Bankruptcy Debtors Can’t Be Discriminated Against

Overland Park Bankruptcy Attorney

The Bankruptcy Code makes specific provision for the protection of debtors who file bankruptcy. One of those protections is the right not to be discriminated against once they file bankruptcy. It is comforting for debtors to know that they are protected by specific legal provisions that prevent anyone from discriminating against them or drawing adverse inferences about them once they file a case.

Section 525 of the Bankruptcy Code specifically prohibits these forms of discrimination:

  • Discrimination by governmental entities regarding employment
  • Discrimination by governmental entities regarding the granting of licenses, permits, or franchises
  • Discrimination by private employers regarding employment issues
  • Discrimination with respect to the making or insuring of student loans

Under Section 525(a), a governmental entity cannot deny, revoke, suspend, refuse to renew, or otherwise discriminate with respect to a license, permit, or franchise. It also may not deny employment, terminate employment, or otherwise discriminate in any employment-related matter against someone who has filed a bankruptcy. The protections here are interpreted broadly. Any discrimination interfering with the fresh start intended by the Bankruptcy Code will run afoul of Section 525. Filing a case, failing to pay a dischargeable debt, or being insolvent cannot be used against a bankruptcy debtor, period.

We should also note here that Section 525(a) also prohibits state motor vehicle bureaus from denying drivers licenses to people because of unpaid fines or dischargeable debts in bankruptcy. This section has also been used to prevent discrimination in the denial of real estate licenses, insurance licenses, contractor licenses, and liquor licenses to bankruptcy debtors. Educational institutions (colleges) also cannot withhold transcripts from debtors who have filed bankruptcy. Housing authorities also cannot evict bankruptcy tenants due to dischargeable unpaid rent that was taken care of in a bankruptcy case.

What constitutes a “governmental entity” is interpreted broadly under Section 525. It may include public housing authorities, racing commissions, city water boards, utility boards, and even creditors who act as vicarious agents of the state. The definition of a “person” for Section 525 purposes has been held to encompass both individuals and businesses. Surprisingly, Section 525 also protects people who have been associated with a bankruptcy debtor. In one case, a school district was forbidden to collect discharged school tuition from a relative of the debtor. In Re Dembek, 64 B.R. 745 (N.D. OH, 1986). Of course, the debtor in these situations must show (or show a substantial likelihood) that the discrimination occurred because of the bankruptcy filing, and not because of some unrelated matter.

State motor vehicle departments cannot discriminate against a bankruptcy debtor in license issues, where a debtor has discharged fees, costs, or fines related to drivers licenses. Furthermore, the suspension of drivers license due to a dischargeable traffic fine has been held to be a violation of Section 525(a). Equally important is the fact that governmental entities cannot tamper with licenses, permits, or grants. Many debtors have real estate licenses, insurance licenses, or other types of licenses, and it is not permitted for any agency to use the fact that a person filed a bankruptcy as a way to treat them differently from someone who has not filed a case. For example, in In Re Bradley, 989 F.2d 802 (5th Cir. 1993), the revocation of an agent’s insurance license by the state insurance commissioner due to the nonpayment of a discharged insurance-related debt was a violation of Section 525.

This section is important in the consideration of licenses and permits of professionals. In one case, a physician who had filed bankruptcy was able to prevent his removal from the state’s list of Medicaid-eligible doctors. Berkelhammer v. Novella, 279 B.R. 660 (S.D. NY 2002). Doctors, dentists, attorneys, insurance professionals, and real estate professionals have all been able to use Section 525 to prevent bankruptcy-related discrimination against them.

Eviction from public housing that happens as a result of discharging rent obligations is also a violation of Section 525. Such attempts to discriminate against a bankruptcy debtor amounts to a roundabout way of coercive debt collection. Furthermore, the denial of a rental application due to notations on a credit report from a bankruptcy filing has been held to be a violation of Section 525(a). In Re Oksentowicz, 314 B.R. 638 (E.D. MI, 2004).

Bankruptcy debtors cannot be discriminated against in employment issues, either. Being notified of a bankruptcy and using that against a person, having to withhold wages as part of a Chapter 13 plan, or otherwise using the fact of a bankruptcy filing in a negative way are all prohibited under Section 525. A debtor who can show that the discrimination was related to the bankruptcy is entitled to injunctive and declaratory relief.

