Petition for Writ of Certiorari — Spencer v. United States, 118 S. Ct. 1388 (1998) (No. 97-1465)

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No.

Qerice OF THE CLERK

In The

Supreme Court of the United States

fe

October Term, 1997

SCOT SPENCER,

Petitioner,

VS.

UNITED STATES OF AMERICA,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

PETITION FOR WRIT OF CERTIORARI

KEITH D. KRAKAUR

Counsel of Record

ANDREW J. McLAUGHLIN

SKADDEN, Arps, SLATE,

MEAGHER & FLom, LLP

Attorneys for Petitioner

919 Third Avenue

New York, New York 10022

(212) 735-3000

144291 (800) 274-3321 + (800) 359-6859 a

A DIVISION OF COUNSEL PRESS

ENT een

i

QUESTIONS PRESENTED

1. Whether the violation of an informal, non-adversarial

administrative directive constitutes a “violation of [a] judicial

or administrative order, injunction, decree, or process” subject

to the sentencing enhancement of United States Sentencing

Guideline § 2F1.1(b)(3)(B).

2. Whether, during a bankruptcy proceeding, the failure

of a non-party to disclose assets of the bankrupt estate in

violation only of generally applicable bankruptcy rules is a

“violation of [a] judicial or administrative order, injunction,

decree, or process” subject to the sentencing enhancement of

United States Sentencing Guideline § 2F 1.1(b)(3)(B).

TABLE OF CONTENTS |

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I. The Second Circuit’s Conclusion That Violations

Of “Informal Administrative ‘Process’ ” Warrant

Enhancement Under U.S.S.G. § 2F1.1(b)(3)(B)

Conflicts With The Decisions Of The Ninth Circuit

And Of An Earlier Panel Of The Second Circuit. |

PUTT Te a a es 4 /

#

II. The Courts Of Appeals Are Firmly Divided Over |

Whether The Failure Of A Non-Party To Disclose

Assets Of A Bankruptcy Estate Constitutes A :

Violation Of A Judicial Order Or Process Within

The Meaning Of U.S.S.G. § 2F1.1(b)(3)(B). .. 8 ;

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Contents

Page

TABLE OF CITATIONS

Cases Cited:

United States v. Bellew, 35 F.3d 518 (11th Cir. 1994)

United States v. Carrozze!lla, 105 F.3d 796 (2d Cir. 1997)

Desde ian a hi Sv sd 4a 06 Was bh kta eee¥ek 5, 6, 7, 9, 10

United States v. Linville, 10 F.3d 630 (9th Cir. 1993) . 5, 6, 7

United States v. Lloyd, 947 F.2d 339 (8th Cir. 1991) . 8

United States v. Messner, 107 F.3d 1448 (10th Cir. 1997)

Pe Ee ee Ce aca eraey ho vaeee a ewes )

United States v. Michalek, 54 F.3d 325 (7th Cir. 1995)

ns 8, 9

United States v. Saacks, 131 F.3d 540 (5th Cir. 1997)

ES oe EE RIE ee a oe a 8, 9

United States v. Scarano, 975 F.2d 580 (9th Cir. 1992)

a a ee 10

United States v. Shadduck, 112 F.3d 523 (1st Cir. 1997)

OG TEES AN PRU RET aig et ee ee ea 9, 10

iv

Contents

Page

Statutes Cited:

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a ks | Sr oe Peete bees pers 2

a Et nae i AS sb e6 Oosawa een eeeen 2

ee A ee errr er eer eer err rT rere ee 2

28 U.S.C. § 1254(1) TEER TERE CLO ERT Cee eE TEL l

Other Authorities Cited:

United States Sentencing Guideline § 2F1.1 ..... i see ee

United States Sentencing Guideline § 2F1.1(b)(3)(B) . passim

United States Sentencing Commission, Federal

Sentencing Guidelines Manual, Ch.1, Pt.A.3, intro.

COMMMRDN, OF BE CRUSE, EGP F) vc cc cciceedecdtess 4

APPENDIX

Appendix A — Opinion Of The United States Court Of

Appeals For The Second Circuit Decided October 30,

SFT io. tee heres CECA REE WATE ETT la

Appendix B — Order Of The United States Court Of

Appeals For The Second Circuit Filed January 28, 1998

Contents

Page

Appendix C — Excerpts From Transcript Of Sentence

ee Ey SOD 6 osc ido she ev uc akicwiavetel 19a

Appendix D — Sentencing Guideline And Relevant

Pre Hts mre ee 28a

SL ee Ee ee am

2 SE er. oS <a

Scot Spencer respectfully petitions for a writ of certiorari

to review the judgment of the United States Court of Appeals

for the Second Circuit in this case. -

OPINIONS BELOW

The decision of the United States Court of Appeals for the

Second Circuit below was rendered on October 30, 1997, and

is reported at 129 F.3d 246. Petitioner's timely filed Petition

for Rehearing was denied by order dated January 28, 1998.

Petitioner Spencer was sentenced by the United States District

Court for the Eastern District of New York on May 23, 1996.

These decisions are reproduced as Appendices A, B and C,

respectively.

STATEMENT OF JURISDICTION

The jurisdiction of this Court is invoked pursuant to 28

U.S.C. § 1254(1). The petition has been filed within ninety

days of January 28, 1998, the date on which the Second Circuit

denied petitioner’s timely filed Petition for Rehearing.

STATUTE INVOLVED

United States Sentencing Guideline § 2F1.1, applicable to

“Offenses Involving Fraud or Deceit,” establishes a base offense

level of six. Secticn 2F1.1(b)(3)(B) provides for the following

enhancement:

If the offense involved . . . violation of any judicial

or administrative order, injunction, decree, or process

not addressed elsewhere in the guidelines, increase

by 2 levels.

The full text of the guideline, together with the relevant

Application Note and Background Comment, is reproduced as

Appendix D.

2

STATEMENT OF THE CASE

This case arises out of petitioner’s involvement in the

management and operation of Braniff International Airlines, Inc.

(“Braniff”) during 1991 and 1992. As a condition of maintaining

authorization to conduct regularly scheduled flight operations,

Braniff reached an agreement with the staff of the Department

of Transportation in May 1991 to exclude its then-president,

petitioner Scot Spencer, from involvement in the operation and

management of the airline. The Department of Transportation

required petitioner Spencer to submit an affidavit attesting that

he would not be involved with the airline. At no time did the

Department initiate formal proceedings against Spencer, or

against Braniff in connection with Spencer’s involvement.

On July 19, 1994, a grand jury in the Eastern District of

New York indicted petitioner Spencer on four counts relating

to his involvement with Braniff. The indictment alleged that,

despite the affidavit, Spencer effectively ran the airline; that

Spencer received more than $350,000 belonging to Braniff

through a scheme in which money was laundered from Braniff,

through Braniff’s advertising agency, to Spencer; that Spencer

received those payments while the airline was operating under

the protection of Chapter 11 of the U.S. Bankruptcy Code; and

that the payments were fraudulently concealed from Braniff’s

creditors.

Following a jury trial in the United States District Court

for the Eastern District of New York, petitioner Spencer was

convicted of bankruptcy fraud, in violation of 18 U.S.C.

§§ 152 and 2, and conspiracy to commit bankruptcy fraud, in

violation of 18 U.S.C. § 371. He was acquitted of two counts

of conspiracy to defraud the Department of Transportation, in

violation of 18 U.S.C. § 371, and obstruction of a pending

proceeding before the Department, in violation of 18 U.S.C.

§ 1505.

3

The district court sentenced Spencer to fifty-one months’

imprisonment, three years’ supervised release, restitution in the

amount of $115,000 and a $100 special assessment. In

calculating petitioner’s sentence, the District Court enhanced

Spencer’s sentence by two levels pursuant to U.S.S.G.

