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United States v. Naegele

April 18, 2007

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 motion to dismiss Count 7 of the indictment.*fn1 Upon careful consideration of the legal arguments presented by counsel and the record in this case, the Court will grant the motion and dismiss Count 7 of the indictment.

I. BACKGROUND

Defendant Timothy Naegele is an attorney licensed to practice law in California and in 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 with the Bankruptcy Court additional documents relating to his bankruptcy case.

Pursuant to 11 U.S.C. § 341, on May 23, 2000, the bankruptcy trustee conducted a creditors' meeting at which Mr. Naegele was questioned under oath by the trustee and several creditors about the information provided in the documents filed with the Bankruptcy Court, and about his financial situation in general. On September 5, 2000, the Bankruptcy Court granted Mr. Naegele 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 eleven-count indictment against Naegele, alleging that he had made numerous misstatements on his bankruptcy forms and in the creditors' meeting. He was charged in three counts with testifying falsely under oath at the creditors' meeting (18 U.S.C. § 152(2)), in seven counts with making false declarations or statements under penalty of perjury with respect to the documents he filed in the Bankruptcy Court (18 U.S.C. § 152(3)), and in one count with bankruptcy fraud (18 U.S.C. § 157).*fn2

A. Statement of Financial Affairs and Schedules

The Statement of Financial Affairs ("SOFA") is a five-page form that Naegele was required to complete as part of the bankruptcy proceeding. See SOFA at 1 ("This statement is to be completed by every debtor."); Indictment ¶ 2. Item 3a is located on the first page of the form, and instructs the debtor to list "all payments . . . aggregating more than $600 to any creditor, made within 90 days immediately preceding the commencement of this case." SOFA at 1. The fifth and last page of the SOFA contains Items 19a, 19b, 20a, 20b, and 21, as well as a section for the debtor to sign and attest to the facts contained in the entire document, under penalty of perjury. It reads as follows:

DECLARATION UNDER PENALTY OF PERJURY BY INDIVIDUAL DEBTOR

I declare under penalty of Perjury that I have read the answers contained in the foregoing statement of financial affairs and any attachments thereto and that they are true and correct to the best of my knowledge, information, and belief.

SOFA at 5 (emphasis added).

The Schedules are a series of forms, beginning with a Summary of Schedules, that lists each individual Schedule from A to J, and the total of the amounts disclosed in each individual Schedule. Each Schedule has separate page numbers from the other Schedules. At the bottom of each Schedule is either the notation "No continuation sheets attached" or "Page ___ of ___", to be filled out by the debtor -- depending on how many continuation sheets are attached to a particular Schedule. The final page of the entire series of Schedules -- including both the Summary of Schedules and the individual Schedules -- is a Declaration Concerning Debtor's Schedules, in which a debtor must sign the following statement:

DECLARATION UNDER PENALTY OF PERJURY BY AN INDIVIDUAL DEBTOR

I declare under penalty of perjury that I have read the foregoing summary and schedules, consisting of ____ sheets, and that they are true and correct to the best of my knowledge, information and belief.

Declaration Concerning Debtor's Schedules (emphasis added).

In contrast to the declaration that is the last page of the SOFA, the Schedules signature page is not marked with a page number. Furthermore, the page contains nothing other than the space for the debtor's signature -- presumably because it, unlike the SOFA signature page, is part of a group of documents that could be of any length, depending on how many continuation pages a debtor does or does not attach to each schedule. The variability of the length of the Schedules is further highlighted by the space allotted for a debtor to write in the total number of "sheets" contained in "the foregoing summary and schedules." On the Declaration Concerning Debtor's Schedules in Naegele's bankruptcy file, the number 18 was typed in, then crossed out, and the number 19 is written in. There are in fact 19 pages relating to Naegele's Schedules.

B. Count 7 of the Indictment

18 U.S.C. § 152(3) criminalizes "knowingly and fraudulently mak[ing] a false declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, in or in relation to a case under title 11[.]" Counts 1 through 7 of the indictment allege that on May 4, 2000 Naegele knowingly and fraudulently made seven specific material false statements or declarations "in his Statement of Financial Affairs and Bankruptcy Schedules under penalty of perjury as permitted under section 1746 of title 28, in and in relation to a case under title 11, filed in the United States Bankruptcy Court in the District of Columbia." Indictment ¶ 9. By its terms, 18 U.S.C. § 152(3) applies only to documents, because 28 U.S.C. § 1746 provides for swearing under the penalty of perjury only in written form. See 28 U.S.C. § 1746; see also Transcript of Hearing, Testimony of Assistant United States Bankruptcy Trustee Dennis Early, Feb. 7, 2007 at 151:23-152:8 ("Early Testim.").

Count 7 of the indictment specifically alleges that in Item 3a of his Statement of Financial Affairs, Naegele represented

[t]hat he had made no payments to creditors aggregating more than $600 in the 90 days prior to the filing of the bankruptcy petition when, in truth and in fact as he then well knew, he had made payments to creditors totaling at least approximately $27,800 during that 90 day period.

