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United States v. Naegele

May 2, 2006

UNITED STATES OF AMERICA,
v.
TIMOTHY D. NAEGELE, DEFENDANT.



The opinion of the court was delivered by: Paul L. Friedman United States District Judge

OPINION

This matter is before the Court on defendant's motions to dismiss Counts 1 through 4, 9 and 10 of the indictment, and on defendant's motion to strike a portion of Count 11. Argument was heard on the motions on April 12, 2006. Upon consideration of the arguments of the parties, as stated in their briefs and in open court, the Court grants defendant's motions to dismiss Counts 1, 2, 3 and 9, denies defendant's motions to dismiss Counts 4 and 10, and denies defendant's motion to strike.

I. BACKGROUND

Defendant Timothy Naegele is an attorney licensed to practice law in California and the District of Columbia. Naegele owns his own law firm as a sole proprietorship. On or about March 29, 2000, Naegele filed a Chapter 7 petition for personal bankruptcy in the United States Bankruptcy Court for the District of Columbia. See In re Naegele, Case No. 00-0601 (Bankr. D.C. 2000). On May 4, 2000, as required by the Bankruptcy Code, he filed a Statement of Financial Affairs ("SFA") and several Bankruptcy Schedules, and signed each as true and correct under penalty of perjury.

Pursuant to 11 U.S.C. § 341, on May 23, 2000, the bankruptcy trustee conducted a creditors' meeting at which defendant was questioned under oath by the trustee and several creditors about the information provided in his SFA and Bankruptcy Schedules, and about his financial situation in general. On September 5, 2000, the Bankruptcy Court granted defendant a discharge from bankruptcy under 11 U.S.C. § 727. The bankruptcy case was closed on September 20, 2000. On April 28, 2005, a federal grand jury returned an indictment against Mr. Naegele, alleging that he had made numerous misstatements on his SFA and Bankruptcy Schedules and in the creditors' meeting, and charging him with ten counts of making false statements under 18 U.S.C. § 152 and one count of bankruptcy fraud under 18 U.S.C. § 157.

18 U.S.C. § 152 ("Concealment of assets; false oaths and claims; bribery") reads, in relevant part:

A person who . . . (2) knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11; [or] (3) knowingly and fraudulently makes a false declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, in or in relation to any case under title 11; . . . shall be fined under this title, imprisoned not more than 5 years, or both.

18 U.S.C. § 157 ("Bankruptcy fraud") provides 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 bankruptcy 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.

Counts 1 through 3 of the indictment pertain to alleged misstatements on defendant's Statement of Financial Affairs. Item 1 of the SFA form calls for a bankruptcy petitioner to state "the gross amount of income the debtor has received from employment, trade, or profession, or from operation of the debtor's business from the beginning of this calendar year to the date this [bankruptcy] case was commenced," as well as "the gross amounts received during the two years immediately preceding the calendar year." Ex. A to Defendant Timothy D. Naegele's Motion to Dismiss Counts 1-4 of the Indictment ("Pretrial Mot. No. 1").

The indictment alleges that defendant, rather than stating the gross income of his law practice on the SFA, stated his gross income minus expenses -- in effect, the net income of his law practice. More specifically, each of Counts 1 through 3 charges defendant with making a material false statement on Item 1 of the SFA in language typified by the language of Count 1, which characterizes the falsity as follows: "That the gross amount of income from his law practice in the year 2000 to the date of the filing of the bankruptcy petition was $16,632.48 when, in truth and in fact as he [defendant] then well knew, the gross income from his law practice was at least $50,500 for that period." Indictment ¶ 9.*fn1 According to the indictment, each of these alleged misstatements constituted a violation of 18 U.S.C. § 152(3). Defendant has moved to dismiss these Counts on the ground that Item 1 of the SFA was "fundamentally ambiguous" as to what information it called for, and that defendant's responses therefore cannot support a charge of perjury under United States v. Lattimore, 127 F. Supp. 405, 413 (D.D.C.), aff'd 232 F.2d 334 (D.C. Cir. 1955), and other cases.*fn2