§ 2F1.1(b)(3)(B). The District Court relied on two independent

grounds for invoking the enhancement: (1) that his bankruptcy

fraud violated the administrative “process” of the Department

of Transportation; and (2) that his concealment of assets from

the bankruptcy court violated the bankruptcy court’s orders and

processes. (App. C at 25a-27a). In a decision dated October 30,

1997, the Second Circuit affirmed the sentencing enhancement

on the first basis, but declined to address the “difficult issue of

whether Spencer’s violation of bankruptcy orders also suffice[d]

to support an increase” under section (b)(3)(B). (App. A at 12a).

On December 12, 1997, Spencer filed a timely Petition for

Rehearing with a Suggestion for Rehearing Jn Banc. By order

dated January 28, 1998, the Second Circuit denied the petition.

(App. B).

REASONS FOR GRANTING THE WRIT

This case reflects and exacerbates a clear division of authority

among the federal courts of appeals concerning the application

of the sentencing enhancement for “violation of [a] judicial or

administrative order, injunction, decree, or process... .”

U.S.S.G. § 2F1.1(b)(3)(B). Each basis for the enhancement —

administrative and judicial — has generated conflicting

interpretations of its intended scope. As to administrative process,

the courts of appeals have reached differing conclusions as to

whether violations of informal directives that are not the result

of adversary process fall within the guideline’s reach. As to

judicial process, the courts of appeals have divided over the

applicability of the enhancement to violations of general

bankruptcy rules.

4

Because the District Court below relied on both

administrative and judicial process violations to invoke the

§ 2F1.1(b)(3)(B) enhancement, this case presents the Court with

a rare and timely opportunity to resolve the divisions among

the courts of appeals on each of the two bases for the

enhancement. Moreover, because petitioner was never the subject

of an administrative or judicial order, injunction or decree, this

case squarely presents the precise issue that has divided the

courts of appeals: the meaning of the term “process.” Absent

resolution of such divisions of authority by this Court, the

Sentencing Guidelines will continue to be interpreted and

applied differently in different circuits, producing disparate

sentences and thereby undermining the nationwide uniformity

in sentencing that was Congress’s express purpose for instituting

the guideline-based sentencing regime.'

I.

THE SECOND CIRCUIT’S CONCLUSION THAT

VIOLATIONS OF “INFORMAL ADMINISTRATIVE

‘PROCESS’ ” WARRANT ENHANCEMENT UNDER

U.S.S.G. § 2F1.1(b)(3)(B) CONFLICTS WITH THE

DECISIONS OF THE NINTH CIRCUIT AND OF AN

EARLIER PANEL OF THE SECOND CIRCUIT.

The Second Circuit below held that by continuing to

perform services for Braniff despite his affidavit to the contrary,

and by concealing his involvement from Braniff’s bankruptcy

estate, Spencer had violated an “informal administrative

‘process’ ” sufficient to trigger the U.S.S.G. § 2F1.1(b)(3)(B)

enhancement for a “violation of any judicial or administrative

order, injunction, decree, or process not addressed elsewhere in

1. See United States Sentencing Commission, Federal

Sentencing Guidelines Manual, Ch.1, Pt.A.3, intro. comment, at 2-4

(Nov. 1997).

abel

Le Taree wail Des i tae

5

the guidelines. ...” (App. A at 11a). This conclusion stands

squarely at odds with the Ninth Circuit’s decision in United

States v. Linville, 10 F.3d 630 (9th Cir. 1993). Moreover, the

holding below directly conflicts with the Second Circuit’s own

prior opinion in United States v. Carrozzella, 105 F.3d 796 (2d

Cir. 1997).

The conflict centers on the scope of the term “process.”

The Second Circuit below held that “informal” administrative

process is encompassed by the enhancement. In direct contrast,

the Ninth Circuit has held that “process must be construed to

be a directive based upon the kind of formalities that undergird

orders, injunctions and decrees.” Linville, 10 F.3d at 633. Thus,

the Ninth Circuit concluded that § 2F1.1(b)(3)(B) “was meant

to apply where a defendant violated a previously-issued judicial

or administrative order which resulted from a formal adversary

proceeding. ...” Jd. at 632. In Linville, the court examined

whether a defendant violated the administrative process of the

U.S. Department of Agriculture by disregarding official notices

directing her not to sell dogs and cats without a license. The

Linville court reversed the district court for applying the

enhancement to violations of an informal administrative process

that “neither resulted from an adversary proceeding nor

constituted formal orders.” Jd. The court reasoned that “there is

a vast difference between ignoring prior decrees, orders and

injunctions after being subjected to formal proceedings, and

ignoring letters and the like, no matter how official they may

look.” Id.

The Second Circuit’s prior decision in Carrozzella, not cited

by the Spencer court in its discussion of this guideline, adopted

a similarly limited and irreconcilable construction of the term

“process.” In Carrozzella, the court distinguished the guideline’s

use of the phrase “violation of any judicial process” from the

term “abuse of process,” noting that the former expression is

6

“considerably narrower” in scope. Carrozzella, 105 F.3d at 800.

The court determined that “the term ‘process’ — the command

or warning violated — is used, not in the sense of legal

proceedings generally, but in the sense of a command or order

issued to a specific party... .” Id.

Both Linville and Carrozzella rely on the Background

commentary to § 2F1.1(b)(3)(b) as a source of support for their

narrower reading of the term “process.” The Background

commentary states:

A defendant who has been subject to civil or

administrative proceedings or the same or similar

fraudulent conduct demonstrates aggravated criminal

intent and is deserving of additional punishment for

not conforming with the requirements of judicial

process or orders issued by federal, state, or local

administrative agencies.

U.S.S.G. § 2F1.1, comment. (backg’d.). As this comment

suggests, “the enhancement in question applies to fraud

defendants only when they commit their fraud in the face of

some type of official warning or order directed specifically to

them.” Carrozzella, 105 F.3d at 800. Petitioner Spencer, by

contrast, was never the recipient of any official order directed

specifically to him, nor was he the subject of any formal

proceeding by the Department of Transportation. In this case,

Braniff was subject to a Department of Transportation condition

not to continue to employ Spencer, and the Department never

initiated formal proceedings against Braniff with respect to this

condition.

The Second Circuit decision below attempts to distinguish

Linville on its facts but succeeds only in confirming that its

reasoning is irreconcilable with that of Linville and Carrozzella.

7

Brushing aside the language of the guideline itself, the court

below transforms the enhancement from a penalty for specific

conduct into a penalty for all evidence of aggravated criminal

intent, regardless of whether a formal and specific administrative

order or process has been violated. The court’s novel and

expansive construction relies on the “aggravated criminal intent”

language in the Background note to U.S.S.G. § 2F1.1, quoted

above. (App. D at 30a). By stretching the enhancement to fit

petitioner Spencer solely on account of his perceived

“aggravated criminal intent,” rather than by finding (as it could

not) a violation of a particular administrative order or process,

the Second Circuit below seeks to obscure the straightforward

conflict between its holding and the holdings of Linville and

Carrozzella, which would permit the enhancement only where

the defendant has violated formal orders issued specifically to

the defendant following adversary proceedings.

Interestingly, the Second Circuit below held that the

enhancement would apply to petitioner Spencer “whether

Spencer chose to submit to and violate a formal DOT process,

or whether he deliberately avoided such process by giving

solemn promises to DOT which he later violated... .” (App. A

at 12a). The theory that an individual can violate administrative

process by “deliberately avoid[ing] such process” further

demonstrates the misunderstanding of the court below as to the

nature of the “process” contemplated by § 2F1.1(b)(3)(B).

