“We agree with the proposition that the government is not entitled to a punitive loss calculation, even in cases involving fraud, absent evidence of actual or intended pecuniary loss.”
How later courts described this case
- “We agree with the proposition that the government is not entitled to a punitive loss calculation, even in cases involving fraud, absent evidence of actual or intended pecuniary loss.”
Written by the judges who cited it.
The opinion
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 15-2939
_______________
UNITED STATES OF AMERICA
v.
MICHAEL FREE,
Appellant
_______________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(Crim. No. 2-14-cr-00019-001)
District Judge: Honorable Mark R. Hornak
_______________
Argued July 12, 2016
Before: FUENTES,* SHWARTZ, and RESTREPO, Circuit
Judges
*
The Honorable Julio M. Fuentes assumed Senior Status on
July 18, 2016.
(Opinion Filed: October 6, 2016)
Martin A. Dietz, Esq. [ARGUED]
The Mitchell Building
304 Ross Street, Suite 505
Pittsburgh, PA 15219
Attorney for Appellant
Rebecca R. Haywood, Esq.
Laura S. Irwin, Esq. [ARGUED]
Office of the United States Attorney
700 Grant Street, Suite 4000
Pittsburgh, PA 15219
Attorneys for Appellee
_______________
OPINION OF THE COURT
_______________
FUENTES, Circuit Judge.
This case raises the question of how to calculate “loss”
under the Sentencing Guidelines when a defendant commits
bankruptcy fraud but all of his creditors receive payment in
full.
The defendant, Michael Free, made the bizarre
2
decision to file for bankruptcy even though he had more than
sufficient assets to pay his debts. He then, having filed for
bankruptcy unnecessarily, hid assets worth hundreds of
thousands of dollars from the Bankruptcy Court. Free’s
actions eventually led to criminal charges and convictions for
multiple counts of bankruptcy fraud. The oddity of this entire
situation is best summarized by the fact that, despite all of
Free’s prevarications, his creditors received 100 cents on the
dollar from Free’s bankruptcy estate.
The Sentencing Guidelines increase a fraudster’s
recommended sentence based on the amount of loss he
causes, or intends to cause, to his victims. The District Court
therefore had to decide whether Free caused or intended to
cause any loss at all. Recognizing the novelty of the
situation, the District Court chose to treat the estimated value
of the assets that Free concealed from the Bankruptcy Court
and the amount of debt sought to be discharged as the
relevant “loss” under the Guidelines.1 In doing so, the
District Court did not clearly find whether Free intended to
deprive his creditors of this, or of any, amount. While we
appreciate the District Court’s reasoning, we ultimately
conclude that treating the value of Free’s concealed assets as
“loss,” at least on the rationale articulated by the District
Court, is out-of-step with the structure of the Guidelines and
inconsistent with our own precedent. Instead, the District
Court must determine whether Free intended to cause a loss
to his creditors or what he sought to gain from committing the
crime, per United States v. Feldman, 338 F.3d 212, 221-23
(3d Cir. 2003). A loss amount triggering enhancements under
1
App. Vol. V at 1123.
3
the Sentencing Guidelines on resentencing must reflect a loss
amount incurred or which Free intended to be incurred. 2
However, even if the District Court finds no such intended
loss, this is not to say that Free would necessarily receive a
lower sentence on remand. Free’s repeated lying to the
Bankruptcy Court and his manifest disrespect for the judicial
system may well merit an upward departure or variance from
the Guidelines. The District Court may consider whether
such an upward departure is appropriate.
For the reasons that follow, we will vacate the
judgment of the District Court and remand this case for
resentencing.
I. Background
A. Free’s Bankruptcy Proceedings
Free filed a voluntary bankruptcy petition in July of
2010 in his capacity as the sole proprietor of Electra Lighting
& Electric Company, one of the businesses he owns. He also
owns Freedom Firearms, a company that specializes in the
sale of rare WWII-era guns. After Free fell behind on
payments on two business-related properties, the lender
purchased them in foreclosure, and Free purportedly filed for
2
Feldman, 338 F.3d at 215 (“The determination of actual
loss is relevant to the sentencing enhancement, since loss
under the Sentencing Guidelines is the greater of the actual
loss caused by the defendant's illegal actions or the amount of
loss the defendant intended to cause.”). Thus, the Guidelines’
enhancements treat actual and intended loss on par.
4
bankruptcy in an effort to “stay” the sale and “possibly to
work out an agreement with” the lender.3
Filing a bankruptcy petition requires a debtor to
complete several forms. These include “Schedule A,” which
requires an accounting of the debtor’s real estate assets, and
“Schedule B,” which requires an accounting of the debtor’s
personal property. A debtor certifies that both documents are
correct under penalty of perjury. On Free’s Schedule A, he
disclosed over $1.3 million in real estate assets.4 On Free’s
3
App. Vol. V at 1107, 1160; Free Br. at 4 (“S&T Bank
began foreclosure proceedings against two business
properties owned by Appellant, Michael Free. . . . Because
he feared that he would lose his business due to the
foreclosure actions and the subsequent sheriff’s sales, Mr.
Free, through counsel, filed a Chapter 13 bankruptcy petition
. . . .”). However, the District Court did not make a factual
finding accepting Free’s and his counsel’s assertion that he
filed bankruptcy for this reason. See App. Vol. V at 1123
(“The Court draws the inference that Mr. Free had his reasons
for both filing and persisting in the bankruptcy proceeding,
[and] that Mr. Free had his reasons that were of value to him
in not causing any of his lawyers to attempt to resolve the
matter earlier . . . .”). The District Court in fact found Free’s
testimony wanting. See App. Vol. V at 1125 (“The Court had
the opportunity to observe Mr. Free’s testimony in Court
today, at the time of sentencing, and the Court found,
essentially, none of it to be credible at all.”).
4
App. Vol. IV at 904. Free listed a secured claim against
one of those assets in the amount of $303,251. Id.
5
Schedule B, he listed $368,990 worth of personal property,
including 27 firearms collectively valued at $250,000. 5 The
District Court later concluded that, at the time he filed for
bankruptcy, Free had liabilities of approximately $671,166,
meaning that his disclosed assets exceeded his debts by
several hundred thousand dollars. 6
Free initially filed for bankruptcy under Chapter 13 of
the Bankruptcy Code, which permits a debtor to reorganize
his or her debts.7 The Bankruptcy Court later converted
5
Id. at 905-910.
6
The District Court did not make a factual finding as to
Free’s actual net worth at the time he filed for bankruptcy,
which remains somewhat mysterious given the extent of
Free’s fraud on the Bankruptcy Court. Given that Free and
the government plainly disagree about the relevant
calculations, we decline to venture our own estimate here.