Indictment ¶ 9.

C. Trial Exhibit GX1B

Trial in this case was scheduled to begin on January 29, 2007. On January 16, 2007, the government and the defendant exchanged trial exhibits in compliance with this Court's scheduling order. At that time, the government included as proposed trial exhibit GX1B a five-page copy of defendant's SOFA that forms the basis of the false statement charge in Count 7. See Defendant's Memorandum of Facts and Law Regarding Potential Grand Jury Violations and Further Proceedings, Ex. B ("GX1B").*fn3 The first page of the SOFA is date stamped as having been filed on May 4, 2000 in the United States Bankruptcy Court for the District of Columbia, as alleged in the indictment. See id. at 1; Indictment ¶ 5. What the defendant discovered in reviewing the proposed exhibit, however, was that the last page of the SOFA, containing defendant's signature and declaration under penalty of perjury as well as Items 19 through 21, was Bates-stamped "SHER01839." See GX1B at 5. It therefore is identifiable as having come from the files of Jeffrey Sherman, the bankruptcy attorney who represented the defendant in the underlying bankruptcy proceeding. Documents from Mr. Sherman's files were not produced to the government by Mr. Sherman until January 10, 2007, after Mr. Sherman's assertion of the attorney-client privilege to withhold them was overruled by the Court on January 4, 2007 and he was ordered to produce them. See United States v. Naegele, 468 F. Supp. 2d 165 (D.D.C. 2007).

Counsel for the defendant brought the matter of the government's proposed trial exhibit, GX1B -- containing four pages from the files of the Bankruptcy Court and one from the files of Mr. Sherman -- to the Court's attention on January 19, 2007, three days after defense counsel had received the exhibit. See Defendant's Emergency Motion for Inspection of Grand Jury Minutes and for Dismissal of Count 7 ("Mot. Dism. Ct. 7"). The defendant requested that the Court unseal the grand jury transcripts and minutes to determine how Naegele could have been indicted on the counts alleging violations of 18 U.S.C. § 152(3) relating to the SOFA when the government did not have in its possession the signature page of the SOFA at the time of the grand jury proceedings. Defendant also moved to dismiss Count 7. See id. at 1.

Although it opposed the motion to unseal the grand jury transcript and to dismiss Count 7, the government conceded that at the time the indictment was returned, neither the government nor the grand jury had possession of page 5 of the SOFA, containing the signature portion of the SOFA signed by Naegele. The government also conceded that it had never seen Naegele's signed SOFA signature page until Mr. Sherman produced his files in response to the Court's January 4, 2007 Opinion. The government has produced a copy of Exhibit 10 from the grand jury proceedings, which contains the first four pages of Naegele's SOFA and his bankruptcy Schedules ("GJ Exh. 10"). Included in Grand Jury Exhibit 10 are two copies of the signature page to the bankruptcy Schedules, signed and dated by Naegele on May 3, 2000. Above Mr. Naegele's signature on each copy are the words, "I declare under penalty of perjury that I have read the foregoing summary and schedules consisting of 19 sheets, and that they are true and correct to the best of my knowledge, information and belief." No SOFA signature page was discovered in the files of the United States Bankruptcy Court, nor does the government have any evidence that the signature page in Mr. Sherman's possession (or a copy thereof) was ever provided to the Bankruptcy Court or any other persons associated with the bankruptcy proceeding. See United States' Consolidated Response in Opposition to Defendant's Motion to Dismiss for Prosecutorial Misconduct and Supplement to Motion to Dismiss Count 7 for Failure of Proof ("Cons. Opp.") at 11.

After reviewing the transcripts of the grand jury proceedings in camera and after considering the arguments of both parties, the Court determined that the defendant had demonstrated particularized need entitling him to review all of the grand jury transcripts and ordered them produced. See United States v. Naegele, -- F. Supp. 2d --, Crim. No. 05-151, 2007 WL 441912 (D.D.C. Jan. 30, 2007). The Court also scheduled an evidentiary hearing on the issue of potential prosecutorial misconduct before the grand jury. See id. at *4. As noted, that hearing was held on February 6 and 7, 2007. The issues developed there will be dealt with in a separate opinion. See supra at 1 n. 1.

D. Grand Jury Proceedings Relating to the SOFA

Assistant United States Bankruptcy Trustee Dennis Early testified before the grand jury on April 25, 2005 regarding the general workings of the bankruptcy process, as follows:

Q: What kinds of documents does a debtor have to file in connection with a Chapter 7 bankruptcy?

A: The bankruptcy is initiated by the filing of a bankruptcy petition, which is essentially a two-page document that just gives you general information. Really, the nuts and bolts of the filing requirement from a debtor's standpoint is the statement of financial affairs, which is a series of questions that they have to answer that basically details their financial condition in the year leading up to the filing of the bankruptcy. And then in the schedules the schedules are a number of documents, Schedules A through J, that lists all of your assets and all of your ...


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