File for bankrupcty when you have enough assets to pay your debts, then hide some assets . . . what could go wrong?

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Law book (pd)I don't usually post about bankruptcy or criminal law issues, but the facts from a recent decision from the U.S. Court of Appeals for the Third Circuit, which involved both bankruptcy and criminal law issues, were too intriguing to ignore. 

In United States v. Free, defendant "made the bizarre decision to file for bankruptcy even though he had more than sufficient assets to pay his debts." Then, "having filed for bankruptcy unnecessarily, [he] hid assets worth hundred of thousands of dollars from the Bankruptcy Court." Not surprisingly, this led to criminal charges being brought against defendant and convictions for multiple counts of bankruptcy fraud. To make things even more odd, despite all of his "prevarications," defendant's creditors were paid in full from the bankruptcy estate. So, to summarize, defendant did not need to file bankruptcy but chose to do so, only to then defraud the Bankruptcy Court by hiding hundreds of thousands of dollars worth of assets, but eventually paid "100 cents on the dollar" to his creditors.

The legal issue in the case was how to properly calculate "loss" under the Sentencing Guidelines, which increase a "fraudster's" recommended sentence based on the loss he causes, or intends to cause, his or her victims. The curious part about Free was that the victims, defendant's creditors, were paid in full, therefore they had not suffered any loss in the usual sense of the word.

In Free, plaintiff filed for bankruptcy in his capacity as as the sole proprietor of an electric company he owned. He also owned a company that specialized in the sale of vintage firearms, which would become a central part of his bankruptcy case. Free claimed that he filed for bankruptcy to stay the sheriff's sale of property he was on the verge of losing through foreclosure. When he filed, he identified more than $1 million in assets — property and personal property, including firearms — and almost $700,000 in liabilities.  He originally filed under Chapter 13, but the court converted it to a Chapter 7 bankruptcy, which would liquidate his assets and distribute the proceeds to his creditors.

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“Here’s the mail it never fails . . . :” Judge Posner Criticizes “Rhetorical Envelopes” In Which Judicial Opinions Are “Delivered To The Reader”

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Judge (pd)[Apologies for the Blue's Clues reference in the title to this post.]

In his concurring opinion in a recent Seventh Circuit decision — United States v. Dessart — Judge Posner agreed with the majority's conclusions, but wrote separately to express his "reservations about some of the verbal formulas in the majority opinion." He did not "criticize the majority for reciting them" because, as he noted, they are "common, orthodox, even canonical." But he did criticize the "verbal formulas" themselves as being "inessential and in some respects erroneous" and thus, he urged, "ripe for rexamination."

What were the "verbal formulas" that Judge Posner was so keen to criticize? Just some of the legal standards that we see recited in opinions every day. For example, the commonly-used "abuse of discretion" standard, of which Judge Posner appears not to be a big fan. In his concurring opinion, Judge Posner noted that the majority defined this standard as including "among other missteps, 'material errors of law.'" This apparently did not jibe with Judge Posner's understanding of discretion and its abuse, as he explained:

Of course, material errors of law are potentially very serious, but what has that to do with discretion or its abuse? Common as the term "abuse of discretion" is in opinions dealing with appeals from district court decisions, I find it opaque. If the appellate court is persuaded that the trial court erred in a way that makes the trial court's decision unacceptable, it reverses. What has discretion to do with it? And "abuse" seems altogether too strong a term to describe what may be no more than a disagreement between equally competent judges – the trial judge and the appellate judges – that the appellate judges happen to be empowered to resolve as they see fit.

Similarly, he challenged the majority's similarly well-settled statement that an appellate court, when reviewing a trial court's decision to issue a search warrant, must afford that decision "great deference." (Among the issues in the Dessart case was whether a search warrant was supported by probable cause.) Judge Posner acknowledged that the standard comes from a Supreme Court decisions holding that "[a] magistrate's determination of probable cause should be paid great deference by reviewing courts," but questioned it nonetheless. First, he questioned why "great" deference should be afforded to such decisions since "warrants [are] usually issued by the most junior judicial officers – and often police or prosecutors can shop among magistrates for one who is certain or almost certain to respond affirmatively to a request to issue a warrant." Second, Judge Posner noted that "[n]othing in the [Fourth] amendment requires warrants – ever," therefore it was not fair, in Judge Posner's opinion, to conclude, as is often concluded, that the Constitution expresses a preference for searches conducted pursuant to warrants or to afford great deference to a trial court's decision to issue one.