Read More:  Adding Unscheduled Creditors Or Assets To A Bankruptcy Case

Damages For Violations Of The Automatic Stay In Bankruptcy Cases

Overland Park Bankruptcy Attorney

The automatic stay is one of the most fundamental protections provided to a debtor in a bankruptcy case. It is not, then, surprising that bankruptcy courts take a very dim view of creditors who ignore the protections granted to a debtor after the filing of a case. The bankruptcy code permits a debtor to recover damages for violations of the automatic stay; those provisions are contained in 11 U.S.C. §105(a) and 11 U.S.C. §362(k).

Section 105(a) allows the bankruptcy court to enforce its orders by using contempt proceedings. The automatic stay is considered to be in effect through a court order, so that violations would be covered under this provision. However, Section 362(k) is more specific and more commonly used. It creates a separate right to damages for parties affected by a creditor’s violation of the automatic stay. So, while an aggrieved debtor may proceed under either section, it will usually make more sense to use Section 362(k) for most consumer purposes. Section 362(k) permits punitive damages; it requires a less strict standard than 105(a); it has simpler noticing requirements; and it is a core proceeding, so that it can be heard and decided by the bankruptcy court. See In Re Johnson, 390 B.R. 414 (10th Cir. B.A.P. 2008).

To prevail in an action under Section 362(k), the following elements must be shown:

  • 1. The debtor must be an individual.
  • 2. The offending person or entity must have violated at least one provision of 11 U.S.C. §362 (the automatic stay provision imposed by the court).
  • 3. The violation of the automatic stay must have been “willful.”
  • 4. The person seeking relief must have been injured in some way, and have incurred damages as a result of the violation.

While the term “individual” normally refers to persons, there is a dispute of authority whether businesses or corporations may recover under Section 362(k). Some circuits limit automatic stay violations actions under 362(k) to persons; some circuits take the position that businesses also may pursue damages for stay violations under 362(k). Even if a business were not eligible to proceed under 362(k), it would still be able to pursue damages for an automatic stay violation under another section of the Code. Many courts also hold that a trustee qualifies as an “individual” under Section 362(k); but there are some decisions that have gone the other way. See, e.g., In Re Pace, 67 F.3d 187 (9th Cir. 1995).

The debtor must also show that the actions of the creditor fall under at least one provisions of the automatic stay as laid out in Section 362. If a case has been closed or dismissed, then the automatic stay terminates, and damages might not be allowed. A creditor who tries to collect or enforce a nondischargeable debt must still, however, obtain stay relief from the court before undertaking such actions. In actual practice, technical violations of the automatic stay happen all the time in bankruptcy cases. Letters are sent to debtors; phone calls are made to them; they are contacted when represented by counsel, and other similar things happen with some frequency. However, such de minimis violations rarely rise to the level of causing actionable harm to a debtor. Some actions do cause harm: an attempt to enforce a prepetition judgment; an attempt to obtain, create, or perfect a lien on bankruptcy estate property; or a setoff of a prepetition debt owed by a debtor can cause actual harm.

The “setoff” game is a very common tactic of banks and other financial institutions. What normally happens is that a debtor will file a case, and then at some point during the case, the creditor will try to debit, deduct, or setoff the debt with some other monies available to it from some other account. Similar games are often played by credit unions with “cross collateralized” loan structures. This type of conduct is not permitted. It is a defense to a creditor to say that it was relying on the advice of counsel in its actions. Even the belief that a creditor was acting in good faith is not a defense. In Re Radcliffe, 563 F.3d 627 (7th Cir. 2009).

A debtor must show some injury as a result of the creditor conduct. There must be some way to quantify the damages, even if they are small. Section 362(k) permits the recovery of actual damages, as well as costs and attorney fees. Damages here can come in many forms: lost wages, improper setoffs, liens improperly attached, garnishments improperly taken, and even emotional damages if such can be properly quantified. Even punitive damages are permitted if the creditor conduct is malicious, oppressive, egregious, or in bad faith.

Read More:  With Bankruptcy Discharge, School Cannot Deny Transcript

Computer Fraud And Computer Crimes

Kansas City Computer Crimes Attorney

Overland Park Computer Crimes Attorney

Congress centralized computer crimes under one statute in 1984 with the passage of the “Counterfeit Access Device and Computer Fraud and Abuse Act.” The intention was to have a tool to prosecute computer-related crimes under the rubric of one statute. The Act (also called CFAA, for “Computer Fraud and Abuse Act”) was broadened in 1996 to apply to all computers used in interstate commerce, foreign commerce, and foreign communication. Essentially, then, every computer in America connected to the internet can fall under the Act. The Act also allows civil actions for compensatory damages and equitable relief in some situations. 18 U.S.C.A. §1030(g).

