United States v. Valdes-Ayala, 081518 FED1, 16-1002

Docket Nº:16-1002
Party Name:UNITED STATES, Appellee, v. VALENTIN VALDES-AYALA, Defendant, Appellant.
Attorney:Linda A. Backiel for appellant. Mariana E. Bauzá-Almonte, Assistant United States Attorney, Chief, Appellate Division, with whom Rosa Emilia Rodríguez-Vélez, United States Attorney, and Mainon A. Schwartz, Assistant United States Attorney, were on brief, for appellee.
Judge Panel:Before Howard, Chief Judge, Thompson and Barron, Circuit Judges.
Case Date:August 15, 2018
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

The First Circuit affirmed Defendant’s convictions and the order of restitution imposed by the trial court but vacated the sentence of incarceration and remanded for resentencing, holding that the trial judge erred when it used the 2014 Guidelines Manual rather than the 2015 Guidelines manual at the time of sentencing and that the trial judge’s clear error affected Defendant’s substantial rights. ... (see full summary)




VALENTIN VALDES-AYALA, Defendant, Appellant.

No. 16-1002

United States Court of Appeals, First Circuit

August 15, 2018


Linda A. Backiel for appellant.

Mariana E. Bauzá-Almonte, Assistant United States Attorney, Chief, Appellate Division, with whom Rosa Emilia Rodríguez-Vélez, United States Attorney, and Mainon A. Schwartz, Assistant United States Attorney, were on brief, for appellee.

Before Howard, Chief Judge, Thompson and Barron, Circuit Judges.


For at least eight years Defendant Valentín Valdés-Ayala (Valdés) exploited the desperation of individuals who were behind on their court-ordered child support payments. He did so by illusorily promising professional legal assistance in exchange for approximately $1, 575 and then filing incomplete petitions in bankruptcy court to secure a stay on the Commonwealth of Puerto Rico's collection efforts. Eventually Valdés's scheme attracted the attention of federal law enforcement officials which led to his trial and conviction on several fraud-related offenses. On appeal he makes several claims of trial and sentencing error. For the reasons discussed herein, we affirm his convictions and the order of restitution imposed, but vacate his sentence of incarceration and remand to the district court for resentencing.


A. Setting the Scene

To understand how Valdés exploited the bankruptcy and child support administration systems, it will help to understand the ways in which these systems have been designed to work. We use the testimony the jury heard at trial to paint the backdrop against which Valdés operated his businesses. The jury trial included testimony from a varied cast of 34 witnesses culminating with Valdés, himself, taking the stand.1 So a heads up to the reader: There's a lot of factual detail to lay out before we can get to our discussion of Valdés's arguments on appeal.

1. Child Support Collection in Puerto Rico

In Puerto Rico, the Administracion para el Sustento de Menores ("ASUME") governs child support determinations, modifications, collections, and distributions. When the Commonwealth's trial court orders a non-custodial parent to pay child support, ASUME is responsible for collecting the payment and sending it on to the custodial parent. ASUME has several collection tools at its disposal when a non-custodial parent misses a scheduled payment, including retention of income tax refunds, withholding of income, suspension of sport or professional driver's licenses, and referrals to credit agencies. One additional collection mechanism available to ASUME--the filing of a contempt motion in the Commonwealth trial court--can result in up to six months imprisonment for the delinquent parent.

For a parent in arrears wanting to put ASUME's collection efforts on hold (thereby freezing past-due obligations), filing a petition for Chapter 13 bankruptcy in the bankruptcy court does the trick, at least temporarily. The reason: the filing generates an immediate stay. It also kicks out an automatic notification to ASUME, giving it the status of a creditor needing to file a proof of claim. But notwithstanding the stay, the parent has a continuing obligation throughout the bankruptcy proceeding to pay the ongoing support obligations as they are due (i.e., payments that become due after filing the bankruptcy petition). If the parent fails to meet the recurring payment deadlines, then ASUME can seek dismissal of the bankruptcy petitioner's case. If dismissed, the entire child support arrears is immediately owed to ASUME.

