USA. v. Butner

• Decision Date: 06 December 2001
• Docket Number: Nos. 00-4882,00-4918,s. 00-4882
• Citation: 277 F.3d 481
• Parties: (4th Cir. 2002) UNITED STATES OF AMERICA, Plaintiff-Appellee, v. WILLIAM E. BUTNER, Defendant-Appellant. UNITED STATES OF AMERICA, Plaintiff-Appellant, v. WILLIAM E. BUTNER, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 481

277 F.3d 481 (4th Cir. 2002)

UNITED STATES OF AMERICA, Plaintiff-Appellee, v. WILLIAM E. BUTNER, Defendant-Appellant.

UNITED STATES OF AMERICA, Plaintiff-Appellant, v. WILLIAM E. BUTNER, Defendant-Appellee.

Nos. 00-4882, 00-4918

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: December 6, 2001

Decided: January 15, 2002

Appeals from the United States District Court for the Western District of North Carolina, at Statesville. Richard L. Voorhees, District Judge. (CR-98-215-V) [Copyrighted Material Omitted] ARGUED: Edward Theodore Hinson, Jr., Richard Blair Fennell, JAMES, MCELROY & DIEHL, P.A., Charlotte, North Carolina, for Appellant. Thomas Richard Ascik, Assistant United States Attorney, Asheville, North Carolina, for Appellee. ON BRIEF: Robert J. Conrad, Jr., United States Attorney, Asheville, North Carolina, for Appellee.

Before WIDENER, NIEMEYER, and MOTZ, Circuit Judges.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

William Eugene Butner appeals, challenging his convictions for bankruptcy fraud and conspiracy to commit bankruptcy fraud in violation of 18 U.S.C. SS 37 and 152(1). Finding no error, we affirm both convictions. The government cross appeals, contending that the district court erred in sentencing Butner. Because the district court ignored undisputed evidence in assessing the loss amount and refused to increase Butner's offense level for abuse of a judicial process, we vacate the sentence and remand for resentencing.

I.

The crimes involved in this case grew out of the bankruptcy of Johnson Brothers Truckers ("Johnson Brothers"). Butner, a lawyer in solo practice, co-owned both Johnson Brothers and a related company, Amtruc, with Raymond Gerald Johnson. Butner also represented Johnson Brothers, and Johnson was its president.

In the early 1990s both companies ran into financial and tax trouble. Amtruc had to file for Chapter 11 bankruptcy protection in late 1991, and in the same period, Johnson Brothers had failed to make payroll tax payments to the IRS. With IRS approval, Amtruc took over some aspects of Johnson Brothers's business. Amtruc paid Johnson Brothers's payroll, all Johnson Brothers employees went to work for Amtruc, and for a time, the IRS accepted payroll tax payments from Amtruc for Johnson Brothers. Johnson, Butner, and Butner's wife each helped Johnson Brothers financially as well; the company owed money to all of them. Eventually, however, despite this assistance, Johnson Brothers ran into more serious trouble when Amtruc fell behind in the tax payments.

On July 18, 1992, Johnson Brothers itself filed a bankruptcy petition under Chapter 11. On May 5, 1993, the bankruptcy court appointed Samuel Gorham as the company's bankruptcy trustee and orally ordered that the case be converted involuntarily from Chapter 11 reorganization to Chapter 7 liquidation. Johnson Brothers requested reconsideration of the conversion and the bankruptcy court scheduled a hearing on the request for May 11 and May 25, instructing Gorham to make a recommendation as to conversion by May 25.

In order to determine whether to recommend conversion to Chapter 7, Gorham contacted Johnson Brothers's major creditors, including a bank and the IRS. He also met with Johnson and Butner. Butner told Gorham that he had earlier given Johnson Brothers money in exchange for the right to collect payment on some of its debts, and that he had since been "factoring" the company's receivables, or taking payments that were made on the debts he had purchased. The bankruptcy schedule for Johnson Brothers did not mention any factoring agreement, and Gorham concluded that Butner did not have a legitimate secured interest in Johnson Brothers that would entitle him to a share of the company's receivables -"this was not a typical factoring arrangement."

On May 24, the day before the bankruptcy hearing resumed, Butner deposited $26,866.80 in checks made payable to Johnson Brothers Truckers (or slightly different versions of that name) into a bank account entitled "Wm. E. Butner Special Account."

At the May 25 hearing, Gorham recommended that the Johnson Brothers case be converted to Chapter 7 bankruptcy, and the bankruptcy court so converted it. Gorham then became the Chapter 7 trustee, whose job was no longer to keep Johnson Brothers running but to liquidate its assets. From May 25 on, all mail for Johnson Brothers was to be forwarded to Gorham, and the company's bank accounts were frozen.

