U.S. v. Michalek

• Decision Date: 31 May 1995
• Docket Number: No. 94-1450,94-1450
• Citation: 54 F.3d 325
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Charles R. MICHALEK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 325

54 F.3d 325

UNITED STATES of America, Plaintiff-Appellee, v. Charles R. MICHALEK, Defendant-Appellant.

No. 94-1450.

United States Court of Appeals Seventh Circuit.

Argued Sept. 22, 1994.

Decided April 26, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied May

31, 1995. ^*

Kaarina Salovaara (argued), Office of U.S. Atty., Crim. Div., Barry Rand Elden, Asst. U.S. Atty., Crim. Receiving, Appellate Div., Chicago, IL, for plaintiff-appellee.

Patrick J. Calihan (argued), Chicago, IL, for defendant-appellant.

Before FERGUSON, ^** RIPPLE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

Charles Michalek pled guilty to one count of bankruptcy fraud, 18 U.S.C. Sec. 152, and three counts of income tax fraud, 26 U.S.C. Sec. 7206(1). He now appeals four two-point sentencing enhancements ordered by the district court. For the reasons set forth in the following opinion, we affirm.

I BACKGROUND

A. Facts

Charles Michalek owned and operated a video store. During the early 1980s, the In addition, Mr. Michalek lied to the bankruptcy trustee about one of his disclosed assets, a Tiffany-style lamp. This lamp was among the contents of the Michalek home. The bankruptcy trustee sold the house and its contents in July 1989. However, Mr. Michalek removed the lamp prior to closing, pursuant to an arrangement with the new owners. The trustee sought the bankruptcy court's approval of this compromise. In doing so, the trustee relied upon two false documents that Mr. Michalek had given him. The first was a statement that Barbara Kadlec had drafted at Mr. Michalek's request. In that statement, Ms. Kadlec falsely claimed that the lamp had been in her family for generations. The second statement was a fake appraisal of the lamp. The appraisal appeared on an appraisal company's stationery, but had been signed by one of Mr. Michalek's former employees at Mr. Michalek's request. The appraisal incorrectly valued the lamp at less than $500.

business was profitable. However, by 1986, the video store was losing money. That year, Mr. Michalek filed separate bankruptcy petitions to protect both his troubled business and his personal assets. The Bankruptcy Code obligated him to report all of his assets to the bankruptcy trustee. 11 U.S.C. Sec. 521(4); see also Bankr.Rule 4002, and Forms 1; 6, sched. B; and 10. However, Mr. Michalek did not comply with this requirement; he failed to disclose his ownership of artwork and other property. During the bankruptcy period, Mr. Michalek sold approximately $72,000 of this artwork. At Mr. Michalek's request, one purchaser paid $22,000 in cash. The other purchasers provided personal checks made payable to Barbara Kadlec, who, at the time, was Mr. Michalek's wife. Ms. Kadlec deposited two such checks into the couple's personal accounts and two others into the video store's accounts. Mr. Michalek did not disclose his receipt of these proceeds either to the bankruptcy court or to the trustee. He also failed to report a $23,850 capital gain he realized in 1990 on the sale of a portion of this artwork.

During the bankruptcy period, Mr. Michalek also instructed Ms. Kadlec to use money from the video store operation to pay the couple's personal bills. Thereafter, Ms. Kadlec regularly deposited portions of the video store's daily cash receipts into the Michaleks' personal accounts. At times, Mr. Michalek ordered additional transfers when he believed the video store's books indicated that the business possessed too much money. When Ms. Kadlec questioned these bookkeeping practices, Mr. Michalek told her that they were permissible. Mr. Michalek failed to report any of the income he earned through these transfers on his 1988, 1989, and 1990 federal income tax returns.

In April 1991, the government learned that Mr. Michalek was selling the artwork that he had concealed from the bankruptcy trustee. Government agents obtained a warrant to search Mr. Michalek's residence. They discovered an additional $57,000 in artwork and furniture. Mr. Michalek owned all of this property. Shortly after the search, however, Mr. Michalek called Lester Kadlec, his wife's father, and asked him to claim falsely that he owned some of Michalek's art. Mr. Kadlec initially agreed, but eventually told federal agents the truth. Following these events, the government charged Mr. Michalek with one count of bankruptcy fraud, 18 U.S.C. Sec. 152, ¹ for concealing assets from the trustee and creditors in a bankruptcy proceeding, and with three counts of income tax fraud, 26 U.S.C. Sec. 7206(1), ² for failing to report income in 1988, 1989, and 1990.