2. Chapter 13 Bankruptcy

A Chapter 13 petition may be filed by individuals who have a regular source of income but need some breathing room to reorganize and repay their debts. The bankruptcy process generates a plan for debt reorganization and repayment. Two major benefits favor filing: (1) the automatic stay, or freeze, on every creditor's attempt to collect a debt owed by the debtor, and (2) a discharge, or forgiveness, of some types of debts at the end of the case, meaning the debtor never has to repay these debts. But a child support debt is not one that can be forgiven (or, put in legal lingo, is "nondischargeable") and, in fact, has priority over the payment of other debts. So the debtor's obligation to pay past-due child support never disappears. For a non-custodial parent delinquent in child support payments, the automatic stay is oft times the primary benefit of a Chapter 13 filing. And the power of this benefit is not to be underestimated; if the debtor is imprisoned for contempt for failure to pay court-ordered child support, the stay generates a get-out-of-jail-for-free order during the pendency of the proceeding. It also triggers a hands-off order of the debtor's earnings, thereby shielding it from creditor reach.

A Chapter 13 petition can be prepared and filed by an attorney, by a petition preparer, 2 or directly by the debtor, and it is supposed to include several documents. The three page petition itself covers general information about the debtor, an estimated number of creditors, an estimated sum of the debtor's assets and liabilities, the identity of the actual petition preparer, and whether the debtor has filed for bankruptcy within the last 8 years.[3] Moreover, a petition preparer (if any) must file a certification disclosing how much the debtor paid for the preparer's assistance.

Also required at Chapter 13 filing time is a debtor's certificate of course completion from a credit counseling service. 11 U.S.C. §§ 109(h), 521(b). A nonprofit called Credit Advisors Foundation ("CAF") administers such a course in Puerto Rico, even though it does not have a physical presence there. The course, which can be done online or by phone, mandates the debtor take an initial quiz, learn about budgeting and options for managing one's financial affairs, create a budget using the debtor's own financial situation, and complete a second set of quizzes. At the end of that process, a budget report and analysis as well as a certificate of course completion gets emailed to the debtor and the debtor's attorney (if one is listed in the debtor's account with CAF) for filing with the bankruptcy petition.

Attorneys can file Chapter 13 petitions and the accompanying documents electronically, but non-attorneys in Puerto Rico must file in person at the bankruptcy court located either in San Juan or Ponce. This includes pro se litigants, petition preparers, and friends or family members who file a document on the debtor's behalf. The clerk's office must accept a bankruptcy filing unless a court order is in place barring the individual from doing so.

While there are several documents that make up a complete Chapter 13 package, the automatic stay is nonetheless achieved by submitting a "skeleton filing," consisting of the petition, the certificate of completion for the credit counseling course, and a few other certifications and declarations. Once docketed, the debtor has 14 days to turn in the remaining required documents and schedules. If all of the other paperwork is not filed within that time period, the bankruptcy trustee can move to dismiss the petition. The debtor may request additional time to submit the documents, but if the case reaches 45 days old and all of the required documents are not filed, then the case is automatically dismissed. Once dismissed, the protective stay thwarting all creditors' collection efforts goes away.

As for petition preparers assisting a debtor, there are strict rules about what the helper may and may not do. 11 U.S.C. § 110. The big no-no's: (1) Based only upon information provided by the debtor can the assister fill in the blanks on the petition; (2) no recommendation is to be given about the propriety of filing for bankruptcy or about which code chapter should be utilized, or about what the consequences of a bankruptcy filing might be; and, unsurprisingly, (3) the preparer cannot take the required credit counseling course on the debtor's behalf. The really big yes-yes: the petition preparer must sign several parts of the petition, attesting that he or she has adhered to the various and comprehensive statutory parameters for acting as a bankruptcy petition preparer.4

After the petition is filed, the bankruptcy court sends a summons to the debtor with a time and date for a so-called "341 meeting." Mandated by 11 U.S.C. § 341, the debtor is required to attend this meeting to discuss the petition. Also in attendance is the bankruptcy trustee assigned to the case, as well as any creditors who wish to show.

Getting at holistic system concerns, bankruptcy analysts employed by...

To continue reading