U.S. v. Sheinbaum, s. 97-41055

• Citation: 1998 WL 84125,136 F.3d 443
• Decision Date: 27 February 1998
• Docket Number: Nos. 97-41055,97-41152,s. 97-41055
• Parties: , 12 Tex.Bankr.Ct.Rep. 83 UNITED STATES of America, Plaintiff-Appellee, v. Uri SHEINBAUM, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Marc A. BIRNBAUM, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 443

136 F.3d 443

67 USLW 3671, 12 Tex.Bankr.Ct.Rep. 83

UNITED STATES of America, Plaintiff-Appellee, v. Uri SHEINBAUM, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Marc A. BIRNBAUM, Defendant-Appellant.

Nos. 97-41055, 97-41152.

United States Court of Appeals, Fifth Circuit.

Feb. 27, 1998.

J. Andrew Williams, U.S. Atty's Office, Plano, TX, for Plaintiff-Appellee.

V

Gary Alan Udashen, Milner, Lobel, Goranson, Sorrels, Udashen and Wells, Dallas, TX, for Defendant-Appellant.

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

Before GARWOOD, JOLLY and HIGGINBOTHAM, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

Defendants Uri Sheinbaum and Marc Birnbaum each pled guilty to one count of conspiracy to defraud the government and to commit bankruptcy fraud. They now appeal both the sentence and the restitution order that the district court imposed upon them. We affirm.

I.

Birnbaum and Sheinbaum were principals in various entities that were partners in a limited partnership known as 5555 Apartments, Ltd. In 1984, the partnership obtained a $10.2 million loan from Alice Savings & Loan Association to purchase an apartment complex in Dallas, Texas, called the 5555 Apartments. The terms of the Promissory Note negotiated between the parties provided for a deferred downpayment of $1.7 million, with the first installment of $237,500 due in October 1985 and the remaining principal and accrued interest due in October 1994. Birnbaum and Sheinbaum were not personally liable under the Note. Securing the Note instead were a deed of trust, a security agreement, and an assignment of rents. The security language in the Note read as follows:

THIS DEED OF TRUST, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS is made ... FOR THE PURPOSE of securing payment of the indebtedness....

TO SECURE the full and timely payment of the indebtedness ... Grantor has ASSIGNED ... (f) all revenues, income, rents, issues and profits of any of the Land, Improvements, personal property or Leases (collectively, the "Rents")....

V. Assignment of Rents: Grantor does hereby absolutely and unconditionally assign, transfer and convey to Beneficiary, as well as to Trustee on Beneficiary's behalf, all Rents under the following provisions:

1. Grantor reserves the right, unless and until an Event of Default occurs under this Deed of Trust, to collect such rents as a trustee for the benefit of Beneficiary, and Grantor shall apply the Rents so collected in the order set forth in paragraph 7 of Section III hereof.

2. Upon an Event of Default, Beneficiary, or Trustee on Beneficiary's behalf, may at any time and without notice, either in person, by agent or by receiver to be appointed by a court, enter and take possession of the Property or any part thereof and in its own name sue for or otherwise collect the Rents.

The partnership made the first $237,500 installment on the deferred downpayment in November 1985.

In October 1987, the parties to the Note renegotiated its terms and executed a written Modification Agreement. The Agreement provided that all rents and income from the apartment complex were to be placed into a separate account to be used to pay off expenses and indebtedness. It stated:

Grantor shall maintain a special account ... into which all income derived from all sources in connection with the operation of the Property ... shall be deposited by Grantor, and against which checks shall be drawn only for the payment of the sums becoming due and payable under the terms of the Note or this Deed of Trust and for the payment of the necessary and reasonable expenses incurred by Grantor in connection with the operation of the Property, with such latter payments being made directly to the persons or entities providing the goods or services for which such expenses are incurred.

By 1994, the ownership of the Note had passed to Banker's Trust Company of California. In September 1994, Birnbaum and Sheinbaum decided to default on their debt payments while retaining the income from the apartments for themselves. By withholding the apartments' income, they hoped to force Banker's Trust to renegotiate the terms of the Note. To aid them in this scheme, the defendants obtained the assistance of Gail Cooper, a financial consultant who had also helped the defendants to renegotiate the Note in 1987.

On January 30, 1995, Banker's Trust sued Sheinbaum and Birnbaum in Texas state court, seeking an accounting of all rents collected since default. On February 27, 1995, before an accounting could be completed, Birnbaum filed a petition in Bankruptcy Court for the Northern District of Texas, seeking relief for 5555 Apartments, Ltd. under Chapter 11.