In 2002, Congress passed the Cyber Security Enhancement Act, which amended the CFAA to increase the statutory penalties associated with the Act. The scope and reach of enforcement in this area is, to say the least, extensive. It seems clear that many citizens are not fully aware of either the power of the current computer statutes, or the case law holdings in this area. This is an area of the law that deserves wider scrutiny and awareness.

18 U.S.C.A. §1030(a)(1) has been referred to as the “computer espionage statute.” It was intended to prevent knowing access of government computers to obtain classified information. It is a felony to knowingly access a computer without authorization, or to exceed the scope of such authorization if it existed, “with reason to believe that such information could be used to the injury of the United States, or to the advantage of any foreign nation.” A person must (a) have reason to believe that the information so obtained would harm the U.S. or be of advantage to a foreign nation, and (b) either willfully send such information to an unauthorized person or willfully retain such information and fail to deliver it to the U.S. Significantly, the Second and Ninth Circuits have held that the government is not required to prove that the defendant intentionally caused damage, but only that a defendant intentionally accessed the computer. U.S. v. Morris, 928 F.2d 504 (2nd Cir. 1991); U.S. v. Sablan, 92 F.3d 865 (9th Cir. 1996).

18 U.S.C.A. §1030(a)(2) was intended to protect the confidentiality of computer data. In an age where hackers can expose peoples’ personal information, there was held to be a need for such a subsection in the CFAA. Under this subsection, it is a crime to (a) obtain information contained in financial institutions or reporting companies; (b) obtain information from any department or agency of the government; or (c) obtain information from any protected computer if the conduct involves interstate or foreign commerce. A person must first deliberately (as opposed to accidentally or inadvertently) access a computer and then obtain the information.

18 U.S.C.A. §1030(a)(3) prohibits unauthorized access of government computers. Any unauthorized access of a government computer can theoretically trigger a violation of this subsection. If the government does not exclusively use a computer (i.e., if it is a shared computer), then the access is wrong only if the access “adversely affects the use of the government’s operation of such computer.” 18 U.S.C.A. §1030(a)(4) is the “computer fraud” statute. It is a crime to access and fraudulently use a protected computer to obtain something valued at more than $5000 in any one year period. The intention here was to protect computers from hackers who break into computers and use them to commit multiple frauds. There is a requirement of showing an intent to defraud under this subsection.

18 U.S.C.A. §1030(a)(6) governs the trafficking in computer passwords. It is unlawful to traffic (i.e., exchange, sell, distribute, or market) in passwords or similar information through which a government computer may be accessed without authorization. Finally, subsection (a)(7) of the same statute prohibits computer extortion. It prohibits any attempt to extort money or other things of value using a computer. It also covers interstate or international sending of threats against computers or networks.

Defenses to these statutes have been developed by case law. It is apparently a defense to a charge of accessing a protected computer that a person did not obtain anything of value. U.S. v. Czubinski, 106 F.3d 1069, 1079 (1st Cir. 1997). Mere browsing of protected data was not enough, in this case, to sustain a conviction. The government must show, rather, that the information obtained was valuable as part of the defendant’s alleged fraudulent scheme. In addition, the damage from the unauthorized access must cause some injury, in the amount of at least $5000 over a one-year period, or lead to potential injury or a threat to public health or safety.

There are a variety of other statutes (at the federal level, at least forty) that govern computer crimes. This area of criminal law is, without doubt, one of the fastest growing (and fastest changing) and most “cutting edge.” The problems associated with the keeping of vast amounts of electronic data, emails, backup files, and other records ensure that this area of law will continue to be directly relevant to most people in a way that other types of criminal statutes are not.

Read More:  Computer-Based Child Pornography Crimes And Defenses

Classification Of Claims And Interests In Chapter 11 Bankruptcy Cases

Kansas City Business Bankruptcy Attorney

The classification of claims and interests in a Chapter 11 bankruptcy case is governed by Section 1122 of the Bankruptcy Code. The ability of a plan proponent to group certain claims in certain categories is a powerful tool in the confirmation process, since it can have a direct effect on the voting and objection process. While claims and interests are supposed to be “substantially similar” to each other in theory, in practice this standard can present many complexities. Must all claims of the same type be placed in the same class? When can substantially similar claims be placed in separate classes? Should legal, or factual, standards be controlling?

