Under Rule 704(a), "[t]estimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact." Fed.R.Evid. 704(a); see United States v. Moore, 997 F.2d 55, 57-58 (5th Cir.1993) (discussing Rule 704(a)). That rule, however, does not allow a witness to give legal conclusions. Owen v. Kerr-McGee Corp., 698 F.2d 236, 240 (5th Cir.1983). For that reason we have long recognized that determinations of guilt or innocence are solely within the province of the trier of fact. United States v. Buchanan, 70 F.3d 818, 833 n. 20 (5th Cir.1995), cert. denied, 517 U.S. 1114, 116 S.Ct. 1340, 134 L.Ed.2d 490 (1996); United States v. Masson, 582 F.2d 961, 964 n. 5 (5th Cir.1978).

Here, there are two visible flaws in the appellants' argument. First, we are not at all convinced that the phrase "it was not legally taken" is a legal conclusion regarding the very specific issue of whether the appellants are guilty of conspiracy, wire fraud, and bankruptcy fraud. Whyte made this statement while testifying at length about her efforts as trustee to account for monies belonging to Marhil. When viewed in this context Whyte's statement is more accurately described as an opinion about whether the $108,000 properly belonged to Marhil, or the appellants. It is not a legal conclusion regarding the ultimate issue of whether the appellants were guilty of the crimes charged in the indictment.

Second, even if it is a legal conclusion that was mistakenly admitted, we have reviewed the record as a whole and cannot conclude that Whyte's statement, which consists of that single remark, affected the substantial rights of the appellants. Any mistake by the district court in admitting Whyte's statement was harmless error.

The appellants also contend that the district court...