7
See, e.g., In re Schaitz, 913 F.2d 452, 453 (7th Cir. 1990)
(“Chapter 13 provides, for individuals, a counterpart to
Chapter 11 of the Bankruptcy Code, which authorizes the
reorganization of bankrupt enterprises in lieu of their
liquidation. Instead of the trustee’s seizing and selling the
bankrupt’s nonexempt assets, as in a Chapter 7 proceeding,
under Chapter 13 (as under Chapter 11) the bankrupt
proposes a plan for the repayment of his debts out of future
income.”).
6
Free’s proceeding into a Chapter 7 action,8 meaning that the
focus shifted from “confirmation and completion of a
reorganization plan”9 to “liquidation of assets and distribution
to creditors.”10 In a Chapter 7 case, “the United States
Trustee appoints an impartial case trustee to administer the
case and liquidate the debtor’s nonexempt assets.”11 The
trustee in this case was James Walsh,12 an attorney based in
Johnstown, Pennsylvania.
One of the events that occurs early in a Chapter 7
8
Order, In re Michael J. Free d/b/a Electra Lighting &
Elec. Co., No. 2-10-bk-25460 (CMB), ECF No. 71 (Bankr.
W.D. Pa. Jan. 31, 2011) (hereinafter “Free Bankruptcy,” with
ECF filing dates in parentheses). The Court converted the
proceeding after Free failed to file a payment plan. Id.;
Proceeding Memorandum, Free Bankruptcy, ECF No. 70
(Jan. 31, 2011).
9
In re Michael, 699 F.3d 305, 306 n.1 (3d Cir. 2012).
10
Id. at 306.
11
In re Messina, 687 F.3d 74, 79 (3d Cir. 2012); see also 2
Bankruptcy Law Manual § 10:9 (5th ed. updated through
2016) (explaining that, in a Chapter 7 case “where there are
assets for distribution to creditors . . . the trustee serves as the
representative of the estate aggressively looking for ways to
maximize assets that can be distributed to unsecured
creditors”).
12
Notice of Appointment of Interim Trustee and
Determination of Trustee Bond, Free Bankruptcy, ECF No.
75 (Feb. 2, 2011).
7
proceeding is a creditors’ meeting. During Free’s creditors’
meeting, which took place in March of 2011, Free indicated
that he was “trying to” sell weapons he owned by “put[ting]
them on the internet.”13 Walsh immediately told Free to stop:
Trustee Walsh: You can’t sell them, they’re
now the bankruptcy estate’s and only I can sell
them with the court approval. So do not, under
any circumstances, sell any of these weapons.
Don’t sell any of the real estate, don’t sell any
of the inventory. It’s all within the control of
the court at this point in time.
Michael J. Free: Ok, at least at this point, from
my understanding though, is [sic] a moot point
because none of the firearms have been sold as
of yet.
Trustee Walsh: Yeah, but I’m just . . .
Michael J. Free: I understand[.]
Trustee Walsh: So there’s no misunderstanding
of “I didn’t know”, nothing can be sold or
transferred without court approval brought on a
motion by myself. Ok?
13
App. Vol. V at 977 (Tr. of Mar. 2, 2011 creditors’
meeting).
8
Michael J. Free: Alright[.] 14
Over the course of the ensuing months, Free became
increasingly uncooperative with Walsh and progressively
more disrespectful towards the Bankruptcy Court. Less than
a month after the creditors’ meeting, Walsh asked the
Bankruptcy Court to compel Free to turn over certain assets
and to cease operation of his businesses, both of which Free
had refused to do. 15 On another occasion, Free raised
suspicions by purchasing several of his own assets during a
court-supervised auction, falsely claiming that he had the
money to do so through the generosity of friends and
relatives. In fact, Free actually made such purchases with the
proceeds of his surreptitious sales of weapons, after he had
specifically been told he could not sell his weapons.16 Free
14
Id.
15
Trustee’s Compl. to Compel Turnover of Property of the
Bankruptcy Estate, Free Bankruptcy, ECF No. 98 (Mar. 30,
2011).
16
App. Vol. II at 239–40 (discussing Free having purchased
his own properties at auction); App. Vol. III at 447–48 (“I
[Walsh] said: Where’s this money coming from? And
[Free’s] response was in open court on the record that it was
coming from his family and friends.”). See also Order
Confirming Sales of Personal Property Free and Divested of
Liens, Free Bankruptcy, ECF No. 134 (July 20, 2011)
(indicating that Free purchased over $30,000 worth of
inventory, including $8,500 worth of gun parts and
ammunition).
9
also refused to cooperate with Walsh’s efforts to obtain
paperwork that was necessary to sell the firearms that Free
had disclosed in Schedule B of his bankruptcy petition.17
Convinced that Free had concealed assets and violated
court orders, Walsh filed a motion for sanctions in October of
2011.18 The Bankruptcy Court granted Walsh’s motion in
February of 2012, ordering Free to provide a full accounting
of his assets or face monetary penalties.19 The Bankruptcy
Court also threatened to incarcerate Free if he failed to
comply. 20 In doing so, it expressed its profound frustration
with Free’s conduct:
17
In re Free, 466 B.R. 48, 55 (Bankr. W.D. Pa. 2012).
18
Mot. for Finding of Civil Contempt, Imposition of
Sanctions, for Authority to “Junk” Assets, and Request for
Expedited Hearing, Free Bankruptcy, ECF No. 180 (Oct. 17,
2011).
19
In re Free, 466 B.R. at 61.
20
Id. at 62 (“If the Court is convinced that compliance can
be obtained only by incarceration, we will not hesitate to
order the Debtor to be taken into custody.”).
10
[Free] has acted willfully, vexatiously,
wantonly, and in bad faith. His inappropriate
conduct has negatively impacted the entire
bankruptcy case. . . . [He] has persisted in his
willful misconduct despite the attempts of three
bankruptcy judges to dissuade him from future
misconduct. The failure to cooperate and
comply while [Free] is facing sanctions for civil
contempt is shocking to the Court. 21
Events finally came to a head a few weeks later when
Walsh filed an emergency motion for civil contempt. 22
Walsh claimed that Free had, in various ways, failed to
comply with the Bankruptcy Court’s February 2012 orders.
In particular, Walsh said that he had recently been contacted
by a man who had tried to purchase a WWII-era firearm from
Free for a price of $13,500. The man told Walsh that Free
had sold other firearms since entering Chapter 7
proceedings.23 Walsh responded by asking the Bankruptcy
Court to enter an order directing a third-party auction
company “to take physical possession of [Free’s guns] as
21
Id. at 56.
22
Emergency Mot. for Finding of Civil Contempt,
Imposition of Sanctions, for Authority for Liquidator to Take
Possession of Weapons, Status Report, and Request for
Expedited Hearing, Free Bankruptcy, ECF No. 291 (Mar. 19,
2012).
23
Id. at 4–5.