Plan are also required to provide the same treatment for each claim or interest within each class, unless the holder agrees to different treatment of its claim or interest. Being able to treat different creditors may in some cases be related to the ability to classify them differently. As a general rule stated above, claims and interests within a class must be “substantially similar” to each other. This does not mean—and the Code does not address this issue—that all substantially similar claims must be placed in the same class. In Re Dow Corning Corp., 280 F.3d 648, 661 (6th Cir. 2002). Courts generally do not require this. However, a plan proponent in this situation must present a reasonable justification for such separately classifying claims that are substantially similar. In Re Armstrong World Industries Inc., 348 B.R. 136 159 (Bankr. D. Del. 2006).

Claims and interests are inherently different, and cannot be lumped together in the same class. A “claim” is defined in Section 101 of the Code. “Interest” is not defined in the Code, but it amounts to a proprietary right, such as common stock or some other equity interest. As a general rule, classification should be based on the legal nature of the claim or interest. The claims do not need to be precisely the same. In fact, a plan proponent can choose to create other classes of claims based on reasonable distinctions between claims. A plan must classify Section 507(a) priority claims other than administrative expense claims, involuntary gap claims, and unsecured tax and customs duties claims (i.e., Sections 507(a)(2), (a)(3), and (a)(8)). Priority claims should be separately classed because such claims are normally very similar in nature. Regarding secured claims, the analysis will generally revolve around: the nature of the collateral, priority, and the agreements among creditors regarding subordination, if any.

Administrative convenience classes are an issue of some note. Section 1122(b) permits a plan proponent to designate a separate class for unsecured claims that happen to be less than a specified dollar amount, provided that a court approves this as being reasonable and necessary. Section 1122(b) does not forbid the creation of more than one convenience class. As long as such a scheme is reasonable and necessary, it is permitted. One interesting issue is whether an unsecured deficiency claim created by Section 1111(b) should be classified with other unsecured claims. A majority of courts has held that an unsecured deficiency claim created under Section 1111(b) cannot be classified separately from other unsecured claims. There is a minority view that holds differently, for reasons that are not altogether convincing.

Whether claims are “substantially similar” is normally reviewed under the “clearly erroneous” standard. The court will look at the reasons behind the classification and make sure that such reasons comport with the primary functions of the Bankruptcy Code. The Federal Rules of Bankruptcy Procedure here provide some guidance on the matter. Rule 3013 states that on motion, the Court may determine the appropriate classification of a claim.

Read More:  Arbitration, Mediation, and Bankruptcy:  What Are The Limits?

Immigration Crimes

Overland Park Immigration Crimes Attorney

In 1952, Congress passed the McCarran-Walter Act, the so-called “Immigration and Nationality Act” (INA), which has been codified into law under 8 U.S.C. §1101 to 1503. There are many other immigration-related statutory provisions (and more likely on the way soon), but modern immigration legislation derives in large part from the legislative work that was done in the 1950s. When discussing immigration crimes, there is a clear distinction between what happens at the state level and what happens at the federal level. At the state level, enforcement efforts often focus on criminal complaints or indictments against undocumented immigrants for crimes associated with unlawful residence: forgery, identity theft, fraudulent use of credit devices, and other related state-level crimes.

At the federal level, different crimes are often the focus of prosecutorial efforts. Smuggling, transporting, or harboring aliens are distinct federal crimes, and will be discussed separately.  Under 8 U.S.C. §1324(a), it is unlawful for anyone to:

(a) bring an alien into the United States,
(b) transport or harbor an alien,
(c ) encourage an alien to enter the United States, or
(d) to conspire to commit any of the preceding offenses.

Illegal entry is governed by 8 U.S.C. §1325. Under §1325(a), any alien who:
(1) enters or attempts to enter the United States at any time or place other than as designated by immigration officers, or
(2) eludes examination or inspection by immigration officers, or
(3) attempts to enter or obtains entry to the United States by a willfully false or misleading representation or the willful concealment of a material fact;

shall, for the first commission of any such offense, be fined under title 18 or imprisoned not more than 6 months, or both, and, for a subsequent commission of any such offense, be fined under title 18, or imprisoned not more than 2 years, or both.