As part of the bankruptcy proceedings, Birnbaum and Sheinbaum were required to disclose all payments made to "insiders" of 5555 Apartments, Ltd. in the year preceding the bankruptcy filing. On March 22, 1995, the defendants filed a Statement of Financial Affairs in the bankruptcy court. The Statement revealed that $498,995 had been paid to insiders in the year prior to the bankruptcy petition, $134,000 of which had gone to Birnbaum and Lawrence Lambert, a business partner. The Statement asserted that the other $364,995 had been paid to an entity controlled by Sheinbaum as repayment for a debt owed to him by 5555 Apartments, Ltd. The Statement claimed that this debt had arisen from Sheinbaum's personal contribution towards the November 1985 payment of the first $237,500 installment on the Note. In fact, Sheinbaum's debt had long since been repaid. Sheinbaum and Birnbaum later repeated this false statement in an Amended Statement of Financial Affairs, under oath at a creditors' meeting, and in a deposition.

On June 21, 1996, the government charged Sheinbaum, Birnbaum, Cooper, and Lambert in a four-count indictment. In February 1997, Sheinbaum and Birnbaum pled guilty to count one of the indictment, charging them with conspiracy to defraud the government and to commit bankruptcy fraud. The district court sentenced them on August 25, 1997.

At sentencing, the government contended that Sheinbaum and Birnbaum's scheme had caused a loss of $498,995. In support of this position, it produced an affidavit from Victoria Tutterrow, who had worked on the 5555 Apartments, Ltd. bankruptcy as a representative for the United States Trustee's Office for the United States Bankruptcy Court for the Northern District of Texas. Tutterrow testified that the defendants deceived her into believing that the payments made to them out of the apartments' income within the year preceding bankruptcy were for legitimate pre-existing business debts. Tutterrow stated that had she known that those debts had already been repaid, she would have sought the appointment of an independent trustee, who would have sued to recover the apartment's income appropriated by the defendants.

The defendants, on the other hand, disputed the government's loss calculations. Relying on the testimony of John Flowers, a former United States Bankruptcy judge, Birnbaum and Sheinbaum argued that they were legally entitled to take the income from the apartment complex. Furthermore, Phillip Palmer, a bankruptcy attorney, concluded in an affidavit that the false statements by the defendants could not have affected Tutterrow's decision to appoint an independent trustee and thus did not contribute to any loss, an opinion shared by Flowers. Finally, the defendants contended that they should owe little or no restitution, partly because they caused no loss and partly because they had reached a civil settlement with the victim prior to sentencing.

The district court sided with the government on all these issues and fixed the loss from the defendants' scheme at $498,995. Under U.S.S.G. § 2F1.1(b)(1)(J), a loss of between $300,000 and $500,000 mandates a nine-level increase in the offense level for a fraud. After adding these nine levels and then subtracting three levels for acceptance of responsibility, the district court arrived at a total offense level of fourteen, yielding a sentence range of fifteen to twenty-one months of incarceration. However, because the defendants provided the government with substantial assistance in prosecuting others, the district court granted the government's motion for a downward departure, settling on a sentence of seven months for each defendant. In addition, it fined Birnbaum $20,000 and ordered both defendants to pay $498,995 in restitution to their victim, Banker's Trust.

II.

The defendants' first argument on appeal is that the district court erred in determining the amount of loss for sentencing purposes. They contend that they in fact caused no loss, as they were legally entitled to keep the income from the apartment complex for themselves and their actions in no way altered the course of the bankruptcy proceedings.

The defendants advance a complicated state-law argument, the premise of which is that the Note and the Modification Agreement entitled them to control of the income from the apartments. They entice the government into engaging them on this front. Yet whether or not the Note and the Modification Agreement created a "pledge" or an "absolute assignment" of rents is irrelevant in determining the amount of loss caused by the defendants' scheme. See generally Taylor v. Brennan, 621 S.W.2d 592, 593 (Tex.1981) (discussing Texas law on assignment-of-rent clauses).

Under the Bankruptcy Code, the bankruptcy trustee could avoid any transfer from the bankrupt estate made to insiders within the year preceding the filing of the bankruptcy petition. See 11 U.S.C. § 547(b)(4)(B). At sentencing, the defendants admitted that as insiders they received $498,995 from the apartments in that one-year period. Under the Code, the only relevant defense available to Birnbaum and Sheinbaum was that these monies were received "in the ordinary course of business." See 11 U.S.C. § 547(c)(2).

The defendants'...