However, on that same day -May 25 -Johnson Brothers notified its clients that it was now doing business as "Johnson Truckers" and that the "name change" should have no other impact on "how we do business." On June 4, 1993, Johnson filed articles of incorporation for "Johnson Truckers," giving the address of the trucking terminal Johnson Brothers owned. Amtruc too began to use the name "Johnson Truckers" on some of its invoices, but there was no change, from at least one client's perspective, in the company's business or personnel.

When Gorham visited the Johnson Brothers property several times in June and July 1993, he thus observed a trucking business going on at the site. Butner and Johnson led Gorham to believe that a legitimate separate company was running the business at Johnson Brothers's former location. Although Johnson Brothers owned the terminal, the building had such bad environmental problems that Gorham abandoned the property rather than selling it, so it remained available for use by Amtruc and "Johnson Truckers." In addition, although the bankruptcy schedule listed more than 50 tractors and trailers as assets of Johnson Brothers, Johnson and Butner told Gorham that Amtruc actually owned the vehicles and that Johnson Brothers only leased them. Accordingly, Gorham did not try to sell the tractors and trailers, which also remained available for use by Amtruc and "Johnson Truckers."

Even when he came to suspect that Amtruc was not a legitimate separate business, Gorham did not move to pierce the corporate veil to obtain Amtruc's assets, because he understood from multiple sources that its financial problems were as bad as those of Johnson Brothers. He continued to work toward liquidation in other ways, including receiving checks for Johnson Brothers not only by mail but also by hand from Johnson, whom some truckers paid in person.

Meanwhile, from May 27 to December 4, 1993, Butner deposited to his own "special account" checks totaling nearly $400,000, made payable to Johnson Brothers, Amtruc, or various versions of these names. Butner maintained that in doing so he acted pursuant to his "factoring" agreement with Johnson Brothers, and sent Gorham a copy of a "factoring agreement" with the company. However, Gorham testified not only that he saw no evidence of a valid factoring arrangement but also that he knew nothing about the deposits Butner made to the special account from May 24 to December 4, 1993, and never authorized them.

Gorham resigned as trustee in August 1994, still ignorant of Butner's deposits. His successor trustee took a more aggressive approach, including initiating adversarial litigation against Butner in the bankruptcy court. In 1995, through subpoenas issued as part of that litigation, the later trustee discovered the 1993 deposits to Butner's "special" account. He moved to pierce the corporate veil to hold Butner, Johnson, Amtruc, and "Johnson Truckers," among others, liable for the debts of Johnson Brothers.

On December 31, 1996, after considering evidence including the deposits involved in this case, the bankruptcy court held Butner, Johnson, Amtruc, and "Johnson Truckers" all liable for the debts of Johnson Brothers. The bankruptcy court explained that"[t]hese entities' finances were so intertwined that even attempting to diagram why one would owe the other becomes an absurdity," that"[m]oney and debts flow between all of these entities and the principals, usually without adequate documentation to understand the transactions," and that "[a]ssets and liabilities were shifted back and forth to present what ever picture was needed at a particular time."

A year and a half later, in August 1998, a grand jury indicted Butner, who ultimately faced one count of conspiracy to commit bankruptcy fraud and eight counts of bankruptcy fraud. Each fraud count concerned a particular group of payments: the pre-conversion deposits of $26,866.80 on May 24, 1993 formed the basis for count 2, and various post-conversion deposits formed the bases for counts 3 through 9. Count 1, the conspiracy count, charged Butner with conspiracy to commit bankruptcy fraud from May 24, 1993 through December 26, 1996, by concealing from the bankruptcy custodians and transferees checks belonging to Johnson Brothers in the approximate amount of $419,470.80, the total amount of the sums involved in all eight fraud counts.

At trial, the Government introduced evidence as to each deposit, including the actual checks and the books of Amtruc and of Johnson Brothers. At the close of the Government's case, the district court dismissed seven fraud counts (counts 3-9) -all of those concerning checks deposited after the May 25 conversion to Chapter 7. The Government had conceded that no testimony linked these checks to specific work done before the conversion. Accordingly, the district court held that the Government had not made its case that Butner had fraudulently concealed those checks. The Government has not appealed that ruling.

At trial, Butner maintained that the "factoring" arrangement was legitimate, and that because he had told Gorham about the "factoring" arrangement at their first meeting, he had not concealed the later deposits to his special account. However, in addition to Gorham's testimony that he had known nothing about the deposits, Johnson testified that before conversion, Butner had described his financial relationship to Johnson Brothers as a "loan," not as "factoring," and that Butner had falsified...