U.S. v. Kratt

• Citation: 579 F.3d 558
• Decision Date: 02 September 2009
• Docket Number: No. 08-5832.,No. 08-5831.,08-5831.,08-5832.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Fred KRATT, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

579 F.3d 558

UNITED STATES of America, Plaintiff-Appellee, v. Fred KRATT, Defendant-Appellant.

No. 08-5831.

No. 08-5832.

United States Court of Appeals, Sixth Circuit.

Argued: August 4, 2009.

Decided and Filed: September 2, 2009.

ARGUED: Karimbumkara Jayaraman, Law Offices, Memphis, Tennessee, for Appellant. Timothy R. Discenza, Assistant United States Attorney, Memphis, Tennessee, for Appellee. ON BRIEF: Karimbumkara Jayaraman, Law Offices, Memphis, Tennessee, for Appellant. Timothy R. Discenza, Assistant United States Attorney, Memphis, Tennessee, for Appellee.

Before CLAY and SUTTON, Circuit Judges; THAPAR, District Judge.^*

SUTTON, J., delivered the opinion of the court, in which THAPAR, D.J., joined. CLAY, J. (pp. 565-67), delivered a separate opinion concurring in the judgment.

OPINION

SUTTON, Circuit Judge.

Fred Kratt challenges his conviction for three counts of engaging in monetary transactions in criminally derived property, see 18 U.S.C. § 1957, and an $85,954 restitution order. We affirm.

I.

In June 2001, Kratt re-financed his Cessna airplane by obtaining a $301,535 loan from Bancorp South based on fraudulent income tax returns that inflated his adjusted gross income for 1999 and 2000. The bank received a security interest in Kratt's Cessna as collateral. When Kratt fell behind on his payments, the bank foreclosed on the plane, selling it for $210,700 in October 2003. The sale left an $86,137 deficiency on the loan. On December 29, 2003, Kratt obtained an unsecured loan from Bancorp South for $86,137, which the bank applied to the first loan two days later. That brought the first loan to a zero balance and allowed Bancorp South to release its security interest in the Cessna.

Kratt did little better in paying off the second loan. He made six payments between March and August 2004, only one of which (for $1546) made any dent in the principal. Bancorp South charged off the second loan in August 2004, which had a final balance of $85,945. Kratt declared bankruptcy in 2005 and discharged his debts, transforming the final loan balance into a permanent loss for the bank.

A grand jury indicted Kratt on one count of bank fraud, see 18 U.S.C. § 1344, one count of making a false statement on a loan application, see id. § 1014, three counts of engaging in monetary transactions in criminally derived property, see id. § 1957, and two counts that have no bearing on this appeal. At trial, the Government showed that Bancorp South deposited the proceeds of the $301,535 initial loan into Kratt's account through two separate deposits: one for $274,712.48 and one for $25,287.52. A jury convicted Kratt on all seven counts. The district court imposed a 46-month sentence, and it ordered Kratt to pay Bancorp South $85,945 in restitution.

II.

A.

Section 1957 criminalizes "knowingly engag[ing] ... in a monetary transaction in criminally derived property of a value greater than $10,000" if the underlying criminal offense was one of over 250 enumerated offenses, including bank fraud and making false statements on a loan application. 18 U.S.C. § 1957(a); see also id. §§ 1956(c), 1957(f)(3). "[C]riminally derived property," the statute adds, "is any property constituting, or derived from, proceeds obtained from a criminal offense." Id. § 1957(f)(2) (emphasis added).

The question raised by Kratt's appeal is this: Does "proceeds" mean profits or gross receipts? Put another way, did the Government have to establish the gross receipts Kratt received from the fraudulently obtained loans (viz., the full $301,535 amount of the loans and the resulting $274,712.48 and $25,287.52 deposits) or did it have to establish the profits Kratt received from the fraudulently obtained loans (viz., the net profits from the loan and deposits)? If "proceeds" means profits, as Kratt argues, the Government has a sufficiency-of-the-evidence problem, because it never proved that the money Kratt deposited into, and withdrew from, his Bancorp South account represented the profits, as opposed to the gross receipts, of his bank fraud or false statements. If "proceeds" means gross receipts, as the Government argues, Kratt does not have a leg to stand on in challenging these convictions on sufficiency grounds.

At the time of trial, case law suggested that "proceeds" means gross receipts, because our precedent included gross receipts within the definition of proceeds under 18 U.S.C. § 1956, a companion statute to § 1957. See United States v. Prince, 214 F.3d 740, 747 (6th Cir.2000); United States v. Haun, 90 F.3d 1096, 1101 (6th Cir.1996). Since then, however, the Supreme Court has held that "proceeds" means profits in the context of an illegal-gambling operation under § 1956. See United States v. Santos, ___ U.S. ___, 128 S.Ct. 2020, 2025, 170 L.Ed.2d 912 (2008). In the aftermath of Santos, we must answer three questions: (1) Does "proceeds" have the same meaning under §§ 1956 and 1957, which both use "proceeds" in defining the elements of the offenses, see 18 U.S.C. §§ 1956(a)(1), 1957(f)(2); (2) what does the Court's 4-1-4 decision in Santos stand for; and (3) does that holding require us to reverse Kratt's conviction?