B. Earlier Proceedings

Mr. Michalek pled guilty to all counts, and the district court proceeded to sentence him pursuant to U.S.S.G. Sec. 2F1.1. This broad guideline assigns a base offense level of six to a wide variety of crimes involving fraud, deceit, forgery, and counterfeiting. The court enhanced Mr. Michalek's sentence seven levels to reflect the amount of loss involved in his fraudulent scheme. See U.S.S.G. Sec. 2F1.1(b)(1)(H) (providing for seven-level enhancement when the value of property unlawfully taken exceeds $120,000). ³ Next, it added the four additional enhancements at issue in this appeal.

First, the district court determined that a two-point enhancement was justified for "more than minimal planning." See U.S.S.G. Sec. 2F1.1(b)(2). ⁴ The court found that Mr. Michalek's crime was "complex" and required "more than the typical planning that was necessary for such a crime." R. 45 at 2-3. It noted that Mr. Michalek had concealed assets, and then, to cover up the initial fraud, had concealed the sale of these assets as well as his receipt and use of the sale proceeds. The district court also found the enhancement appropriate on the alternative ground that Mr. Michalek's crime involved multiple victims. Second, the court determined that Mr. Michalek merited a two-point enhancement for violating a judicial order, injunction, decree, or process. See U.S.S.G. Sec. 2F1.1(b)(3)(B). ⁵ The court commented that bankruptcy fraud typically involves violation of a judicial order. It also remarked that such an enhancement was "appropriate in all bankruptcy fraud cases ... because it is not a typical fraud ... it is a fraud on the judicial process that Mr. Michalek availed himself of and then defiled." R. 45 at 3. Third, the court ruled that Mr. Michalek should receive a two-point enhancement for his aggravating role in the offense. See U.S.S.G. Sec. 3B1.1(c). ⁶ The court noted that Mr. Michalek had planned and organized the operation. It further noted that he had "directed others in connection with [the fraud]" and had "even directed others to violate the law." R. 45 at 4. Finally, the court found that Mr. Michalek merited a two-point enhancement for obstruction of justice. See U.S.S.G. Sec. 3C1.1. ⁷ The court commented that Mr. Michalek had made false statements to F.B.I. agents. Additionally, it emphasized that Mr. Michalek had suborned perjury by asking Mr. Kadlec to claim falsely that he owned some of Mr. Michalek's art.

The court then reduced Mr. Michalek's total offense level by three levels to reflect his acceptance of responsibility. See U.S.S.G. Secs. 3E1.1(a), (b). ⁸ Mr. Michalek's

total offense level of 18 and criminal history category of I generated a guideline range of 27 to 33 months. The district court sentenced him to 30-month concurrent sentences on each of the four counts, to be followed by three years of supervised release. It also ordered him to make restitution in the amount of $94,000 to his bankruptcy creditors.

II DISCUSSION

A. Enhancement Under U.S.S.G. Sec. 2F1.1(b)(2)

Mr. Michalek argues that the district court erred in enhancing his sentence for more than minimal planning because he did not engage in more planning than is typical for the commission of this crime. Similarly, he contends that the "multiple victim" enhancement was inappropriate because bankruptcy fraud typically involves multiple victims. Therefore, he concludes, this aspect of the offense already must be accounted for in Sec. 2F1.1's base offense level. The government responds that the enhancement was appropriate in light of Mr. Michalek's complex scheme which defrauded multiple victims.

1.

We review a district court's enhancement for more than minimal planning only for clear error. United States v. Mau, 45 F.3d 212, 214 (7th Cir.1995); United States v. Harrison, 42 F.3d 427, 430 (7th Cir.1994). Guideline Sec. 2F1.1(b)(2)(A) authorizes a two-level enhancement if the defendant's fraud involved "more than minimal planning." The Sentencing Commission noted that more than minimal planning may exist: (1) when there has been more planning "than is typical for commission of the offense in a simple form"; (2) when "significant affirmative steps were taken to conceal the offense, other than conduct to which Sec. 3C1.1 ... applies"; or (3) when there have been "repeated acts over a period of time, unless it is clear that each instance was purely opportune." U.S.S.G. Sec. 1B1.1, comment. (n. 1(f)); see also U.S.S.G. Sec. 2F1.1, comment. (n. 2) (referencing the definition). The transcript of the sentencing hearing indicates that the district court focused upon the first factor to justify the enhancement. It also commented on Mr. Michalek's steps to conceal the crime. The court described the fraudulent scheme as "complex" and specifically noted that Mr. Michalek's concealment of artwork, sales of artwork, and receipt and use of the sales proceeds involved "more than the typical planning that was necessary for such a crime." R. 45 at 2-3.

After reviewing the record, we cannot say that the district court's finding is clearly erroneous. Mr. Michalek engaged in a protracted course of conduct which served to conceal assets from both the bankruptcy trustee and his creditors for over four years. Cf. United States v. Brown, 47 F.3d 198, 205 (7th Cir.1995) (indicating that "duration and nature" of...