Where no process has been initiated against an individual, that

individual cannot be held accountable for “avoiding” something

which does not exist. In suggesting otherwise, the Second

Circuit panel below demonstrates the need for Supreme Court

review to correct this erroneous interpretation of the guideline,

which conflicts with both with a decision in the Ninth Circuit

and with a prior ruling by the Second Circuit itself.

8

Il.

THE COURTS OF APPEALS ARE FIRMLY DIVIDED

OVER WHETHER THE FAILURE OF A NON-PARTY

TO DISCLOSE ASSETS OF A BANKRUPTCY ESTATE

CONSTITUTES A VIOLATION OF A JUDICIAL ORDER

OR PROCESS WITHIN THE MEANING OF U.S.S.G.

§ 2F1.1(b)(3)(B).

As an alternative basis for applying the § 2F1.1(b)(3)(B)

enhancement to petitioner Spencer, the District Court below

found that he had concealed assets from Braniff’s creditors,

thereby triggering the enhancement for violation of a judicial

process. (App. D at 25a-27a). The Second Circuit, having

affirmed the enhancement on the grounds attacked above,

declined to address “the difficult issue of whether Spencer’s

violation of bankruptcy orders also suffices to support an

increase under the same provision.” (App. B at 12a). The District

Court’s reliance on this ground for the application of the

enhancement provides this Court with a clean and timely

opportunity to resolve what has become a widely-noted and

intractable division of authority among the courts of appeals.

The division among the circuits on this question was

recently noted and discussed by the Fifth Circuit in United States

v. Saacks, 131 F.3d 540, 543-46 (Sth Cir. 1997). As that court

observed, a majority of the courts of appeals have taken the

position that bankruptcy fraud of any kind “violates a judicial

process, thereby justifying the two-level increase,” id. at 545,

regardless of the fact that the defendant did not violate any

particular judicial order, injunction or decree. This conclusion,

first announced by the Eighth Circuit in United States v. Lloyd,

947 F.2d 339 (8th Cir. 1991), has since been adopted by the

Seventh, Ninth, Tenth, and Eleventh Circuits, as well as by the

Fifth Circuit in Saacks. See United States v. Michalek, 54 F.3d

a

9

325, 330-33 (7th Cir. 1995); United States v. Welch, 103 F.3d

906, 907-08 (9th Cir. 1996); United States v. Messner, 107

F.3d 1448, 1457 (10th Cir. 1997); United States v. Bellew, 35

F.3d 518, 520-21 (11th Cir. 1994).

At the same time, as the Saacks court noted,

a growing minority of the circuits — including the

First Circuit and the Second Circuit — have retreated

from the automatic enhancement and now take the

position that, without more, § 2F1.1(b)(3)(B) does

not automatically mandate a two-level increase in

every bankruptcy fraud proceeding.

Saacks, 131 F.3d at 545 (citing United States v. Shadduck, 112

F.3d 523 (1st Cir. 1997) and United States v. Carrozzella, 105

F.3d 796 (2d Cir. 1997)). Indeed, the First Circuit in Shadduck,

112 F.3d at 529, carefully analyzed the language of and

commentary to the enhancement, holding that “we are unable

to agree that a bankruptcy rule or official form is a ‘judicial

order,’ as the term is used in section 2F1.1(b)(3)(B).” The First

Circuit explained that if general bankruptcy rules and forms

were elevated to judicial “orders” for purposes of

§ 2F1.1(b)(3)(B), the enhancement

would become applicable in all bankruptcy fraud

cases, simply by virtue of the forum in which the

false statements were made and without regard to

the aggravated criminal intent it was designed to

redress.

Id. at 530. Accordingly, the court announced the sensible rule

that

if the government cannot demonstrate that a prior

order, decree or injunction prohibited the defendant

10

(or an entity controlled by the debtor) from engaging

in the type of fraudulent conduct which formed the

basis for his conviction, there has been no showing

that the defendant acted with the aggravated criminal

intent envisioned by the Sentencing Commission in

section 2F1.1(b)(3)(B)....

Id.

In Carrozzella, the Second Circuit reached a similar

conclusion in the context of an abuse of probate court process.

There, the court opined that violation of a general rule not to

file false accounts with the probate court did not rise to the

level of violating a judicial order or process for purposes of

§ 2F1.1(b)(3)(B) because the violated rule applied “to all trustees

and not specifically [to defendant].” Carrozzella, 105 F.3d at

800. The Carrozzella court added that it was unlikely that

“fraudulent filings in, or representations to, courts or agencies”

constituted grounds for a section (b)(3)(B) enhancement. /d.

Further compounding the inter- and intra-circuit divisions

on this question, the Ninth Circuit in United States v. Scarano,

975 F.2d 580 (9th Cir. 1992), held that the enhancement was

not appropriate for a defendant who had committed fraud while

under a bail order containing a general condition that he commit

no crimes. The court held that a general bail order did not

constitute a “judicial order” for section (b)(3)(B) purposes since

“[n]o reason comes to mind why violation of a general bail

condition should add offense levels for fraud but not for other

crimes.” Id. at 583. The reasoning in Scarano stands in stark

contrast to the Ninth Circuit’s later holding in United States v.

Welch, 103 F.3d 906, 907-08 (9th Cir. 1996), that

§ 2F1.1(b)(3)(B) applies to violations of general bankruptcy

court rules, even where the defendant has not violated a specific

judicial order, injunction or decree.

ee ee ee Tee. ae

11

The importance of this division of authority is well

illustrated by the case of petitioner Spencer. Spencer was not

himself a debtor seeking the protection of the bankruptcy court.

The bankruptcy court never entered an “order, injunction [or]

decree” directing petitioner to disclose the assets of the debtor.

Nor did Spencer in any way subject himself to the judicial process

of the bankruptcy court — indeed, Spencer was not a party to

the bankruptcy proceeding. Yet the District Court below held

that by concealing and conspiring to conceal Braniff’s assets

from its creditors, petitioner’s conduct warrants an enhancement

as a violation of the bankruptcy court’s general rules and

processes. Had petitioner Spencer by some fortuity been

convicted in the First Circuit, no enhancement under

§ 2F1.1(b)(3)(B) would have been permitted. By upholding

the District Court’s sentence, the Second Circuit below

exacerbates the existing intractable division among the circuits

and within the Second Circuit itself.

CONCLUSION

For the reasons set forth above, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

KEITH D. KRAKAUR

Counsel of Record

ANDREW J. McLAUGHLIN

SKADDEN, Arps, SLATE, MEACHER

& Flom, LLP

Attorneys for Petitioner_

919 Third Avenue

New York, New York 10022

(212) 735-3000

APPENDIX

——_—-

=

EDITOR'S NOTE

THE FOLLOWING PAGES WERE POOR HARD COPY

AT THE TIME OF FILMING. IF AND WHENA

BETTER COPY CAN BE OBTAINED, A NEW FICHE

WILL BE ISSUED.

la

APPENDIX A — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

DECIDED OCTOBER 30, 1997

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 1031—August Term 1996

(Argued March 5, 1997 Decided October 30, 1997)

Docket No. 96-1460

UNITED STATES OF AMERICA,

Appellee,

SS

SCOT SPENCER,

Defendant-Appellant.

Before:

WALKER, MCLAUGHLIN, and WOopD,*

Circuit Judges.

Defendant-appellant Scot Spencer appeals from a judgment

of conviction following a jury trial in the United States Dis-

trict Court for the Eastern District of New York (Reena

* — The Honorable Harlington Wood, Jr. of the United States Court of Appeals

for the Seventh Circuit, Sitting by designation

2a

Appendix A

Raggi. District Judge). The jury found Spencer guilty of

bankruptcy fraud in violation of 18 U.S.C. § 152 and con-

spiracy to commit bankruptcy fraud in violation of 18 U.S:C.