Continue reading ““Here’s the mail it never fails . . . :” Judge Posner Criticizes “Rhetorical Envelopes” In Which Judicial Opinions Are “Delivered To The Reader””

Third Circuit: Neither You Nor Your Trust Have A Second Amendment Right To Own a Machine Gun (or Machinegun)

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

BillofrightsAlthough the Second Amendment is not a regular topic on this blog, the recent opinion from the US Court of Appeals for the Third Circuit in United States v. One (1) Palmetto State PA-15 Machinegun Receiver/Frame, Unknown Caliber Serial Number ("Watson") piqued my interest. That case, in addition to having one of the more cumbersome captions I have seen in a while, involved clever, albeit ultimately unsuccessful, legal arguments and a quirky grammatical/spelling issue, both of which made it "blog worthy."

First a little background about the law for the uninitiated (which included me until I read this decision). Under the National Firearms Act, before manufacturing a firearm, you have to apply for permission from the ATF. The ATF will deny the application if the firearm you intend to make would place you in violation of any law. For example, the Gun Control Act makes it, in most cases, unlawful for any "person" to "transfer or possess a machine gun," therefore the ATF would almost always deny your application to manufacture a machine gun. The Gun Control Act defines "person" as an "individual, corporation, company, association, firm, partnership, society, or joint stock company." This definition was at the heart of the debate in the Third Circuit's opinion.

 

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Entrepreneurial Inmate Loses Lawsuit

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Jail (pd)While pro se lawsuits by prisoners are not unusual, you don't see ones like Tormasi v. Hayman every day.

In Tormasi, plaintiff sued several officials from the prison in which he was serving a life sentence. In the lawsuit, he claimed that they improperly seized his intellectual property assets and corporate records. As the Appellate Division explained: "During his incarceration, plaintiff acquired various intellectual property assets, which he assigned to Advanced Data Solutions Corporation (ADS) in exchange for sole ownership of the corporation." At some point during his incarceration, prison officials seized plaintiff's personal property, including: "1) miscellaneous corporate paperwork related to ADS . . 2) patent-prosecution documents; 3) an unfiled provisional patent application; 4) several floppy diskettes; and 5) various legal correspondence." Plaintiff sued in federal court, asserting a claim under the Takings Clause of the Fifth Amendment to the U.S. Constitution, various federal civil rights claims, and a state law claim for inverse condemnation.

 

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Federal Judge Strikes Down “Flying Spaghetti Monster” (Or At Least A Prisoner’s Claims About His Ability To Worship The “Flying Spaghetti Monster”)

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Spaghetti monster(pd)When appointments are made to the U.S. Supreme Court there is often much talk about the potential justice’s “paper trail” — the articles, briefs, or, if the candidate is already a judge, opinions he or she has written. If Judge John M. Gerrard of the U.S. District Court for the District of Nebraska is ever fortunate enough to be appointed to the Supreme Court, I hope that someone questions him about his recent opinion in Cavanaugh v. Bartelt. The decision does not provide much insight into his “judicial temperament” or his position on any hot button social issues that might come before the Supreme Court. It is just a well written and — not to  sound too geeky — enormously entertaining opinion to read.

Cavanaugh was a lawsuit filed by a prisoner in a Nebraska prison who claimed to be a “‘Pastafarian,’ i.e., a believer in the divine ‘Flying Spaghetti Monster’ who practices the religion of ‘FSMism’.” Plaintiff sued prison officials, claiming they were not accommodating his religious requests. Judge Gerrard concluded that FSMism was not a religion under the law, but was instead “a parody, intended to advance an argument about science, the evolution of life, and the place of religion in public education.” While he acknowledged that these were “important issues and FSMism contains a serious argument,” he held that FSMism was “not entitled to protection as a religion.”

Before addressing the legal issues presented by the complaint, Judge Gerrard provided a brief and entertaining history of FSMism. Because it developed as a response to “intelligent design,” Judge Gerrard traced the debate over teaching evolution in public schools from the adoption of state laws banning the teaching of evolution, to the Supreme Court’s rejection of those laws, to the adoption of state laws requiring that schools teach both evolution and “creation science,” to the Supreme Court’s rejection of “creation science” under the Establishment Clause, to the rise of “intelligent design” as an alternative to evolution. Proponents of “intelligent design” claim that the “Earth’s ecosystem displays complexity suggesting intelligent design by a ‘master intellect.” They try to avoid the Establish Clause issues that brought down “creation science” by not expressly identifying the “master intellect” as a deity.

 

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