Count 4 pertains to an alleged misstatement by defendant on one of the Bankruptcy Schedules filed in support of his petition. On Bankruptcy Schedule I, Naegele reported a monthly "[r]egular income from operation of business or profession" of $3,500, and consequently (because he reported no other sources of income) a "total combined monthly income" of $3,500. See Ex. B to Pretrial Mot. No. 1. According to the indictment, Naegele's actual average monthly income was at least $16,850 in the year 2000 and at least $10,000 in 1999. See Indictment ¶ 9. Defendant moves to dismiss Count 4 on the ground that the section of Schedule I in response to which the alleged misstatement was made also was "fundamentally ambiguous" and thus insufficient to support a perjury charge.

Counts 9 and 10 of the indictment charge defendant with falsely testifying under oath at his May 23, 2000 creditors' meeting, in violation of 18 U.S.C. § 152(2). Count 9 states that defendant "[f]alsely testif[ied] under oath that his law practice 'just went down to nothing' when, in truth and in fact as he then well knew, he had obtained clients which had paid him substantial legal fees in the months leading up to the creditors' meeting and which he anticipated would result in continued substantial increases in income from his law practice." See Indictment ¶ 11. Count 10 states that defendant "[f]alsely testif[ied] under oath that he had only rental vehicles when, in truth and in fact as he then well knew, he possessed a model year 2000 Chevrolet Malibu which he had acquired on or about April 17, 2000." Id. Defendant has moved to dismiss both of these counts on the ground that his alleged misstatements, even if misleading, were in fact "literally true" and thus insufficient to support perjury charges under Bronston v. United States, 409 U.S. 352, 362 (1973), and its progeny.

Finally, Count 11 of the indictment charges the defendant with bankruptcy fraud under 18 U.S.C. § 157, alleging that he developed a scheme to defraud the bankruptcy court and his creditors by concealing the value of his law practice and other assets. Specifically, the indictment charges that Naegele fraudulently concealed the existence of "clients who had paid and were obligated to pay what [defendant] anticipated would be substantial legal fees" in cases pending at the time of the bankruptcy. Indictment ¶ 14. The indictment alleges that the defendant used the following manner and means in perpetrating the fraud scheme: (1) filing a Chapter 7 petition materially understating the value of his assets; (2) filing a materially false SFA and false bankruptcy schedules; (3) providing misleading testimony under oath at the creditors' meeting; and (4) preparing legal bills for his clients in such a way as to conceal the existence of these clients from the bankruptcy court and defendant's creditors. See id. ¶ 15.

Defendant has moved to strike as prejudicial surplusage Section 11(B)(c) of the indictment (part of Count 11), which contains allegations regarding defendant's preparation of legal bills, on the ground that it constitutes an allegation of "other crimes, wrongs or acts" the admissibility of which must be determined under Rule 404(b) of the Federal Rules of Evidence, because it alleges behavior not specifically proscribed by 18 U.S.C. § 157(1), (2), or (3).*fn3 Defendant further argues that the allegation in Section 11(B)(c) is prejudicial and should be stricken from the indictment.

II. DISCUSSION

A. Motion to Dismiss: "Fundamental Ambiguity"

Defendant's motions to dismiss assert two defenses: First, with respect to Counts 1 through 4, defendant argues that the questions on the SFA and Bankruptcy Schedule to which defendant allegedly gave false answers were "fundamentally ambiguous." Second, with respect to Counts 9 and 10, he argues that his alleged misstatements were literally true and thus cannot form the basis for conviction on the charged crimes.