§ 371. On May 23, 1996, Spencer was sentenced in principal

part to a term of fifty-one months of imprisonment and three

years of supervised release.

Affirmed.

JUDD BURSTEIN, Burstein & Fass LLP, New

York, New York, for Defendant-Appellant.

ERIC CORNGOLD, Assistant United States Attor-

ney, Brooklyn, New York, (Emily Berger,

Jason Brown, Assistant United States Attor-

neys, Zachary W. Carter, United States Attor-

ney for the Eastern District of New York,

Brooklyn, New York, of counsel), for

Appellee.

WALKER, Circuit Judge:

Defendant-appellant Scot Spencer appeals from a judgment

of conviction following a jury trial in the United States Dis-

trict Court for the Eastern District of New York (Reena

Raggi, District Judge). The jury found Spencer guilty of

bankruptcy fraud in violation of 18 U.S.C. § 152 and con-

Spiracy to commit bankruptcy fraud in violation of 18 U.S.C.

§ 371. On May 23, 1996, Spencer was sentenced in principal

part to a term of fifty-one months of imprisonment and threc

years of supervised release.

3a

Appendix A

On appeal, Spencer argues that his conviction for

bankruptcy fraud was based on legally insufficient evidence,

that his conviction for conspiracy to commit bankruptcy

fraud cannot stand because the government failed to prove

the existence of a coconspirator; and that in various respects

his sentence violated the United States Scntencing Guide-

lines.

We affirm.

BACKGROUND

This case arises from Spencer's inability to disassociate

himself from the most recent reincarnation of Braniff Air-

lines. The original Braniff Airlines (“Braniff I"), founded in

the early days of commercial aviation, filed for bankruptcy

in 1982. Subsequently, an investment group purchased Bran-

iff’s name and certain assets to form another airline, Braniff,

Inc. (“Braniff 11”). In 1988, a corporation controlled by

Jeffrey Chodorow and Arthur Cohen purchased a controlling

interest in Braniff Il. in 1989, Braniff Il ceased operations

and filed for bankruptcy. In 1990, Chodorow and Cohen,

seeking to restart Braniff Airlines, formed a holding company

named BNAir, Inc. and purchased the Braniff name from the

Braniff II bankruptcy estate. Spencer was named president of

BNAir. However, BNAir could not offer commercial pas-

senger service without obtaining a “certificate of public con-

venience and necessity” from the United States Department

of Transportation (“DOT”). See 49 U.S.C. § 41102(a). The

DOT requires that applicants for such a certificate pass a fit-

ness test. See 49 U.S.C. § 41102(b)(1).

In a meeting between BNAir and DOT in January 1990, the

DOT advised BNAir that it had significant objections to

BNAir's proposed passenger service. In particular, DOT

4a

Appendix A

expressed its concern about Spencer's role with the company,

citing his lengthy criminal history and poor performance

record with Braniff Il.

Faced with this obstacle, BNAir decided to obtain the nec-

essary certificate by a different route. In late 1990, BNAir

entercd into a purchase agreement with Emerald Air, Inc., an

airline in bankruptcy that already possessed the necessary

certificate. As a result of the purchase agreement, BNAir and

~Emerald merged and named the resulting entity Braniff Inter-

national Airlines, Inc. (“Braniff”). The DOT continued to

raise questions about, among other things, Spencer's involve-

ment in the resulting airline and the agency commenced a

review of Emerald’s continued fitness to possess a certificate.

In May 1991, DOT informed Braniff that Chodorow,

Cohen and Spencer must submit sworn affidavits to the DOT

attesting that Spencer would hold no position and have no

involvement in Braniff. The DOT stated that it would refuse

to certify the airline in the absence of the affidavits. On May

31, 1991, the requested affidavits were submitted. In his affi-

davit, Spencer stated that he would not hold any position or

have any direct or indirect involvement in Emerald or any

successor carrier. He promised not to make decisions on

behalf of the carrier, commit the carrier in any way, direct

any of its employees, or provide it with any consulting or

advisory services. The DOT reissued Emerald’s certificate to

Braniff and Braniff commenced passenger service in July

1991.

This latest Braniff fared no better than its predecessors and

in August 1991 filed a Chapter 11 bankruptcy petition. In

September 1991, Chodorow became Braniff's President and

Chief Exccutive Officer.

Despite the representations in the affidavits submitted to

the DOT, Spencer remained heavily involved in the opera-

Sa

Appendix A

tions of Braniff both before and after it filed under Chapter

11. Although it was a point of dispute at trial, Spencer now

concedes that he “acted openly and flagrantly on behalf of

Braniff.” Appellant Spencer's Br. at 7.

It was Spencer's effort to receive compensation surrepti-

tiously for his services to Braniff that led to his convictions

for bankruptcy fraud and conspiracy. Spencer's scheme was

to launder Braniff's payments to him and thereby conceal

them from the bankruptcy court and Braniff'’s creditors

through an advertising agency owned by one Stephen Pliss.

In January 1992, Pliss met with Spencer and Spencer's father

(o discuss placing the airline's advertising in various news-

papers. According to Pliss, the usual industry practice prior

to 1980 was for advertising agencies to bill their clients for

the full amount of an advertisement but receive a 15% dis-

count from the newspaper which the agency would keep as a

commission. After 1980, however, fewer clients permitted

agencies to keep the full 15% as a commission and it was

customary for advertisers to negotiate a lower rate with agen-

cies. According to Pliss, when he negotiated with Spencer, he

initially asked Spencer for a 7.5% commission, but ultimately

accepted 4%.

After agreeing upon the 4% commission, Spencer asked

Pliss, and Pliss agreed, not to return directly to Braniff the

11% balance of the 15% commission, but instead to disburse

10% to Spencer and 1% to Spencer's father. Spencer received

payments from Pliss in this manner from January to April

1992. During this period, Spencer played a significant role in

directing Braniff's advertising budget, other payments from

Braniff to Pliss, and the overall operations of Braniff. As a

company operating under the protection of Chapter 11, Bran-

iff was required to submit reports accounting for its cxpen-

ditures to the bankruptcy court and its creditors None of

these reports reflected the payments made to Spencer. Pliss

6a

Appendix A

testified that he believed the payments to Spencer were in

fact refunds to Braniff.

Evidence at trial demonstrated further that on several occa-

sions Braniff paid Pliss more than the total cost of the adver-

tising placed by Pliss. On one occasion Pliss was overpaid by

$72,554. Pliss passed these overpayments along to Spencer

pursuant to Spencer's instructions. Spencer received a total

of $351,411 from Pliss, most of it from the advertising dis-

counts but also $97,500 from the “overpayments.”

In March 1992, the Federal Aviation Administration

(“FAA”) and the DOT told Braniff that they were informed

that Spencer was acting in a management capacity at the air-

line and that the FAA was considering whether to suspend the

airline's authority to operate. In meetings with the FAA and

DOT, Chodorow denied that Spencer was involved in any

capacity with Braniff and submitted another affidavit swear-

ing that Spencer had not been involved with Braniff since

July 1, 1991. Braniff ceased doing business with Pliss in

April 1992. On July 2, 1992, the airline ceased all operations

and the court converted the bankrupicy proceeding to one

under Chapter 7.

On July 19, 1994, Spencer and Chodorow were indicted.

Count One of the indictment charged that the two men con-

spired to defraud the DOT by obstructing the DOT's role in

the issuance and review of certificates issued to airlines in

violation of 18 U.S.C. § 371. Count Two charged Chodorow

and Spencer with obstructing a pending procecding before

the DOT in violation of 18 U.S.C. § 1505. Count Three

charged that Chodorow and Spencer conspired to fraudu-

lently conccal from creditors property belonging to the

bankruptcy estate of Braniff in violation of 18 U.S.C. § 371,

and Count Four charged them with bankruptcy fraud in vio-

lation of 18 U.S.C. § 152.