11
soon as possible.” 24
The Bankruptcy Court convened a hearing on the
matter, after which it entered an order directing the local
sheriff “to take possession of all of [Free’s] firearms.” 25 A
few days later, on March 26, 2012, Free filed a declaration
with the Bankruptcy Court in which he claimed, again under
penalty of perjury, that he had not “sold or transferred” any
estate assets—including firearms—since his bankruptcy case
was converted into a Chapter 7 proceeding. 26 By the time
Free filed his declaration, the government claims that he had
sold at least 20 firearms worth more than $400,000. 27
Local sheriff’s deputies, acting on the Bankruptcy
Court’s order, searched Free’s house on March 27, 2012—the
day after Free filed his declaration with the Bankruptcy
Court. They found 49 guns in various locations throughout
24
Id. at 6.
25
Order at 2, Free Bankruptcy, ECF No. 303 (Mar. 23,
2012).
26
Decl. of Michael J. Free, Free Bankruptcy, ECF No. 314
(Mar. 26, 2012).
27
App. Vol. II at 180 (in which Walsh testified that Free
“had purported to sell guns to third parties and had collected
substantial sums of money from those third parties for the
guns”); App. Vol. V at 958–65 (summarizing evidence of
Free’s gun sales between February 2011 and March 2012).
12
the home.28 When they questioned Free, he said he had no
additional firearms in his possession. 29 Later that afternoon,
Free filed a revised declaration with the Bankruptcy Court
that included a handwritten list of dozens of firearms, along
with a copy of the Schedule B from his original bankruptcy
petition. 30 Because Free did not list any serial numbers in
these two documents, Walsh was unable to determine the
degree of overlap between the two lists. 31
The depth of Free’s fraud on the Bankruptcy Court
became increasingly apparent in the ensuing months. In April
of 2012, Walsh filed a status report in which he informed the
Bankruptcy Court that Free “ha[d] received at least
$90,000.00 in funds from third parties whom he offered to
sell firearms which constitute property of the estate during the
pendency of this Chapter 7 proceeding.” 32 The day after
Walsh filed his status report, the Bankruptcy Court ordered
the United States Marshal to take Free into custody until such
28
App. Vol. III at 518; see also App. Vol. V at 1166–69
(Westmoreland County Sheriff’s Office Confiscation Forms
from Mar. 27, 2012 search of Free’s home).
29
App. Vol. III at 486 (testimony of Deputy Sheriff Alex
Turcheck).
30
Submission Pursuant to Orders of the Court Dated Feb.
27, 2012 & Mar. 23, 2012, Free Bankruptcy, ECF No. 315
(Mar. 27, 2012); see also App. Vol. V at 943–49 (same).
31
App. Vol. II at 184–89.
32
Status Report of Chapter 7 Trustee Dated Apr. 2, 2012 at
6, Free Bankruptcy, ECF No. 330 (Apr. 2, 2012).
13
time as he paid over $26,000 in fines and rent then owing to
the Bankruptcy Court and to the estate. 33
It was around this time that the FBI became involved.
Having reviewed certain firearms registration records, FBI
agents came to believe that Free was continuing to conceal
firearms from the Bankruptcy Court. 34 The FBI obtained a
warrant to search Free’s residence a second time. During that
search, which took place in March of 2013, federal agents
discovered an additional 55 firearms.35
B. Free’s Criminal Prosecution
Federal prosecutors eventually initiated a criminal case
against Free for committing bankruptcy fraud. The grand
jury returned an indictment in January of 2014 that charged
Free with six counts relating to (i) false statements in Free’s
Schedule A relating to real property; (ii) false statements in
Free’s Schedule B relating to his ownership of firearms; (iii)
false statements in Free’s declaration of March 26, 2012; (iv)
false statements in Free’s supplemental declaration of
March 27, 2012; (v) concealment of additional assets from
the Bankruptcy Court, including real property, motor
vehicles, farm implements, and cash; and (vi) false statements
that Free made under oath at the March 2011 creditors’
meeting. 36
33
Order at 2, Free Bankruptcy, ECF No. 337 (Apr. 3, 2012).
34
App. Vol. III at 518–19.
35
Id. at 532-35, 539.
36
App. Vol. II at 1–8.
14
Counts I through IV arose under 18 U.S.C. § 157,
which outlaws various forms of bankruptcy fraud. 37
Counts V and VI arose under 18 U.S.C. § 152, which makes
it a crime to conceal assets or to commit perjury in the
context of a bankruptcy proceeding. 38 Both statutes set a
37
18 U.S.C. § 157 states that “[a] person who, having
devised or intending to devise a scheme or artifice to defraud
and for the purpose of executing or concealing such a scheme
or artifice or attempting to do so—
(1) files a petition under title 11, including a fraudulent
involuntary petition under section 303 of such title;
(2) files a document in a proceeding under title 11; or
(3) makes a false or fraudulent representation, claim, or
promise concerning or in relation to a proceeding under title
11, at any time before or after the filing of the petition, or in
relation to a proceeding falsely asserted to be pending under
such title,
shall be fined under this title, imprisoned not more than 5
years, or both.”
38
18 U.S.C. § 152 has nine subsections. Count V, which
related to the concealment of assets, charged Free with
violating subsections (1) and (2). Subsection (1) makes it
unlawful to “knowingly and fraudulently conceal[] from a
custodian, trustee, marshal, or other officer of the court
charged with the control or custody of property, or, in
connection with a case under title 11, from creditors or the
United States Trustee, any property belonging to the estate of
a debtor.” Subsection (2) makes it unlawful to “knowingly
15
maximum term of imprisonment of five years for each
violation.
After a five-day trial, a jury convicted Free on all
counts.
C. Free’s Sentencing Hearing
Under the Sentencing Guidelines, a bankruptcy
fraudster’s recommended term of imprisonment depends on a
number of factors. 39 “Section 2B1.1 of the Guidelines
governs the calculation of the offense level for crimes
involving, among other things, fraud and deceit.” 40
Subsection (a) of that provision “provides the base offense
level, which is either seven, if the offense has a maximum
term of imprisonment of twenty years or more, or six.” 41
and fraudulently make[] a false oath or account in or in
relation to any case under title 11.” Count VI, which related
to false statements made at the March 2011 creditors’
meeting, was brought under subsection (2) alone.
39
The District Court relied on the 2014 edition of the
Sentencing Guidelines, as do we. See Gov’t Br. at 19 n.2.
40
United States v. Nagle, 803 F.3d 167, 179 (3d Cir. 2015),
cert. denied, 136 S. Ct. 1238 (2016). The current § 2B1.1 of
the Guidelines incorporates provisions previously located at §
2F1.1. That section “was deleted and consolidated with §
2B1.1 in 2001.” United States v. Dullum, 560 F.3d 133, 138
(3d Cir. 2009).
41
Nagle, 803 F.3d at 179.