1. "Fundamental Ambiguity" Defense to Perjury

"Perjury requires that a witness believe that the testimony he gives is false. Thus, whether the witness believes that an answer is true or false generally turns on the declarant's understanding of the question." United States v. Lighte, 782 F.2d 367, 372 (2d Cir. 1986); see also United States v. Culliton, 328 F.3d 1074, 1080 (9th Cir. 2003) (perjury conviction requires that the defendant believe that the testimony he gives is false). Consequently, a defendant cannot as a matter of law be convicted of perjury on the basis of an answer to a question that is "excessively vague" or "fundamentally ambiguous." United States v. Culliton, 328 F.3d at 1078; see also United States v. Camper, 384 F.3d 1073, 1076 (9th Cir. 2004) ("A fundamentally ambiguous statement cannot, as a matter of law, support a perjury conviction."); United States v. Lighte, 782 F.2d at 375; United States v. Lattimore, 127 F. Supp. at 413.

A question is "fundamentally ambiguous" when it "is not a phrase with a meaning about which men of ordinary intellect could agree, nor one which could be used with mutual understanding by a questioner and answerer unless it were defined at the time it were sought and offered as testimony." United States v. Lattimore, 127 F. Supp. at 410; see also United States v. Lighte, 782 F.2d at 375. With regard to statements made before a grand jury, the D.C. Circuit has stated that a question is fundamentally ambiguous if, "[w]hen the questions involved . . . are considered in the context of both the purpose of the grand jury investigation, . . . and the series of questions actually asked," "the words involved could not be 'subject to a reasonable and definite interpretation by the jury.'" United States v. Chapin, 515 F.2d 1274, 1280 (D.C. Cir. 1975). The Third Circuit has put it this way: "[A] question is 'not amenable to jury interpretation . . . when it is entirely unreasonable to expect that the defendant understood the question posed to him[.]'" United States v. Serafini, 167 F.3d 812, 820 (3d Cir. 1999) (quoting United States v. Ryan, 828 F.2d 1010, 1015 (3d Cir. 1987)). The inquiry is fact-specific, and some courts have acknowledged that "the phrase 'fundamentally ambiguous' has itself proven to be 'fundamentally ambiguous.'" United States v. Landau, 737 F. Supp. 778, 781 (S.D.N.Y. 1990).

Fundamental ambiguity, however, is something more than "mere vagueness or ambiguity." United States v. Chapin, 515 F.2d at 1279. "[A] question is not fundamentally ambiguous simply because the questioner and respondent might have different interpretations." United States v. Culliton, 328 F.3d at 1078. Even if a question is open to multiple interpretations, if it is not fundamentally ambiguous "the question of what a defendant meant when he made his representation will normally be one for the jury." United States v. Landau, 737 F. Supp at 781, 784 (quoting United States v. Diogo, 320 F.2d 898, 907 (2d Cir. 1963)); see also United States v. Camper, 384 F.3d at 1076 ("the existence of 'some ambiguity' in a falsely answered question is generally not inconsistent with a conviction for perjury"); United States v. Serafini, 167 F.3d at 820 ("in instances of some ambiguity as to the meaning of a question, 'it is for the petit jury to decide which construction the defendant placed on the question.'") (quoting United States v. Ryan, 828 F.2d at 1015); United States v. Farmer, 137 F.3d 1265, 1269 (10th Cir. 1998) ("where a prosecutor's question is only 'arguably ambiguous,' a defendant's understanding of the question is for the jury to resolve in the first instance.").

In determining whether a question is so vague as to be fundamentally ambiguous, the Court may not consider the question in isolation, see United States v. Lighte, 782 F.2d at 375, but must look to the context of the question and the answer, "as well as other extrinsic evidence relevant to [the defendant's] understanding of the questions posed[.]" United States v. Culliton, 328 F.3d at 1079; see also United States v. Serafini, 167 F.3d at 820 (quoting Fotie v. United States, 137 F.2d 831, 842 (8th Cir. 1943) ("'[a] charge of perjury may not be sustained by the device of lifting a statement of the accused out of its immediate context and thus giving it a meaning wholly different than that which its context clearly shows.'"); United States v. Farmer, 137 F.3d at 1269 ("A defendant may not succeed on a ...


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