7a

Appendix A

Pursuant to a plea agreement, codefendant Chodorow

pleaded guilty to Counts One and Two before trial. The jury

acquitted Spencer on Counts One and Two, but found him

guilty on Counts Three and Four.

DISCUSSION

Il. Legal Sufficiency of the Government's Theory

Spencer argues that he is entitled to a new trial on the

bankruptcy fraud issue because the jury was permitted to

convict him on a prosecution theory that was legally insuf-

ficient. Spencer argues that the government's theory was that

Spencer was a fiduciary who had a duty not to accept money

from Pliss for obtaining Braniff's business. Spencer argues

that there was no evidence that he owed Braniff a fiduciary

duty, and that even if he did, his actions did not deprive

Braniff of funds belonging to the airline. He contends that, at

most, his scheme deprived Braniff of its right to Spencer's

faithful and honest services. Spencer claims that the gov-

ernment had to rely on this fiduciary theory because Pliss had

the right to receive and distribute the 15% commission as he

saw fit. Thus, Spencer asserts, the government's case must

rest on Spencer's purported status as a fiduciary who had a

duty not to accept money from Pliss.

Spencer's argument mischaracterizes the government's the-

ory and is beside the point. The government's case was not

premised on a breach of a fiduciary duty by Spencer, but

rather on the theory that Spencer committed bankruptcy fraud

by hiding from the bankruptcy court and creditors the pay-

ment of Braniff funds to him through a sham transaction with

Pliss. To the extent that Spencer's challenge is one of evi-

dentiary insufficiency, it must be rejected.

8a

Appendix A

In reviewing challenges to the sufficiency of the evidence

at trial, “we must view the evidence in the light most favor-

able to the government and construe all possible inferences

in its favor. If any rational trier of fact could have found the

essential clements of the crime, the conviction must stand.”

United States v. Badalamenti, 794 F.2d 821, 828 (2d Cir.

1986) (internal citations and quotation marks omitted). In

addition, “ ‘pieces of evidence must be viewed not in isola-

tion but in conjunction.’ " United States v. Brown, 776 F.2d

397, 403 (2d Cir. 1985) (quoting United States v. Geaney,

417 F.2d 1116, 1121 (2d Cir. 1969)).

The evidence, taken in its entirety, easily demonstrated that

the business relationship between Pliss and Spencer was a

sham designed to unlawfully conceal from the bankruptcy

court and Braniff’s creditors Braniff’s compensation to

Spencer for services rendered. There was evidence that

Spencer in fact directed Braniff’s executives and made many

key corporatc decisions, including ordering Braniff's finan-

cial officer to transmit the payments to Pliss that resulted in

Spencer's enrichment and that were never reflected as pay-

ments to Spencer on Braniff's books. There was also evi-

dence that Braniff’s advertising costs grew rapidly after

Spencer developed a financial interest in Braniff's payments

to Pliss and that Piiss transmitted overpayments directly to

Spencer, who kept them instead of returning the funds to

Braniff. Viewing the evidence in the light most favorable to

the government, see Badalamenti, 794 F.2d at 828, the evi-

dence was more than sufficient for the jury to conclude that

Spencer and Pliss had devised a scheme to launder payments

from Braniff through Pliss to Spencer. See United States v.

Martin, 408 F.2d 949, 953-54 (7th Cir. 1969) (holding that

trier of fact could conclude payments to attorney and accoun-

tant that were transmitted to corporate officers as “kick

9a

Appendix A

backs” were part of sham transaction to deprive funds from

creditors in any future bankruptcy proceedings).

Il. Sufficiency of Evidence of Conspiracy

Spencer argues that his conviction for conspiracy to com

mit bankruptcy fraud must be reversed because no rationa

jury could conclude that he conspired with anyone. Spencer

contends that there was insufficient evidence to support 3

finding that either Chodorow or Pliss conspired with him to

commit bankruptcy fraud. We disagree.

Spencer argues that there was an absence of evidence that

Pliss was aware of the scheme to defraud Branifi and its

creditors or that Pliss even knew that Spencer was keeping

the payments from Braniff. Spencer maintains that the gov-

ernment improperly proved the conspiracy by asking the jury

first to disbelieve Pliss’s testimony that Pliss thought his pay-

ments to Spencer were going back to Braniff and then to rely

on that disbelief as evidence that Pliss and Spencer were

coconspirators. Spencer correctly cites Dyer v. MacDougall,

201 F.2d 265, 268-69 (2d Cir. 1952) (Hand, L., J.), for the

rule that “while a jury may be permitted to draw negative

inferences from disbelieved testimony, a case cannot go to a

jury solely on that basis.” United States v. Eisen, 974 F.2d

246, 262 & n.6 (2d Cir. 1992) (discussing Dyer). However,

the rule in Dyer v. MacDougall is inapplicable if inde pendent

evidence supports the government's case. See Eisen, 974 F.2d

at 262.

In this case, the government presented independent evi-

dence of Pliss’s knowing participation in the unlawful

scheme in the form of an incriminating paper trail. Pliss iden-

tified various checks he made out to Spencer and Spencer's

father and, on cross cxamination by Spencer's own attorney.

noted that many of the checks returned to him after being

cashed were endorsed by Spencer and contained no indica-

10a

Appendix A

tion that any funds went to Braniff. Moreover, bills sent by

Pliss to Beaniff did not reflect any “rebate” of 11% to Bran-

iff nor any payments to Spencer. In addition, Pliss transmit-

ied the overpayments to Spencer, not to Braniff. In sum, there

was ample cvidence for the jury to find beyond a reasonabic

doubt that Pliss was a coconspirator in Spencer's scheme.

There was sufficient evidence to support a jury finding that

Chodorow was a member of the conspiracy as well. Braniff's

Vice President of Finance testified that Chodorow instructed

him to follow Spencer's directions to make payments to Pliss.

Pliss testified that Spencer rejected his request for a higher

commission because Chodorow “would never go for [it].”

There was substantial evidence that Chodorow knew of and

approved of Spencer's role in making key decisions for Bran-

iff even though Braniff's financial records were silent as to

payments to Spencer. Viewing the evidence in the light most

favorable to the government, see Badalamenti, 794 F.2d at

828, a jury could infer that Chodorow was a participant in the

conspiracy.

Ill. Sentencing Issues

Spencer also attacks the calculation of his sentence under

the United States Sentencing Guidelines. The district court

determined that Spencer had a total offense level of 23: a

base offense level of 6 under U.S. Sentencing Guidelines

Manual § 2F1.1(a) fot committing a crime of fraud and

deceit; u two-level enhancement under § 2F1.1(b)(3)(B) for

violating an administrative order or process; a four-level

enhancement under § 3B1.1(a) for his role as an organizer or

leader of criminal activity that was “otherwise extensive”; a

nine-levcl enhancement under § 2F1.1(b)(1)(J) for commit-

ting an offense causing a loss of more than $350,000; and a

two-level enhancement under § 2F1.1(b)(2)(A) for commit-

ting an offense involving more than minimal planning. Based

lla

Appendix A

upon the total offense level of 23 and Spencer's category two

criminal history, the district court sentenced Spencer to the

minimum of SI months permitted by the Guidclines.

Spencer argues that the district court erred in increasing

his offense level (1) for violating an administrative order or

process, (2) for his role as an organizer or teader of criminal

activity that was “otherwise extensive,” (3) for committing

an offense causing a loss of more than $350,000, and (4) for

committing an offense involving more than minimal plan-

ning. We review the district court's interpretation and appli-

cation of the Sentencing Guidelines de novo. See United

States v. Zagari, 111 F.3d 307, 323 (2d Cir. 1997).

A. Violation of Administrative Order or Decree

The district court did not err in applying the enhancement

for Spencer's violation of an administrative order or process.

