Illinois Bankruptcy Lawyer Blog

In U.S. v. Robertson the 7th Circuit weighed in on the factors that should be taken into account when sentencing the perpetrators of non-criminal fraud - in this case, bankruptcy and mortgage fraud. Here the Defendants, a husband and wife, appeared to have reformed themselves and were contributing to their community when the matter came to a head.

Facts: The defendants bought up residential properties then sold them to straw men at inflated prices. The inflated bank loans were justified using false information about the buyers' finances, down payment resources, and intentions about remaining in the properties. Before it collapsed, the scheme had resulted in 37 transactions that cost the lenders involved more than $700,000.

Once their scheme collapsed the Defendants declared bankruptcy. They were questioned in the process about their business, but not immediately prosecuted by the U.S. Attorney. Once they received their discharge, the Debtors settled down, got regular jobs, and raised 3 children. The Court even determined that they had become, essentially, upstanding citizens "fully engaged" in their community.

Legal Theory: One day before the statute of limitations would have expired, the U.S. Attorney charged the couple with a single count of wire fraud under 18 U.S.C. 1343 and 2 counts of bank fraud under 18 U.S.C. 1344. The Defendants quickly plead guilty. Using prevailing sentencing guidelines the wife was sentences to 41 and the husband to 63 months in prison; and both were ordered to pay more than $700,000 in restitution.

Opinion: On appeal, the Seventh Circuit vacated the sentences handed out by the District Court and remanded the case with the admonition that the sentencing Judge take the unusually strong evidence of the couple's self-motivated rehabilitation into account.

The Upshot: Hard not to read too much into this case. At first blush it looks like the 7th Circuit was trying to balance the unilateral and inflexible nature of the Sentencing Guidelines imposed on the courts by Congress in response to the mortgage debacle. Read more narrowly however, the truly self-motivated rehabilitation of the Defendant/Debtors seemed to be the key. In other words, this was an exception, not a crack in the rules.

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Justia.com Opinion Summary:

Wisconsin smelting plant owed more than $1.3 million in delinquent utility charges to the local municipal utility when it filed for Chapter 11. Months later, despite the Automatic Stay, a utility company implemented a process pursuant to Wisconsin Statutes and Local Ordinances 66.0809 and 66.0627 by which the plant's unpaid utility bills became a lien against the Debtor's property. Both the Bankruptcy and District Courts found that none of the exceptions to the Automatic Stay applied to make their actions. They were, in fact, a violation of the Stay. The 7th Circuit Court of Appeals affirmed, holding that no exception to the Stay applied and the offending utility company creditor did not obtain a pre-petition security interest in the plant's property by providing services or by giving notice in the form of billing. Finally, the 7th Circuit agreed with the District Court that the utility bills produced did not amount to a "tax or special assessment" that would have exempted them from the operation of the Stay.

Click here to download this Opinion in PDF format

In re Outboard Marine Corporation, et al., 00-037405

Issued: June 23, 2011

Judge: John H. Squires

Click here to view and download the opinion in .pdf format.

The Upshot: When sanctions are requested upon a party's motion pursuant to Bankruptcy Rule 9011(c)(A), two requirements must be met: the motion must be made separate and apart from other motions or requests and "[must] describe the specific conduct alleged to violate subdivision (b)[,]" and "the motion may not be presented to the court unless, within twenty-one days of service, the non-movant has not withdrawn or corrected the challenged behavior." The Trustee argues that the Statement of Interest filed by Counsel on behalf of NAEIR warrants sanctions under Rule 9011 because theStipulation released any right NAEIR had to assert a claim against the proceeds of the ACE GL Policies and, as such, the Statement of Interest is not reasonably based in law or fact. Next, the Trustee seeks sanctions against Counsel pursuant to 28 U.S.C. § 1927, which provides as follows: Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.