Does "proceeds" under § 1957(f)(2) have the same meaning as "proceeds" under § 1956(a)? Yes. Congress enacted §§ 1956 and 1957 at the same time as part of the Money Laundering Control Act of 1986—in truth as all of the Act because the twin statutes amount to the entirety of the legislation. See Pub.L. No. 99-570, Title XIII, § 1352, 100 Stat. 3207-21. "[T]he normal rule of statutory construction" under these circumstances is "that identical words used in different parts of the same act are intended to have the same meaning." Gustafson v. Alloyd Co., 513 U.S. 561, 570, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995).

It makes particular sense to follow that custom here because the two statutes cover the same subject matter in a common way. See Barnhart v. Walton, 535 U.S. 212, 221, 122 S.Ct. 1265, 152 L.Ed.2d 330 (2002); Comm'r v. Lundy, 516 U.S. 235, 249-50, 116 S.Ct. 647, 133 L.Ed.2d 611 (1996). The statutes criminalize similar acts—monetary transactions in criminal proceeds—and simply do so from slightly different angles: Section 1956 criminalizes classic money laundering, while § 1957 criminalizes moving around at least $10,000 in criminal proceeds for any purpose through a financial institution. The statutes cover the same predicate offenses—more than 250 of them. See 18 U.S.C. §§ 1956(c)(7), 1957(f)(3). And whether we define "proceeds" to refer to profits or gross receipts, both statutes would remain coherent and would contain no redundant provisions. See Santos, 128 S.Ct. at 2025. Given these similarities, there is no reason to define "proceeds" differently from one provision to the next.

What does Santos hold? The defendant in Santos operated an illegal lottery in Indiana and was convicted of running an illegal gambling business and money laundering. Id. at 2022-23. Santos launched a successful collateral attack on his money-laundering convictions under 28 U.S.C. § 2255, arguing that "proceeds" in § 1956 means profits, not gross receipts, and that the Government had not proved that the transactions underlying his convictions involved the profits of his illegal gambling business. Id. at 2023. The Supreme Court's 4-1-4 decision lays out three different ways to interpret "proceeds."

Writing for a four-Justice plurality, Justice Scalia reasoned that "proceeds" always means profits under § 1956. Santos, 128 S.Ct. at 2025. Dictionary definitions of proceeds, the term's use throughout Title 18 and the statutory context of § 1956, he explained, all failed to resolve the matter, because each interpretation was as plausible as the other. Id. at 2024-25. The plurality therefore invoked the rule of lenity and adopted the more defendant-friendly definition: "[P]roceeds" means profits. Id. at 2025.

Applying the rule of lenity was particularly appropriate, the plurality added, because defining proceeds as gross receipts would create a "merger problem" for a number of predicate offenses under § 1956. "[N]early every violation of" a number of predicate offenses listed in § 1956(f)(3), it turns out, also violate "the money-laundering statute," and money laundering sometimes "radically increases" the statutory maximum sentence compared to the merged offense. Id. at 2026. In Santos itself, for example, operating an illegal lottery had a statutory maximum of five years, while a § 1956 conviction raised the statutory maximum to 20 years. See id. at 2027; 18 U.S.C. §§ 1955(a), 1956(a)(1).

Justice Alito, writing for four Justices in dissent, reached the opposite conclusion, noting that the primary definition of "proceeds" was gross receipts, that this interpretation made sense in the context of this and related statutes and that accordingly § 1956 always encompasses gross receipts. See Santos, 128 S.Ct. at 2037 (Alito, J., dissenting). In his view, the rule of lenity had no place in the analysis because the context in which "proceeds" appeared suggested that it referred to gross receipts. See id. at 2036-37, 2045. Acknowledging that his interpretation created a merger problem, he responded that the answer was not to alter the statutory meaning of "proceeds" but to resolve any such problems at sentencing or, if necessary, through amendments to the sentencing guidelines. See id. at 2044.

Justice Stevens, writing for himself, concurred in the judgment in favor of Santos, but he rejected the always-the-one or always-the-other approaches offered by his colleagues. As he saw it, the meaning of "proceeds" in § 1956 varies depending on the underlying predicate offense: While "proceeds" means profits if the laundered funds derived from operating an illegal lottery, it might mean gross receipts if the laundered funds derived from distributing cocaine. See id. at 2031-32 (Stevens, J., concurring in the judgment). Two factors drove Justice Stevens' assessment...