U.S.S.G. § 2F1.1(b)(3)(B) allows an increase in the offense

level for “violation of any judicial or administrative order,

injunction, decree cr process.” The Background note states

that a “defendant who has been subject to civil or adminis-

trative proceedings for the same or similar fraudulent con-

duct demonstrates aggravated criminal intent and is deserving

of additional punishment for not conforming with the

requirements of judicial process or orders issued by federal

. . administrative agencies.”

Spencer argues that the activity of DOT did not result in

any administrative order, injunction, decree, or process and

thus the proscription of U.S.S.G. § 2F1.1(b)(3)(B) was not

violated. We disagree. While there was no formal adversary

“proceeding” before the DOT resulting in a formal admin-

istrative “order” or “decree,” there was an extensive ncego-

tiation with DOT, culminating in an agreement, evidenced by

the affidavits, that-was violated by Spencer. In short, there

was an informal administrative “process” of negotiation and

12a

Appendix A

an informal “decree” that if the affidavits were not submitted

and the promises therein not kept, the DOT would revoke the

airline's operating certificate. The propricty of the district

court's enhancement on this ground is further supported by

the guidclince’s background commentary: whether Spencer

chose to submit to and violate a formal DOT process, or

whether he deliberately avoided suth process by giving

solemn promises to DOT which he later violated, we believe

that Spencer demonstrated the same “aggravated criminal

intent” underlying § 2F1.1(b)(3)(B).

United States v. Linville, 10 F.3d 630 (9th Cir. 1993),

relied upon by Spencer, is inapposite. Linville found that dis-

regard for “relatively informal missives and official notifi-

cations and warnings of violations” does not evidence the

“aggravated criminal intent” underlying the § 2F1.1(b)(3)(B)

sentence enhancement. /d. at 633. In this case, however, DOT

went to considerable lengths to prevent Spencer from

participating in Braniff. DOT engaged in extensive negotia-

tions with BNAir, demanding and ultimately obtaining

the Spencer and Chodorow affidavits as a condition of allow-

ing the airline to operate. Spencer's conduct in the face of

DOT's actions was sufficiently aggravated to warrant the

enhancement.

Because we hold that Spencer's violation of the DOT pro-

cess in this case satisfies § 2F1.1(b)(3)(B), we need not

address the difficult issue of whether Spencer's violation of

bankrupicy orders also suffices to support an increase under

the same provision.

B. Criminal Activity that was “Otherwise Extensive”

Spencer's offense level was increased by four levels pur-

suant to U.S.S.G. § 3B1.1(a) because he was “an organizer or

leader of a criminal activity that involved five or more par-

ticipants of was otherwise extensive.” Application Note | to

13a

Appendix A

§ 3B1.1 defines “participant” as “a person who is criminally

responsible for the commission of the offense.” Because the

government does not argue that five criminally responsible

Participants were involved, the application of § 4B1.1(a)

must rest on the “otherwise extensive” requirement. Appli-

cation Note 3 to § 3B1.1 states that “{iJn assessing whether

an organization is ‘otherwise extensive,’ all persons involved

during the course of the entire offense are to be considered.

Thus, a fraud that involved only three participants but used

the unknowing services of many outsiders could be consid-

ered extensive.”

We recently addressed the proper method for determining

whether a criminal activity is “otherwise extensive” in United

States v. Carrozzella, 105 F.3d 796 (2d Cir. 1997), where we

pointed out that application of § 3B1.1(a) “is based primar-

ily on the number of people involved, criminally and non-

criminally, rather than on other possible indices of the

extensiveness of the activity,” id. at 802, and noted that “oth-

erwise extensive” is the “functional equivalent of {a crime]

involving five or more knowing participants,” id. at 803. We

held that the sentencing court in making the “otherwise

extensive” assessment should determine:

(i) the number of knowing participants;

(ii) the number of unknowing participants whose activ-

ities were organized or led by the defendant with spe-

cific criminal intent;

(iti) the extent to which the services of the unl:nowing

Participants were peculiar and necessary to the criminal

scheme.

Id. at 803-04. Ultimately, we remanded the case for further

findings because the district court erred in emphasizing the

number of clients defrauded and the sophistication of the

l4a

Appendix A

scheme, and because the roles of various employccs involved

in the scheme were “obscure.” /d. at 80S.

In this case, Judge Raggi properly limited her inquiry to

the persons involved in Spencer's scheme. No useful purpose

would be served in remanding the case and requiring Judge

Raggi simply to recast her findings in the more explicit terms

described by our subsequent decision in Carrozzella.

Spencer contends that his activity was not “otherwise

extensive” because the airline would have run exactly the

same way, with the exception of the payments to Pliss, if

Spencer were not involved. Rejecting this argument, Judge

Raggi found that:

What was going on here [was] that Scott [sic] Spencer

was determined to run Braniff. . . . [H]e was going to

run it no matter what, and he was going to get paid for it,

and everybody who is identified on page 18 [of the gov-

ernment’s sentencing memorandum], all of these Bran-

iff employees understood that and understood that that

was going to be allowed to happen, and so for the pro-

tection of their own jobs they went along with all of this.

. . . Mr. Spencer had to find some way to get money

to himself that didn't get revealed to various persons,

including the bankruptcy creditors, and so all of these

people had to basically go along with the larger scheme.

[I]n order to get himself paid, he didn't just have to do

onc thing or implicate one person, he had to involve the

whole company in this fraud that he was involved in.

The district court explicitly endorsed the government's

sentencing memorandum listing the number of persons

15a

Appendix A

required for the success of the scheme: finding that Spencer,

his father, Pliss, and Chodorow were knowing, criminally

responsible participants in the scheme: and finding that a

large number of Braniff employees were also essential to the

scheme. These employees included Braniff's Vice President

of Finance and others in Braniff's accounting department

who followed Spencer's instructions to pay Pliss, the adver-

lising personnel who prepared advertising for Pliss, and other

employees who facilitated Spencer's ability to exercise con-

trol over the airline and its advertising budget. The district

court's endorsement of the government's list of persons nec-

essary to carry out the scheme satisfies the requirements of

Carrozzella. Unlike the district court in Carrozzella, Judge

Raggi did not rely upon an impermissible factor such as

the number of creditors defrauded; nor did she take into

account persons whose role was obscure. Thus, the district

court properly applied the base offense enhancement under

§ 3B1.1(a) for Spencer's role as “otherwise extensive.”

C. Amount of Loss and More Than Minimal Planning

The remaining challenges raised by Spencer to his sentence

are also without merit. Spencer contends that the district

court erred in increasing his base offense level by nine lev-

els pursuant to § 2F1.1(b)(1)(J) for causing a loss of more

than $350,000. He argues that only the money traced to over-

payments from Braniff to Pliss, and subsequently transmitted

from Pliss to Spencer, are properly included in the loss cal-

culation. He claims that the 11% commission payments from

Pliss were not Braniff's property and should be excluded

from the loss calculation. As we have discussed, the jury

resolved the dispute over the ownership of those funds in the

government's favor; therefore, the district court did not err in

including all of the payments received by Spencer in the loss

amount.

16a

Appendix A

Spencer also claims that the loss amount should be reduced

by the value of his services to Braniff. The Third Circuit has

held that in calculating the loss amount under the Guidelines,

a court should not include fees paid to a person engaging in

the unauthorized practice of law to the extent that the service

provided was satisfactory. See United States v. Maurello, 76

F.3d 1.304, 1312-13 (3d Cir. 1996). Even if we were to

endorse the approach of the Third Circuit, it would not apply

here because the district court made a factual finding that.

