Now Updating
In re: DIANN MARIE CATES

Summarizing by Lars Fuller

U.S. v. Theall

Citation:
Case No. 12-30457, 2013 U.S. App. LEXIS 10783 (5th Cir. May 29, 2013) (per curiam)
Tag(s):
Ruling:
AFFIRMED in part, VACATED in part, and REMANDED for further proceedings consistent with the opinion. The Fifth Circuit affirmed the convictions Thad and Theresa Theall for making false statements under penalty of perjury in relation to a bankruptcy petition in violation of 18 U.S.C. § 152(3). The Fifth Circuit also affirmed the conviction of Thad Theall for making a false oath in a bankruptcy proceeding in violation of 18 U.S.C. § 152(2). However, the Fifth Circuit vacated the $50,000 restitution order against Thad and remanded for a recalculation of the amount of loss caused by Thad’s offensive conduct.
Procedural context:
The Thealls filed for relief under Chapter 7 in June 2005. They were each charged with two counts of bankruptcy fraud in connection with their failure to disclose the sale of a building and a $15,000 promissory note. The first count alleged that they made a false statement under penalty of perjury in relation to a bankruptcy petition in violation of 18 U.S.C. § 152(3). This count was based on the Thealls' failure to disclose the sale of the building building and the $15,000 promissory note. The second count alleged that they made a false oath in a bankruptcy proceeding in violation of 18 U.S.C. § 152(2). The second count was based on Thad's misrepresentation during the August 4, 2005 creditors meeting that the building was sold in February 2004. The jury returned a guilty verdict for Thad on Counts 1 and 2 and a guilty verdict for Theresa on Count 1. Theresa was acquitted on Count 2. Thad was also ordered to pay $50,000 in restitution to the bankruptcy estate, which the district court determined to be the victim in the case. The Thealls appealed.
Facts:
In February 2005, the Thealls sold a building for $100,000. The price was comprised of $85,000 in cash and a $15,000 promissory note. Four months later, the Thealls filed for relief under Chapter 7. The Thealls did not disclose the building sale or the promissory note in their schedules or statement of financial affairs. Before their meeting for creditors, Thad comprised the promissory note for $11,250, but had the check endorsed to Theresa’s parents. At the meeting of creditors, the Thealls initially failed to disclose the building sale and the promissory note. When asked by a creditor about when the building was sold, Thad stated, "I guess it was, February of last year." The Thealls filed amended schedules and a statement of financial affairs after the meeting of creditors, but again did not disclose the sale of the building or the $15,000 promissory note. In addition to the foregoing, the following evidence was introduced at trial in support of the Thealls' convictions: The Thealls were experienced bankruptcy filers. Thad filed for personal bankruptcy in 1982 before he and Theresa were married, and again in 1991 after they were married. Thad and Theresa also filed for bankruptcy on behalf of their business before they initiated the personal bankruptcy proceedings at issue in this appeal. The Thealls were represented by a bankruptcy attorney who provided them with a questionnaire used to gather information for the bankruptcy petition. The Thealls did not disclose the building sale or the $15,000 promissory note on that questionnaire, despite the fact that several questions should have prompted those disclosures. They spent the $79,000 in cash proceeds from the sale of the building roughly four months prior to filing for bankruptcy, and still held the promissory note when they filed. The Thealls redeemed the promissory note in July 2005, roughly a month after filing for bankruptcy. On August 3, 2005, the day before the creditors meeting, both Thad and Theresa signed the cancelled promissory note. On August 4, 2005, the same day as the creditors meeting, Theresa used the proceeds from the promissory note to purchase money orders at a local bank. During the creditors meeting, the Thealls confirmed that they personally reviewed their bankruptcy petition and the attached documents, were familiar with their contents, and that everything was true and complete to the best of their knowledge. When the bankruptcy trustee asked the Thealls whether they had sold any assets netting $3,000 or more in the last year, neither Thad nor Theresa mentioned the sale of the Ambassador building. On August 22, 2005 the Thealls filed amended schedules and a statement of financial affairs, which again failed to disclose the building sale and the promissory note. According to the Fifth Circuit, the above evidence was sufficient to support Thad and Theresa's convictions on Count 1 and Thad's conviction on Count 2. The Fifth Circuit also held that certain evidence relating to Thad’s gambling activities was properly admitted by the District Court. While the Fifth Circuit agreed that evidence of how the Thealls spent the proceeds from the building sale was not intrinsic to the charged offenses, the Fifth Circuit concluded that there was no question that it was admissible extrinsic evidence because evidence showing the Thealls' use of the building proceeds suggested that they were aware of the proceeds and the transaction that produced them. However, as to the restitution order, the Fifth Circuit vacated and remanded. The $50,000 restitution order was based on the $15,000 promissory note and the $35,000 in proceeds from the building sale that the Thealls transferred to Thad's Rentals. To include the $35,000 in the restitution order, the Fifth Circuit stated that the District Court had to find that Thad's offense conduct - the failure to disclose the building sale - resulted in a loss of those funds by the bankruptcy estate. To do that, the Fifth Circuit reasoned that the District Court necessarily had to determine whether bankruptcy law would have allowed the trustee to avoid those transfers and recover the money for the estate. If the bankruptcy trustee could not have recovered the $35,000 even if Thad had disclosed the building sale, the Fifth Circuit reasoned that then Thad's offense conduct did not cause the bankruptcy estate to lose those funds. Thus, the Fifth Circuit concluded that by failing to determine whether the trustee could have recovered the $35,000 for the estate, the District Court abused its discretion when it included that amount in the restitution order.
Judge(s):
DeMoss, Dennis and Prado

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