16
Subsection (b) “provides an extensive list of adjustments for
offense-specific characteristics,” including “the adjustment
for the amount of loss.”42 As the loss amount increases, so
too does the defendant’s offense level.
At Free’s sentencing hearing, the District Court
therefore needed to make a determination as to the amount of
loss caused by Free’s crimes. The issue here is that, by the
time of Free’s sentencing, it had become clear that Free had
(and perhaps always had) sufficient assets to pay off his
creditors in full. Given this odd factual posture, the parties
disputed the correct loss amount under the Guidelines.
The government argued that the District Court should
take at least three numbers into account to calculate loss, all
relating to the value of Free’s concealed guns. First, it
identified fifteen firearms, valued at $357,460, that Free
unlawfully sold during the pendency of his bankruptcy
proceedings.43 Second, it pointed to the fact that, at an
auction supervised by the Bankruptcy Court, ten additional
guns concealed by Free were sold for $640,000 (although, by
the date of the sentencing hearing, that sale had not yet been
finalized). Third, it asked the District Court to consider an
additional cache of guns that had not yet been sold at auction
and remained in the FBI’s possession. Based on an appraisal
42
Id.
43
App. Vol. V at 1048. The District Court pointed out that
Free presumably used the proceeds from these sales to buy
his own assets back during certain court-supervised auctions.
See id. at 1053–54.
17
from the same buyer who purchased the second lot of guns,
the government estimated the value of the unsold lot at
$833,000. Altogether, these figures indicated that Free
concealed firearms worth approximately $1.83 million from
the Bankruptcy Court.
Free’s counsel objected to the $833,000 figure on the
ground that the government produced its appraisal estimate at
the last minute and he had not yet had a chance to investigate
the appraiser’s credentials. The District Court sustained the
objection and discounted the $833,000 figure in its
calculations.
Even so, the government argued that Free should have
16 levels added to his offense level. It derived this figure
from the Sentencing Guidelines’ stepwise scheme for
calculating loss. If a fraudster’s conduct causes over
$400,000 but less than $1 million in loss, the Guidelines add
14 levels to his offense level. 44 If the fraudster’s conduct
causes over $1 million but less than $2.5 million in loss, the
Guidelines add 16 levels to his offense level. 45 Thus, even if
the District Court were disinclined to credit the $833,000
figure as the correct valuation for Free’s as-of-yet-unsold
guns, the value of the first two groups of guns was $997,640.
The government asserted that, whatever its value, the third lot
of guns was worth enough to push Free’s loss figure past the
$1 million threshold necessary to trigger a 16-level increase
44
U.S.S.G. § 2B1.1(b)(1)(H).
45
Id. § 2B1.1(b)(1)(I).
18
in his offense level. 46
Free’s position, by contrast, was that he “should only
be held accountable for a loss amount that’s consistent with
what he could have deprived creditors of receiving back
during the bankruptcy.”47 Since all of Free’s creditors were
paid back in full, Free asserted that the loss amount in his
case was, in fact, $0.
In a colloquy with Free’s counsel, the District Court
challenged Free’s arguments in favor of a $0 loss calculation.
It pointed out that courts rely on honesty from litigants:
46
App. Vol. V at 1064 (“That's the only argument I’m
making, Judge. That to the extent the Court considers dollar
value of relevance, we are way past the million dollar
threshold for whatever consideration the Court wants to give
to that fact.”).
47
Id. at 1070.
19
But then, as I thought about it, read Feldman,
one of the things that we rely on people doing
is, when they come to Court, whether it’s this
Court or the Bankruptcy, particularly, the
Bankruptcy Court, they have to deal the cards
faced up, because we don’t have a cavalry of
investigators to go out snooping around
everyone that runs through the tens of
thousands of bankruptcy cases just filed here in
Pittsburgh, let alone around the country. We
absolutely rely on people telling the truth
because we can’t ferret it out any other way. 48
In addition, the District Court expressed the view that,
under the Guidelines, there is a difference between a debtor
who conceals $100 in assets and a debtor who conceals
$1 million in assets. According to the District Court, the
Guidelines reflect a policy judgment that the second debtor
should receive a harsher sentence than the first. 49 Free’s
counsel disagreed. He argued that the Guidelines are
concerned primarily with the amount of harm inflicted or
intended to be inflicted on victims of crime. And here, the
only conceivable victims were Free’s creditors—who, it
turned out, sustained no loss at all. 50
48
Id.
49
Id. at 1082 (“[A]ren’t the Sentencing Guidelines permitted
and for the reasons making [sic] distinctions between people
that hide a lot and people that don’t hide very much?”).
50
Id. at 1072.
20
Walsh, the bankruptcy trustee, also testified at Free’s
sentencing hearing. He said that Free’s dishonesty was the
worst he had ever seen in his more than 37 years of practice
in the bankruptcy courts. 51 In his view, “at virtually every
single step of the way . . . Free has been an obstructionist.” 52
But Walsh also testified that, once Free’s bankruptcy
proceedings had concluded, there would likely be more than
enough assets to satisfy all creditors’ claims. 53
Free also spoke on his own behalf. He claimed that he
filed for bankruptcy in order to “stay [a] sheriff sale” on one
of his properties, not to discharge any debts. 54 He also said
that his bankruptcy attorney told him that it would be
acceptable not to disclose all of his firearms on his
bankruptcy schedules. 55
The District Court made two key statements regarding
its loss calculation. First, it concluded that “it was certainly
Mr. Free’s intention to conceal from the United States
Bankruptcy Court and to cause a loss, to the extent that it was
51
Id. at 1092.
52
Id. at 1091.
53
Id. at 1096.
54
Id. at 1107, 1109 (in which Free stated that he told his
lawyer that he “wanted everybody paid, right from the
beginning,” and “did not want any kind of a write-off or
anything”).
55
Id. at 1108–09.
21
needed, materially in excess of a million dollars.”56 The
District Court did not, however, explicitly state that Free
intended to cause pecuniary harm to his creditors. Nor did
the District Court clarify its understanding of Free’s intent at
the time he filed for bankruptcy. Instead, the District Court
made the following statement:
The Court draws the inference that Mr. Free had
his reasons for both filing and persisting in the
bankruptcy proceeding, [and] that Mr. Free had
his reasons that were of value to him in not
causing any of his lawyers to attempt to resolve
the matter earlier . . . . But all of the testimony
at the trial . . . demonstrates that Mr. Free knew
and wanted to be in the bankruptcy proceeding,
that he, he viewed assets that he needed to
protect from the bankruptcy proceeding, and
combined with those that he did disclose in the
bankruptcy proceeding were well north of a
million dollars. 57
In explaining its loss calculation, the District Court
stated that it “found . . . none of [Free’s testimony] to be
credible at all,” and said that Free’s answers were “evasive”
and “non-sensible.”58 The District Court underscored its view
that the Guidelines reflect the commonsense proposition “that
56
Id. at 1122.