Spencer did not provide valuable services to Braniff and this

finding was not clearly erroneous. The district court

expressly found that Spencer “was incompetent and I don't

understand how anyone could have entrusted him with the

operation of this airline.” In calculating the loss amount, the

district court indicated that the $350,000 Joss attributed to

Spencer was “conservative” and that his actions possibly

caused a much larger loss. We find no error in the district

court's determination that Spencer caused a loss of $350,000

to the Braniff estate.

Finally, Spencer's challenge to the district court's increase

of his offense level pursuant to § 2F1.1(b)(2)(A) because his

offense involved “more than minimal planning” is frivolous.

Spencer's creation and implementation of the scheme to

launder payments easily fits within this guideline. See

U.S.S.G. § IBI.1, Application Note 1(f); United States v.

Cropper, 42 F.3d 755, 757-59 (2d Cir. 1994); United States

v. Brach, 942 F.2d 141, 145 (2d Cir. 1991).

CONCLUSION

The judgment of conviction and sentence ts affirmed.

17a

APPENDIX B — ORDER OF THE UNITED STATES

COURT OF APPEALS FOR ‘THE SECOND CIRCUIT

FILED JANUARY 28, 1998

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

UNITED STATES COURT HOUSE

40 FOLEY SQUARE

NEW YORK 10007

GEORGE LANGE III

CLERK

CORRECTED

At a stated term of the United States Court of Appeals for

the Second Circuit, held at the United States Courthouse, Foley

Square, in the City of New York, on the 28th day of January

one thousand nine hundred and ninety-eight.

Dkt. No: 96-1460

USA

Appellee,

v.

Scot Spencer

Defendant- Appellant.

A petition for rehearing containing a suggestion that the action

be reheard in banc having been filed herein by the appellant

Scot Spencer.

18a

Appendix B

Upon consideration by the panel that decided the appeal, it

is Ordered that said petition for rehearing is DENIED.

It is further noted that the suggestion for rehearing in banc has

been transmitted to the judges for the court in regular active

_ service and to any other judge that heard the appeal and that no

such judge has requested that a vote be taken thereon.

FOR THE COURT

GEORGE LANGE III, Clerk

By: s/ Arthur M. Heller

Arthur M. Heller

Administrative Attorney

19a

APPENDIX C — EXCERPTS FROM TRANSCRIPT OF

SENTENCE DATED MAY 23, 1996

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

CR-94-742

United States Courthouse

Brooklyn, New York

May 23, 1996

3:00 o’clock p.m.

UNITED STATES OF AMERICA,

-against-

SCOTT SPENCER,

Defendant.

TRANSCRIPT OF SENTENCE

BEFORE THE HONORABLE REENA RAGGI

UNITED STATES DISTRICT JUDGE

* * *

THE COURT:

* * *

[23] All right. Are there any other challenges that I haven’t

dealt with?

20a

Appendix C

MR. BURSTEIN: Yes, there’s the question of a violation

of administrative order.

THE COURT: Yes, by all means go ahead.

MR. BURSTEIN: Judge, so that the record is clear, Your

Honor expressed some very strong views on this and as an

advocate I know there are times where it doesn’t make sense to

press a judge when you made up your mind, but I don’t want

my silence in the face of Your Honor expressing your views on

these matters taken as agreement.

THE COURT: I understand.

MR. BURSTEIN: Okay.

With respect to the administrative order, Your Honor, I

mean, the probation department came in on the theory that there

was some, that the D.O.T. Is desire that Mr. Spencer not be

involved and what the government characterized as some sort

of promise on Mr. Spencer’s part not to be involved was a

violation of administrative process. One of the cases they cited,

the Linville case out of the Ninth Circuit, is not so. There has to

be some informal administrative order. If an administrative

agency’s expression for desire for something to occur were to

meet that test, it would be vastly expanding that provision of

the guidelines.

[24] THE COURT: But this is very different from Linville

where after certain conduct was engaged in by the defendant,

she starts to get the letters cautioning her that she may be

violating the law. This is a case where the Department of

Transportation made it plain to Braniff at the start that they

2la

Appendix C

would not allow the certification to remain in effect if Scott

Spencer had anything to do with the airline, and in order to be

satisfied that they would not be a problem it demanded affidavits

from both Mr. Spencer and Mr. Chodorow.

Now, there were opportunities for hearings on that. There

were numerous meetings. This is not like Linville at all. This

was a rather intensely negotiated issue. I mean, the evidence |

heard at trial suggested that before those affidavits were supplied,

there were a number of attempts to persuade the Department of

Transportation to be satisfied with something less, and so the

totality of the circumstances here suggest to me that there was

an agreement reached almost as if a consent decree, to use an

analogy, that Mr. Spencer would not operate at Braniff, that

would be the term on which the airline was to operate by a

government agency.

MR. BURSTEIN: My answer to that is two-fold. My most

simple answer is I don’t think that’s what the guideline calls

for. There has to be some sort of formal order.

Secondly, factually Your Honor is mistaken because the

only thing Mr. Spencer’s promise or this agreement that [25]

you speak of secured was agreement by the DOT not to begin

proceedings to take the license. It wasn’t if you work there you

are losing your license, that’s not what the arrangement was.

The arrangement was if you continue to be there we’l] Start

proceedings to take away your license, at which point he would

have had an opportunity to answer. There would have been

knows, et cetera.

There was no order and effect, that’s not the kind of

administrative order that is called for by the guidelines, and the

22a

Appendix C

government’s other answer is that he violated the processes of

the bankruptcy court. I think that all of the cases they cite make

our points. Those are debtors.

It’s one thing if you are a debtor and submit yourself to the

authority of the bankruptcy court. It’s different if you are

something else that is not subject to the jurisdiction of the court.

So under those circumstances, I don’t think and the

government has not been able to cite one case, and that should

be an indication has there ever been a case where there had

been a finding of violation of administrative order process

without some sort of formal determination by administration

agency? There hasn’t been. I credit them and Probation for

creativity on this, but the fact is there’s never been a case like

this which suggests something more is required. The fact Linville

suggests that you do need some sort of formal order [26] also

suggests strongly that I’m right on this.

THE COURT: Mr. Corngold?

MR. CORNGOLD: Your Honor, two points.

First, on the D.O.T. side of this argument, the guideline is

written in the disjunctive. It doesn’t say order and not say process.

It says if the offense involved violation of any judicial or

administrative order — I can’t remember the other thing — or

process, that has to mean that there’s a difference between a

formal order and something else that has to mean that the

guideline is intended in instances where there’s not necessarily

a formal order, and I don’t think that Linville says anything

more than that. What Linville says is that where a defendant

received administrative warnings that she ignored that that is

not enough to make it into the a process.

23a

Appendix C

But here, I mean, we had extensive briefing, as I said in the

brief, in the current brief about this, about whether this is a

proceeding whether this crime that was charged in Counts One

and Two involved a proceeding, and I think the court

understood, and if it was a secret to anybody after hearing two

or three days of testimony from the D.O.T. and from D.O.T.

counsel, it was clear that there was an extensive process that

lead up to the affidavits that under anybody’s view of the fact

Mr. Spencer violated. So that’s the D.O.T.’s side of the

argument.

[27] On the bankruptcy court’s side of the argument, I think

with all due respect that Mr. Burstein is pointing to a distinction

without a difference. The crime here is violating the

bankruptcy’s order and processes, that’s clear. The guideline

doesn’t say did the defendant violate a judicial order or process.

What the guideline says is if the offense involved violation of a

judicial order or process. It doesn’t focus on whether the

defendant has violated an order of process that was directed at

him, it focuses on whether a defendant in a conspiracy or an

aiding or abetting or under any circumstances is involved in an

offense that involved a violation of judicial order or process.

