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U.S. v. LEE

January 25, 2000


The opinion of the court was delivered by: Dalzell, District Judge.


Upon defendant Lee's motion, we on January 20, 2000 dismissed Count 10 of the Superseding Indictment, which charged him with bankruptcy fraud, 18 U.S.C. § 157(2). In that decision, we found that, given the narrow construction that we are obliged to give criminal statutes, especially unconstrued new ones, the language and legislative history (such as it is) of the bankruptcy fraud statute did not support a charge against Lee where his pertinent filing with the bankruptcy court (1) post-dated the receipt of the alleged fruits of the scheme to defraud*fn1, and (2) was "concealing" only in the sense that the filing omitted reference to the allegedly fraudulent receipt of funds.

We also noted that it would be improper, on the bare language of the statute, to regard a bankruptcy filing under the bankruptcy fraud statute in the same way a mailing is regarded with respect to the mail fraud statute*fn2, and that it would also be improper to criminalize an omission in a bankruptcy filing in the same fashion that such an omission is penalized by, for example, § 10b of the Securities Exchange Act of 1934.*fn3

With trial scheduled to have begun yesterday, the Government late Friday afternoon, January 21, moved for reconsideration of this decision.*fn4

The Government argues in support of its twelfth-hour motion that Congress, in using the "scheme or artifice to defraud" language, intended that the bankruptcy fraud statute should be interpreted in the same broad fashion as the mail fraud statute, as opposed to the narrow reading that we have given it. The Government cites three bases for this contention.

First, it argues that legislative history and judicial interpretation show that other fraud statutes*fn5 which were passed after the mail fraud statute and which also contain the "scheme or artifice" language are properly construed as broadly as is the mail fraud statute*fn6, and that consequently the new bankruptcy fraud statute should be construed broadly. The Government also claims that Congress wants fraud statutes to be construed broadly, as demonstrated by the use of similar "scheme or artifice to defraud" language among various statutes and also by Congress's history of passing new, broader legislation in response to Supreme Court rulings which limited the scope of various fraud statutes. Lastly, the Government notes the similarity in the language between the bankruptcy fraud statute and the various other fraud statutes places these statutes in pari materia and demands that they be similarly construed.

With particular reference to our discussion of the post hoc nature of Lee's bankruptcy filing, the Government points out that under mail fraud jurisprudence, letters mailed after the scheme to defraud was completed, but which were intended to "lull" the victims into a sense of security and to delay their ultimate complaint, are considered to be in furtherance of the scheme.*fn7 The Government also mentions that under bank fraud jurisprudence, an act that post-dates the defendant's receipt of the money may still be in violation of the statute, and the Government reiterates its argument that Lee's failure to disclose in the bankruptcy filing the additional moneys he had received served to criminally "conceal" the fraud.*fn8

Lee counters these arguments by first observing that because the bankruptcy fraud statute is but one of a group of statutes criminalizing various behaviors related to bankruptcy, see 18 U.S.C. § 151-157, it should be given a narrow construction. Lee contrasts this with the mail fraud statute which, he avers, stands alone and thus warrants broader construction. Lee further argues that the Superseding Indictment does not allege a sufficiently close relationship between the filing and the alleged scheme, irrespective of whether the filing itself was innocent and whether there was a scheme to defraud.*fn9 He also contends that his alleged failure to disclose, in the bankruptcy filing, the consulting fees paid to his then-fiancee could not amount to criminally "concealing" anything.

While the Government's esprit de l'escalier is well-articulated, after careful reflection we do not find that the motion sets forth any reason for us to reverse ourselves.

As we discussed in our earlier Memorandum, in order to agree with the Government and to find that Lee's alleged behavior falls under 18 U.S.C. § 157(2), we either would have to apply in this case the broad construction given, e.g., to the mail fraud statute or, alternatively, would have to find that Lee's non-disclosure in the bankruptcy filing puts him within the statute's ambit. Similar though the language of the bankruptcy fraud statute is to that of the various other fraud statutes, we cannot, particularly as a matter of what appears to be first impression, import wholesale into the bankruptcy fraud statute the thick judicial gloss that has been applied over the years to these other statutes.

As the Government concedes, there is nothing in the legislative history of the bankruptcy fraud statute that even hints that it is to be construed as broadly as the mail fraud statute. The Government argues that this absence is immaterial since, as discussed above, other fraud statutes are construed as broadly as is the mail fraud statute. One might argue to the contrary that, given that some other fraud statutes' legislative histories do mention the mail fraud statute — see note 5, supra — the absence of such reference in the bankruptcy fraud statute's legislative history could just as easily mean that Congress did not intend such an interpretation.*fn10

It would seem to us that the Government's argument puts the cart before the horse — that construction should follow the statute and not vice versa. And in this regard it is important to recall that we are not here engaged in simply any exercise of statutory interpretation. Because this is a criminal case, our interpretation and construction of § 157 are constrained by the due process safeguards owed to Robert Lee. As we discussed in our January 20 Memorandum, the right to due process gives rise to a "fair warning" requirement for criminal statutes: that the defendant have "fair warning . . . in language that the common world will understand, of what the law intends to do if a certain line is passed. To make this warning fair, so far as possible the line should be clear." United States v. Lanier, 520 U.S. 259, 117 S.Ct. 1219, 1224, 137 L.Ed.2d 432 (1997) (quoting McBoyle v. United States, 283 U.S. 25, 27, 51 S.Ct. 340, 341, 75 L.Ed. 816 (1931)). One component of this need for fair warning is the canon of strict construction of criminal statutes, otherwise known as the rule of lenity, which directs us to resolve ambiguity in a criminal statute so as to cover only conduct clearly covered*fn12, see Lanier, 117 S.Ct. at 1225 (citing Liparota v. United States, 471 U.S. 419, 427, 105 S.Ct. 2084, 2089, 85 L.Ed.2d 434 (1985)). Another component is the principle that "due process bars courts from applying a novel construction of a criminal statute to conduct that neither the statute nor any prior judicial decision has fairly disclosed to be within its scope." Lanier, 117 S.Ct. at 1225 (citing, e.g., Marks v. United States, 430 U.S. 188, 191-92, 97 S.Ct. 990, 992-93, 51 L.Ed.2d 260 (1977)).

The Government reasserts its argument that Lee's failure to disclose the additional payments in his bankruptcy filing constitutes "concealment" under 18 U.S.C. § 157.*fn13 At the outset, it remains difficult, even after two motions and two oral arguments on this point, to get one's hands around exactly what the Government says is criminal here. As noted in our January 20 Memorandum, it is not disputed that "there was a lease and that Lee in fact received payments" in accordance with it. Jan. 20 Mem. at 7. We learned at the second oral argument on January 24 that Ali paid the commission to the fiancee (at last identified as Donna Pointer) out of Ali's twenty percent share of the Medicare payments; the eighty percent share of the debtor, Ostomy, was not in the slightest diminished. Ms. Pointer, who was not married to Lee at the time of the payments, should not be presumed to be Lee's marionette, ...

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