57
Id. at 1123.
58
Id. at 1125.
22
there would be a higher loss calculation when there is a
significantly higher amount of assets that are concealed from
the Bankruptcy Court, even if on reflection it could have been
completely unnecessary from a logical and a common sense
standpoint to conceal [them].”59 The District Court also
characterized the victim of Free’s fraud as “the judicial
system of the United States,” not his creditors.60
Somewhat curiously, even though the District Court
concluded that the loss amount in Free’s case was more than
$1 million, it only added 14 levels to Free’s base offense level
of 6. That 14-level enhancement is consistent with a loss
amount of between of between $400,000 and $1 million, 61
whereas a loss amount greater than $1 million normally
triggers a 16-level enhancement. 62 The discrepancy appears
to have arisen because the Presentence Investigation Report
only recommended a 14-level enhancement, and the District
Court tentatively adopted that recommendation before Free’s
sentencing hearing 63 and then adhered to its prior decision at
the hearing itself.64
59
Id. at 1126.
60
Id. at 1140.
61
U.S.S.G. § 2B1.1(b)(1)(H).
62
Id. § 2B1.1(b)(1)(I).
63
App. Vol. V at 984.
64
Id. at 1045 (“The Court will adopt its tentative findings as
they have been corrected on the record today . . . .”).
23
In addition to the 14-level enhancement resulting from
the District Court’s loss calculation, the Guidelines state that
“[i]f the offense involved . . . a misrepresentation or other
fraudulent action during the course of a bankruptcy
proceeding,” or “a violation of any prior, specific judicial or
administrative order,” the district court should “increase [the
offense level] by 2 levels.”65 The District Court applied this
2-level enhancement as well.66
Combining Free’s base offense level of 6, his loss
causation enhancement of 14, and his 2-level enhancement
for bankruptcy fraud, Free’s total offense level was 22. This
resulted in a Guidelines Range of 41–51 months’
imprisonment on each count.67 The District Court then varied
downward, concluding that an offense level of 16 was “more
appropriate” given the facts of Free’s case. 68 This led to a
Guidelines range of 21–27 months’ imprisonment.69 The
District Court ultimately sentenced Free to 24 months’
incarceration on each count, to run concurrently, and to a
term of supervised release of three years. 70
65
U.S.S.G. § 2B1.1(b)(9)(B), (C). Under this provision, the
defendant’s offense level increases to 10 if it is not that high
already. In this case, Free’s offense level was already 20,
leading only to the 2-level enhancement.
66
App. Vol. V at 1127–28.
67
Id. at 1128.
68
Id. at 1143.
69
Id.
70
Id. at 1145.
24
D. Free’s Motion for Bail Pending Appeal
About a month after his sentencing, Free filed a
motion for bail pending appeal. Free argued that bail was
appropriate because our Court might ultimately agree with his
view of how to calculate loss under the Guidelines. The
District Court granted the motion three months later,
concluding that Free had raised a “significant” question of
law.71
The District Court reiterated that, “[b]ased on the
record developed at trial and at sentencing, it does not appear
that any creditor will suffer any financial loss at all, and all
administrative expenses of the bankruptcy will be paid, with
some assets left over.” 72 The District Court also adhered to
the view, previously articulated at Free’s sentencing hearing,
that “the Sentencing Guidelines reflect[] a policy position that
the sentence should be greater when one attempts to conceal
greater assets in a bankruptcy proceeding—even when the
actual pecuniary harm to the creditors, viewed in hindsight,
was less than the amount concealed.”73 Thus, while “Free’s
deceit plainly harmed the integrity of the judicial process—
and this Court articulated that as the principal basis for the
sentence imposed—it did not, however, appear to actually
cause pecuniary harm [to] his creditors or anyone other than,
71
United States v. Free, No. 2:14-CR-0019 (MRH), 2015
WL 8784738, at *2 (W.D. Pa. Dec. 15, 2015) (quoting United
States v. Miller, 753 F.2d 19, 23 (3d Cir. 1985)).
72
Id.
73
Id. at *3.
25
perhaps, him.”74
Importantly, the District Court concluded that the loss
calculation issue could alter Free’s sentence. It noted that,
without the 14-level increase in Free’s offense triggered by its
prior loss calculation, Free’s offense level would have been
10, “lead[ing] to an advisory Guideline range of 6–12
months.”75 Even though this Guidelines range would not be
binding, the District Court stated that it was entitled to “due
and serious consideration.”76 And, while the District Court
was “hesitant to engage in any concrete forecast of what
would actually happen at a resentencing,”77 it also stated that
it was “‘likely’ . . . that a new sentence [would] be shorter
than 11–13 months if Mr. Free’s ‘zero’ loss theory [were to]
carr[y] the day.”78
Accordingly, Free has been out on bail pending
resolution of this appeal.
74
Id. at *2 (emphasis added).
75
Id. at *5; see also supra note 65 (explaining that
U.S.S.G. § 2B1.1(b)(9) increases a bankruptcy fraudster’s
minimum offense level to 10).
76
Free, 2015 WL 8784738, at *5 (citing United States v.
Langford, 516 F.3d 205, 211–15 (3d Cir. 2008)).
77
Id. at *6 n.11.
78
Id. at *6.
26
II. Jurisdiction and Standards of Review
This is a direct appeal from a criminal conviction and
sentence. Free timely filed a notice of appeal, and we have
jurisdiction under 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).
Free brings both a challenge to the sufficiency of the
evidence and a challenge to his sentence. “In reviewing a
jury verdict for sufficiency of the evidence, we ‘must
consider the evidence in the light most favorable to the
government and affirm the judgment if there is substantial
evidence from which any rational trier of fact could find guilt
beyond a reasonable doubt.’” 79
In a fraud case, the government bears the burden of
establishing the amount of loss for purposes of sentencing by
a preponderance of the evidence.80 When calculating the loss
amount, a district court “need only make a reasonable
estimate of the loss” incurred. 81 We review a district court’s
factual findings at sentencing for clear error, including factual
findings supporting “the loss calculations . . . under
79
United States v. Brown, 3 F.3d 673, 680 (3d Cir. 1993)
(quoting United States v. Frorup, 963 F.2d 41, 42 (3d Cir.
1992)).
80
United States v. Fumo, 655 F.3d 288, 310 (3d Cir. 2011),
as amended (Sept. 15, 2011) (citing United States v. Jimenez,
513 F.3d 62, 86 (3d Cir. 2008)).
81
United States v. Ali, 508 F.3d 136, 145 (3d Cir. 2007)
(quoting U.S.S.G. § 2B1.1, app. n. 3(C)).
27
Guidelines § 2B1.1.”82 Alternatively, “[w]hen the calculation
of the correct Guidelines range turns on an interpretation of
‘what constitutes loss’ under the Guidelines, we exercise
plenary review.”83
III. Discussion
Free challenges both the sufficiency of the evidence
and the District Court’s subsequent sentence. We will
consider each issue in turn.