The guideline is clearly focused at elevating the guideline level

for crimes involving what the Sentencing Commission believed

were more serious crimes, crimes that hit at the heart of judicial

processes or orders or administrative processes or orders. There

can’t be any question that that is what this crime involved, that’s

why on the bankruptcy side the two points are appropriate. So

I believe under either of the theories the two points are

appropriate.

24a

Appendix C

MR. BURSTEIN: Judge, I think you have the arguments,

but it seems to me that certainly to go back to the D.O.T. issue,

I mean, what did Mr. Coleman testify to? Mr. Coleman testified

that there would have been formal proceedings at which there

would have been formal adversary proceedings that seems to

me what we mean by process. You know, to talk about

negotiations, which is really what we are talking about,

negotiations amount to process just extends the words beyond

recognition, and I think that the answer to Mr. Corngold’s

argument I suppose that once Mr. Spencer was within that

process, the administrative agency, there might have been things

that he was doing that would have been in violation of or

offended the process of the agency.

But in the absence of any kind of formal proceeding and

where you only have some promise not to do something or

they will begin formal proceedings that’s just not a violation of

administrative process. And with respect to bankruptcy, all of

these cases focus upon the fact that the notion is that somebody

who sought the protection of the bankruptcy laws is submitting

himself to the jurisdiction of the court in having done that,

having availed themselves of the protections of the court, they

shouldn’t be entitled to offend it or offend the [29] processes.

THE COURT: That was, of course, Braniff, the

corporation, and who was running Braniff? At least as far as

I’m concerned it was Mr. Spencer. The obligations of someone

in an office position with respect to the bankruptcy court seem

to me to be ones that I would have to consider. He can’t both

run the company in this shadow capacity and ignore the fact

that the company is in the bankruptcy court seeking the

protection of that court while he concocts a scheme to deceive

the creditors. I have to deal with the fact this is a corporation,

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Appendix C

only its officers can be responsible for its conduct in the

proceeding.

MR. BURSTEIN: But he wasn’t an officer of the__

corporation.

THE COURT: Not for lack of trying.

MR. BURSTEIN: But that may be, Judge, I understand

what you are saying.

THE COURT: He was an officer in fact, if not officially,

and he was receiving payment as an officer for the work he was

doing, the work he thought he was entitled to, the work he

thought he was entitled to pay for, and he concocted a scheme

to keep that fact from the bankruptcy creditors. I would enhance

for the ground the government said, as I said, he was a defacto

corporate officer. He was determined, bent and determined, to

give himself that role and payment for it [30] when he had no

business doing it, and so to that extent if it’s only a bankruptcy

creditor who can be held accountable here, Mr. Spencer had

assumed a role for himself in this corporation that required

himself also to assume the same kind of fair dealings with the

bankruptcy court that any officer of the company would have

had.

I also have to say that I understand 2F1.1(3)(b) to be

intended to sweep broadly. As I said, the entire 2F1.1 guideline

is written with recognition that fraud is a difficult crime to

pigeonhole and categorize, and so here there’s an enhancement

provided if there’s a violation of any judicial or administrative

order, injunction, decree or process not addressed elsewhere in

the guidelines, in other words the Commission intends to sweep

higher.

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Appendix C

Now, I recognize there must be some limits to this sweep,

but I remind everyone that the Ninth Circuit’s opinion in Linville

is not controlling on this court, the same way it would be if it

were the Second Circuit that had spoken. I read this with care

and consideration, as I would any circuit opinion, but I am not

certain how the Second Circuit will view this.

I’m satisfied that Linville is distinguishable on the facts. As

I said, it involved no process of any kind before the defendant

in that case started to engage in the conduct that ultimately lead

to the problems for which there was a [31] sentence. By contrast

here, the bankruptcy fraud had to be put together because Mr.

Spencer had already been through the proceedings in the

Department of Transportation that were going to review whether

Braniff Airlines was allowed to fly. The Department of

Transportation decided in what is a routine review procedure

that it would not be allowed to fly if Mr. Spencer had any role

to play in its management.

You are correct that what would have been required, would

have been formal proceedings by the Department of

Transportation, but I don’t think anyone whose familiar with

this case thinks that there would have been much of a chance

that Braniff would have emerged from that with an ability to

fly, and for that reason Mr. Spencer and Mr. Chodorow signet

those affidavits.

After going through that process — whether we call an

initial process, an informal process, it’s still a regular and routine

part of the Department of Transportation’s review proceedings

for airlines — after going through that process and giving that

affidavit and knowing that he had done so in order to run the

company and in order to get paid, Mr. Spencer had to concoct

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Appendix C

the bankruptcy fraud he did, and for that reason I give this

enhancement.

28a

APPENDIX D — SENTENCING GUIDELINE AND

RELEVANT COMMENTARY

PART F — OFFENSES INVOLVING

FRAUD OR DECEIT

§2F1.1. Fraud and Deceit: Forgery: Offenses Involving Altered

or Counterfeit Instruments Other than Counterfeit Bearer

Obligations of the United States

(a) Base Offense Level: 6

(b) Specific Offense Characteristics

* * *

(3) If the offense involved (A) a misrepresentation that

the defendant was acting on behalf of a charitable,

educational, religious or political organization, or

a government agency, or (B) violation of any

judicial or administrative order, injunction, decree,

Or process not addressed elsewhere in the

guidelines, increase by 2 levels. If the resulting

offense level is less than level 10, increase to level

10.

a

Application Notes

5. Subsection (b)(3)(B) provides an adjustment for violation

of any judicial or adminiatrative order, injunction, decree,

or process. If it is established that an entity the defendant

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Appendix D

controlled was a party to the prior proceeding, and the

defendant had knowledge of the prior decree or order,

this provision applies even if the defendant was not a

specifically named party in that prior case. For example,

a defendant whose business was previously enjoined from

selling a dangerous product, but who nonetheless engaged

in fraudulent conduct to sell the product, would be subject

to this provision. This subsection does not apply to conduct

addressed elsewhere in the guidelines: ¢.g., a violation of

a condition of release (addressed in §2J1.7 (Offense

Committed While on Release) ) or a violation of probation

(addressed in §4A1.1 (Criminal History Category) )

* * *

Background: This guideline is designed to apply to a wide

variety of fraud cases. The statutory maximum term of

imprisonment for most such offenses if five years. The guideline

does not link offense characteristics to specific code sections.

Because federal fraud statutes are so broadly written, a single

pattern of offense conduct usually can be prosecuted under

several code sections, as a result of which the offense of

conviction may be somewhat arbitrary. Furthermore, most fraud

statutes cover a broad range of conduct with extreme variation

in severity.

Empirical analyses of pre-guidelines practice showed that

the most important factors that determined sentence length were

the amount of loss and whether the offense was an isolated

crime of opportunity or was sophisticated or repeated.

Accordingly, although they are imperfect, these are the primary

factors upon which the guideline has been based.

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Appendix D

The extent to which an offense is planned or sophisticated

is important in assessing its potential harmfulness and the

dangerousness of the offender, independent of the actual harm.

A complex scheme or repeated incidents of fraud are indicative

of an intention and potential to do considerable harm. In pre-

guidelines practice, this factor had a significant impact,

especially in frauds involving small losses. Accordingly, the

guideline specifies a 2-level enhancement when this factor is

present.

Use of false pretenses involving charitable causes and

government agencies enhances the sentences of defendants who

take advantage of victims’ trust in government or law

enforcement agencies or their generosity and charitable motives.

Taking advantage of a victim’s self-interest does not mitigate

the seriousness of fraudulent conduct. However, defendants who

exploit victims’ charitable impulses or trust in government create

particular social harm. A defendant who has been subject to

civil or administrative proceedings for the same or similar

fraudulent conduct demonstrates aggravated criminal intent

and is deserving of additional punishment for not conforming

with the requirements of judicial process or orders issued by

federal, state, or local administrative agencies.