A. Sufficiency of the Evidence
With respect to the sufficiency of the evidence, Free’s
primary contention is that, since his creditors received full
payment as a result of his bankruptcy proceedings, he cannot
properly be said to have devised or participated in any
fraudulent scheme. While Free admits that his dishonesty
may have been “potentially contemptible conduct in the
bankruptcy matter,” he insists that his repeated lying does not
necessarily “establish [the] requisite mens rea [to show] that
he devised a scheme to defraud or intended to defraud
anyone.” 84 This argument is too clever by half.
Free was convicted of four counts under 18 U.S.C. §
157. “One commits bankruptcy fraud under § 157 by (1)
devising a scheme to defraud, and (2) filing a document in a
82
Dullum, 560 F.3d at 137.
83
Nagle, 803 F.3d at 179 (quoting Fumo, 655 F.3d at 309).
84
Free Br. at 27.
28
bankruptcy proceeding or making [a] false or fraudulent
statement in relation to the bankruptcy proceeding for the
purpose of executing or concealing the fraudulent scheme.” 85
There is ample evidence from which a reasonable jury could
have concluded that Free did precisely that. What’s more, no
fraudulent losses need to occur for a debtor to violate § 157;
“[f]iling itself is the forbidden act.”86 Whatever else Free did,
the evidence that he filed fraudulent documents with the
Bankruptcy Court is overwhelming.
Likewise, counts V and VI involve violations of 18
U.S.C. §§ 152(1) and 152(2). We have said that a debtor
violates § 152(1) by failing to “reveal the existence of his
assets to the United States Trustee.” 87 And, by its plain
terms, § 152(2) outlaws “knowingly and fraudulently
mak[ing] a false oath” in relation to a bankruptcy case. 88
Here again, the evidence of Free’s guilt is indisputable.
More generally, Free’s argument depends on the
proposition that debtors have blanket immunity to lie to the
Bankruptcy Court so long as there are no creditors who suffer
any out-of-pocket losses. Free points us to no authority for
85
United States v. Knight, 800 F.3d 491, 505 (8th Cir.
2015).
86
United States v. DeSantis, 237 F.3d 607, 613 (6th Cir.
2001).
87
United States v. Brennan, 326 F.3d 176, 199 (3d Cir.
2003).
88
18 U.S.C. § 152(2).
29
such a remarkable proposition, and we are confident in
rejecting it.
B. The Proper Loss Calculation in the Present
Case
We turn next to Free’s challenge to his sentence, and
in particular to his contention that the District Court erred in
its calculation of “loss” under the Sentencing Guidelines.
There are essentially two ways to think about loss in
this case. Under one view, the goal of the Sentencing
Guidelines is to calibrate a fraudster’s punishment so that it
reflects the extent of the economic harm inflicted or intended
to be inflicted on the fraudster’s victims. This is Free’s
position. Free argues that there were no victims here because
Free’s creditors received 100 cents on the dollar in Free’s
bankruptcy proceeding.
Under the alternative view proffered by the
government, the Guidelines provide district courts with broad
discretion to conceptualize the harm caused by a defendant
based on the facts of any particular case. In the context of
bankruptcy fraud, then, it is appropriate to think about harm
in terms of the value of any assets that a debtor conceals from
the bankruptcy court—not only because concealing assets can
harm creditors, but also because it harms the integrity of the
judicial system itself. The District Court ultimately embraced
30
this view. 89
We begin with the Sentencing Guidelines themselves,
which we think favor Free’s argument. The application notes
define the following key terms:
Actual loss: “Actual loss” means the
reasonably foreseeable pecuniary harm that
resulted from the offense.
Intended Loss: “Intended loss” (I) means
the pecuniary harm that was intended to
result from the offense; and (II) includes
intended pecuniary harm that would have
been impossible or unlikely to occur (e.g., as
in a government sting operation, or an
insurance fraud in which the claim exceeded
the insured value).
89
The District Court wrote that “[w]hile Free’s deceit
plainly harmed the integrity of the judicial process—and this
Court articulated that as the principal basis for the sentence
imposed—it did not, however, appear to actually cause
pecuniary harm [to] his creditors or anyone other than,
perhaps, him.” Free, 2015 WL 8784738, at *2 (second
alteration added).
31
Pecuniary harm: “Pecuniary harm” means
harm that is monetary or that otherwise is
readily measurable in money. Accordingly,
pecuniary harm does not include emotional
distress, harm to reputation, or other non-
economic harm.90
In our view, the application notes to § 2B1.1, which
discuss these definitions in further detail, suggest that the
District Court’s rationale for Free’s sentence was inconsistent
with the structure of the Guidelines. 91 The notes focus
extensively on pecuniary harm, explicitly stating that the
proper way to punish a defendant who causes non-pecuniary
but otherwise serious harm is to impose an upward
90
U.S.S.G. § 2B1.1, app. n. 3(A)(i), (ii), (iii) (punctuation
modified). The current sentencing guidelines, as revised in
2015, narrows “intended loss” to “pecuniary harm that the
defendant purposely sought to inflict,” while still including
intended pecuniary harm that would have been impossible or
unlikely to occur.
91
We have said that “the Sentencing Guidelines
commentary ‘is akin to an agency’s interpretation of its own
legislative rules[,]’ [and] we will give the application notes
‘controlling weight’ unless the commentary ‘violate[s] the
Constitution or a federal statute[]’ or ‘is plainly erroneous or
inconsistent with the regulation.’” United States v. Lianidis,
599 F.3d 273, 278 (3d Cir. 2010) (all alterations in original
except second) (quoting Stinson v. United States, 508 U.S. 36,
45 (1993)).
32
departure.92 This guidance implies that the gravamen of any
loss calculation is concrete, monetary harm to a real-world
victim. In other words, while it may indeed be appropriate to
punish a bankruptcy fraudster more severely when that person
conceals assets of greater value, the Guidelines seem to
indicate that, in the absence of any pecuniary harm to a
victim, the mechanism for realizing that goal is an upward
departure rather than a more severe loss calculation in the
first instance.
Our Court’s leading case regarding loss calculation
and bankruptcy fraud is United States v. Feldman.93 The
defendant there, like Free, committed fraud on the bankruptcy
court by concealing large quantities of assets. 94 His main
argument on appeal, like Free’s, focused on the lack of any
concrete harm or intended pecuniary harm to his creditors.
Feldman claimed that because most of his concealed assets
consisted of property he owned jointly with his wife that, by
operation of law, was not subject to execution by his
creditors, his decision to hide those properties from the
92
U.S.S.G. § 2B1.1, app. n. 20(A) (“There may be cases in
which the offense level determined under this guideline
substantially understates the seriousness of the offense. In
such cases, an upward departure may be warranted.”). One of
the proffered examples where an upward departure might be
merited is a case where “[t]he offense caused or risked
substantial non-monetary harm.” Id. app. n. 20(A)(ii).
93
338 F.3d 212 (3d Cir. 2003).
94
Id. at 214 (“Feldman filed a bankruptcy petition in which
he vastly understated the amount of property he owned.”).
33
bankruptcy court inflicted little or no actual loss within the
meaning of the Guidelines.95
The Feldman Court began its analysis by observing
that loss calculations under the Guidelines can turn on either
actual loss or intended loss. Thus, “even if Feldman could
not have caused any loss by concealing exempt assets, he
could still be subject to a sentencing enhancement if he
thought he would cause a loss by concealing the assets.” 96
The government, by contrast, urged the Feldman Court to go
even further by adopting “a bright line rule that ‘[i]ntended
loss includes the value of assets concealed from creditors and
the bankruptcy court.’” 97 We declined to do so, stating that
the key question in these cases is not the value of the assets
concealed, but rather “what [a defendant] sought to gain from
committing the crime.”98
The Feldman Court recognized that a reasonable
sentencing court could credit Feldman’s argument that he
“did not intend any monetary loss to his creditors.”99 But
95
Id. at 215. The district court in Feldman declined to
decide if the real estate that the defendant owned with his
wife was actually exempt from bankruptcy, “reasoning
instead that Feldman lost the right to claim the exemption
when he failed to disclose the property.” Id.
96
Id. at 221 (emphasis in original).
97
Id. at 221–22 (alteration in original).
98
Id. at 223.
99
Id.
34
Feldman also stated that it would be “appropriate for the
District Court to consider the reason why most people would
conceal assets and determine that it is simply unbelievable
that Feldman would hide over a million dollars in assets only
[as he argued on appeal] to achieve a faster discharge.”100
Whereas Feldman had argued that the government needed to
affirmatively rebut his contention that he concealed assets
only “to ‘speed along’ the [bankruptcy] process,”101 we
“conclude[d] that intent [to short-change creditors] can be
inferred from the fact that Feldman concealed a large amount
of property.”102
Importantly, however, we did not say in Feldman that
the concealment of large quantities of assets always proves a
fraudster’s intent to short-change his creditors. Instead, we
emphasized that there were other facts tending to show that
Feldman in particular intended to inflict such a loss. We
emphasized that, in addition to the real estate he owned with
his wife, Feldman concealed two Jaguar vehicles “that were
not even arguably exempt from bankruptcy.”103 In our view,
this conduct supported the conclusion “that Feldman intended
to inflict a loss in the amount of the entire debt from which he
sought to be discharged.”104
100
Id.
101
Id. at 222.
102
Id. at 216.
103
Id. at 223–24.
104
Id. at 223.
35
The parties disagree over how Feldman applies to the
facts at hand. Free contends that Feldman supports him
because it focuses on a debtor’s intended pecuniary harm to
creditors. The government, by contrast, says that Feldman
supports its view that district courts have wide discretion to
consider “the many permutations of facts that arise when loss
is at issue” and to assess “what the defendant ‘sought to gain
from committing the crime.’”105 The government argues that,
“[h]ad Free truly not intended a loss to any creditor, he had
many opportunities to come forward, admit to his fraud and
deceit, and set the record straight.”106 The government
therefore urges us to interpret Free’s continued dishonesty as
evidence that, as a matter of law, supports the conclusion that
Free intended loss equal to the amount of debt that he sought
to conceal.
The District Court, however, seemed to select a
different approach and thus did not make a factual finding
regarding the government’s view. The government, both in
its briefing and at oral argument, argues that the District
Court drew the explicit inference that Free intended to cause
pecuniary harm to his creditors, among other victims.107
105
Gov’t Br. at 55 (quoting Feldman, 338 F.3d at 223).
106
Id. at 56 (internal quotation marks omitted).
107
For example, the section heading for Part III.C.2 of the
government’s brief states: “The District Court Correctly
Ruled, As A Matter Of Law, That Free Intended A Loss.”
Gov’t Br. at 55. It is worth noting that no citations to the
record or to the District Court’s statements at Free’s
sentencing hearing appear in that section of the brief.
36
Reviewing the record on appeal, we simply disagree. The
District Court relied primarily on the notion that Free harmed
the judicial system by concealing assets. We believe that
rationale is inconsistent with the Guidelines and incompatible
with Feldman. Thus, we disagree with the District Court’s
view that the concept of “loss” under the Guidelines is broad
enough to cover injuries like abstract harm to the judiciary.
In our view, “loss” has a narrower meaning—i.e., pecuniary
harm suffered by or intended to be suffered by victims.
The government’s citations to cases from other circuits
on this point are not persuasive. While courts have
occasionally treated the value of concealed assets as the
amount of loss in bankruptcy fraud cases, they have done so
in circumstances where it was clear that the debtor would be
Likewise, counsel for the government began her oral
argument by stating: “The question before the Court today is
whether the District Court correctly found Michael Free
intended and thought that his conduct would cause an
injury—cause a financial injury—to his creditors. The
District Court said ‘yes,’ and that decision was correct.” Oral
Arg. Recording at 13:29, available at
http://www2.ca3.uscourts.gov/oralargument/
audio/15-2939USAvFree.mp3. Having carefully scrutinized
the District Court’s statements at sentencing, and its opinion
regarding Free’s motion for bail pending appeal, we are not
so certain that the District Court made such a finding.
37
unable to pay all of his creditors in full. 108 These cases might
support the government’s view if, at the time Free filed for
bankruptcy, it was clear that Free’s liabilities exceeded his
assets, or if Free had concealed so many assets that the
creditors were at risk of not being paid.109 But the District
Court did not make such a finding.
Instead, we draw guidance from our colleagues in the
Seventh Circuit. That court recently recognized that “the
guidelines do not require a loss calculation greater than
zero.”110 Rather, “[t]he loss determination is a special offense
characteristic that increases the guidelines offense level”
through “bonus punishment points, which express a
reasonable estimation of the victim’s financial loss.” 111 We
agree with the proposition that the government is not entitled
108
See, e.g., United States v. Walker, 29 F.3d 908, 913 n.4
(4th Cir. 1994) (noting that “the claims of Walker’s creditors
totalled [sic] $3,444,191 while only $17,111 ultimately was
distributed to two creditors after liquidation”).
109
See, e.g., United States v. Hughes, 401 F.3d 540, 557 (4th
Cir. 2005) (“The district court observed that at the time of the
concealment it was far from clear that there would be
sufficient assets to pay the creditors in full . . . . On that
basis, the district court calculated the amount of intended loss
as the value of the assets concealed by Hughes . . . .”).
110
United States v. Yihao Pu, 814 F.3d 818, 828 (7th Cir.
2016).
111
Id. at 828–29 (citation and internal quotation marks
omitted).
38
to a punitive loss calculation, even in cases involving fraud,
absent evidence of actual or intended pecuniary loss.
It is true that the District Court stated at Free’s
sentencing hearing “that it was certainly Mr. Free’s intention
to conceal from the United States Bankruptcy Court and to
cause a loss, to the extent that it was needed, materially in
excess of a million dollars.”112 However, the District Court
also stated, somewhat cryptically, that “Free had his reasons
for both filing and persisting in the bankruptcy proceeding,
[and] that Mr. Free had his reasons that were of value to him
in not causing any of his lawyers to attempt to resolve the
matter earlier.”113
In our view, this is something short of an explicit
factual finding that Free intended to harm his creditors by
concealing assets. It is, at most, a finding that Free wanted to
protect certain assets—especially his firearms—from the
bankruptcy process. In any event, we do not think that the
District Court actually made an explicit factual finding as to
whom Free intended to harm or the gain he intended to secure
112
App. Vol. V at 1122.
113
Id. at 1123.
39
by committing the offense.114 Any ambiguity on this point is
clarified by the District Court’s opinion regarding Free’s
motion for bail pending appeal. The District Court there said
that “the principal basis for the sentence [it] imposed” was
“harm[] [to] the integrity of the judicial process”—not
pecuniary harm, actual or intended, to Free’s creditors, or
what he sought to gain from committing the crime.115
Feldman requires such a factual finding, and we thus remand
to allow the District Court to determine what, if any, loss to
creditors Free intended, or the gain he sought by committing
the crime.116
114
At times, the government seems to suggest that we
should review the entire record in order to conduct our own
fact-finding about whether Free intended to cause pecuniary
harm. See, e.g., Gov’t Br. at 43 (“The full record, rather than
Free’s preferred reliance on only parts of the record,
establishes that the District Court had before it more than
ample evidence to rule, as a matter of fact, that Free intended
a loss.”). We decline the government’s invitation. It is true
that we will generally not vacate a sentence “if the district
court’s findings are ‘plausible in light of the record viewed in
its entirety.’” United States v. Barrie, 267 F.3d 220, 223 (3d
Cir. 2001) (quoting Anderson v. City of Bessemer City, 470
U.S. 564, 573–74 (1985)). But here, because we do not think
that the District Court actually made an explicit factual
finding as to whom Free intended to harm or the gain he
sought to secure through the crime, there are no factual
findings for us to review under the clear-error standard at all.
115
Free, 2015 WL 8784738, at *2 (emphasis added).
116
See Feldman, 338 F.3d at 221-23.
40
We of course appreciate the concerns expressed by
both the government and the District Court regarding the
integrity of the judicial system. U.S.S.G. § 2B1.1(b)(9)(B)
reflects, in part, this concern. We also agree with the District
Court that it is sensible to punish fraudsters who conceal
assets of greater value more harshly than defendants who
conceal assets of lesser value. In the vast majority of cases,
the loss calculation will have precisely this effect because,
generally speaking, the reason defendants conceal assets in
bankruptcy is to benefit themselves at the expense of their
creditors. But here, the District Court has not made a finding
as to whether Free had such an intent, and the parties disagree
on this point. While we are sympathetic with the District
Court’s desire to punish Free in a manner commensurate with
his disrespect for the judiciary, we nonetheless conclude that
inflating Free’s loss figure based on a theory of abstract harm
to the judiciary is not an appropriate way to calibrate his
sentence under the Guidelines.
This is not to say that Free will necessarily receive a
lower sentence on remand. It is true that the District Court
has already calculated that, if it were to apply a zero-dollar
loss figure, the Guidelines range on remand would be 6–12
months on each count.117 But as we have already noted, the
Guidelines embrace the view that an upward departure or
variance may be appropriate when a defendant’s conduct
results in extensive, albeit non-pecuniary, harm.118 We
117
Free, 2015 WL 8784738, at *5.
118
See supra note 92 and accompanying text.
41
appreciate that the notes speak of non-pecuniary harm in
terms of injury to actual victims, such as “physical harm,
psychological harm, or severe emotional trauma.”119 Free’s
flouting of the bankruptcy system, his blatant disrespect for
judicial authority, and his repeated dissembling while under
oath are not analogous to these kinds of injuries. But even at
the most general level, the statutory sentencing factors require
district courts to consider, among other things, “the need for
the sentence imposed . . . to reflect the seriousness of the
offense, to promote respect for the law, and to provide just
punishment for the offense.” 120 Moreover, the District Court
may find it appropriate to depart on the basis that Free’s
“conduct resulted in a significant disruption of a
governmental function” to reflect Free’s flagrant disregard for
the Trustee’s instructions, the Bankruptcy Court’s orders, and
interference with the bankruptcy process. 121 Free’s conduct
may therefore be considered in favor of a sentence harsher
than the one that would be suggested by the actual loss
119
U.S.S.G. § 2B1.1, app. n. 20(A)(ii).
120
18 U.S.C. § 3553(a)(2)(A).
121
U.S.S.G. § 5K2.7 (“If the defendant's conduct resulted in
a significant disruption of a governmental function, the court
may increase the sentence above the authorized guideline
range to reflect the nature and extent of the disruption and the
importance of the governmental function affected.”). See
also United States v. Thayer, 201 F.3d 214, 228 n.15 (3d Cir.
1999) (“[W]e do not foreclose the district courts’ option to
depart upward under U.S.S.G. § 5K2.0 in appropriate cases of
bankruptcy fraud . . . .”).
42
calculation.122
We leave it to the District Court to consider these
issues on remand and to determine an appropriate sentence
consistent with the statutory sentencing factors and the
applicable Sentencing Guidelines.
IV. Conclusion
For the foregoing reasons, we will vacate the judgment
of the District Court and remand this case for resentencing.
122
Cf. United States v. Lipscomb, 284 F. App’x 924, 928 (3d
Cir. 2008) (affirming an above-Guidelines-range sentence for
a bankruptcy fraudster whom the district court characterized
as a “serial abuser of the judicial system” and in which the
District Court noted that “I'm going to sentence you to a term
of imprisonment above the sentencing guideline range
because I believe you are outside the ordinary case here.”). In
addition, the government appeared confident at oral argument
that it could show that Free actually did intend to cause
pecuniary harm to his creditors. See, e.g., Oral Arg.
Recording, supra note 107, at 14:01 (“As a matter of fact . . .
the only reason the creditors were paid 100% on the dollar is
because the fraud was discovered and concealed assets were
liquidated to pay off those creditors.”). Moreover, tangible
harm may include administrative expenses that the estate
incurred as a result of Free’s actions. See United States v.
Edgar, 971 F.2d 89, 95 (8th Cir. 1992) (deeming it
appropriate to consider in the calculation of intended loss “the
foreseeable costs of administering the estate”).
43