Under 8 U.S.C. §1324(b), civil penalties can be assessed for violations of immigration provisions:
Any alien who is apprehended while entering (or attempting to enter) the United States at a time or place other than as designated by immigration officers shall be subject to a civil penalty of—
(1) at least $50 and not more than $250 for each such entry (or attempted entry); or
(2) twice the amount specified in paragraph (1) in the case of an alien who has been previously subject to a civil penalty under this subsection.
Civil penalties under this subsection are in addition to, and not in lieu of, any criminal or other civil penalties that may be imposed.

Under §1325(c ), “marriage fraud” is criminalized; it is defined as “knowingly” entering into a marriage for the purpose of evading any provision of the immigration laws. And §1325(d) criminalizes “immigration-related entrepreneurship fraud”, which is defined as “knowingly” establishing a commercial enterprise for the purpose of evading the immigration laws.

Smuggling. Smuggling is defined as knowingly bringing or attempting to bring an alien into the United States at a non-designated place of entry. Even if a person has received “prior official authorization” to come to the United States, a crime may be alleged if the person is brought in at a non-designated place of entry.

Transporting. Anyone who “transports, or moves or attempts to transport or move…[an] alien within the United States by means of transportation or otherwise, furtherance of such violation of law” may be in violation of 8 U.S.C. §1324(a)(1). The key consideration in a transportation offense is the “reason” behind the transportation. U.S. v. Moreno, 561 F.2d 1321, 1323 (9th Cir. 1977). Courts have held, for example, that it is not a crime to transport known illegal aliens between job sites in the ordinary and required course of the defendant’s employment, or to transport aliens for job searches in another state. U.S. v. Moreno-Duque, 718 F.Supp. 254 (D. Vt. 1989); U.S. v. 1982 Ford Pick-Up, 873 F.2d 947 (6th Cir. 1989). However, some courts have held that transportation for work or employment reasons is not a defense to the crime of transportation of undocumented aliens. U.S. v. Shaddix, 693 F.2d 1135, 1138 (5th Cir. 1982).

Harboring. Harboring an alien is covered under §1324(a)(1)(A)(iii). It basically criminalizes any attempt to shield or protect an unlawful alien from detection from the authorities.
Hiring. It is unlawful to recruit or hire someone who is an alien. §1324(a)(1)(A). The burden of compliance is placed squarely on the shoulders of an employer. Failure to comply with the eligibility verification process is itself a crime. Evidence of violations of these provisions can be found, according to §1324, as follows. The applicable section reads:

In determining whether a violation of subsection (a) of this section has occurred, any of the following shall be prima facie evidence that an alien involved in the alleged violation had not received prior official authorization to come to, enter, or reside in the United States or that such alien had come to, entered, or remained in the United States in violation of law:
(A) Records of any judicial or administrative proceeding in which that alien’s status was an issue and in which it was determined that the alien had not received prior official authorization to come to, enter, or reside in the United States or that such alien had come to, entered, or remained in the United States in violation of law.
(B) Official records of the Service or of the Department of State showing that the alien had not received prior official authorization to come to, enter, or reside in the United States or that such alien had come to, entered, or remained in the United States in violation of law.
(C) Testimony, by an immigration officer having personal knowledge of the facts concerning that alien’s status, that the alien had not received prior official authorization to come to, enter, or reside in the United States or that such alien had come to, entered, or remained in the United States in violation of law.

Due to some dispute between state and federal authorities over who has the enforcement authority in these matters, a provision was inserted in Section 1324 specifying who has the authority to make arrests: “No officer or person shall have authority to make any arrests for a violation of any provision of this section except officers and employees of the Service designated by the Attorney General, either individually or as a member of a class, and all other officers whose duty it is to enforce criminal laws.”

Forfeiture provisions round out Section 1324, making it clear that asset forfeiture can come into play when violations of these provisions are found. As Congress continues to amend, modify, and add to the complex rules surrounding immigration, it is not unreasonable to expect significant changes in immigration crimes and enforcement in the years ahead.

Read More:  Identity Theft And Identity Fraud Crimes In Kansas And Missouri

Adversary Proceedings In Bankruptcy: Collateral, Liens, Valuation, And Lien Stripping

Overland Park Bankruptcy Attorney

Overland Park Business Bankruptcy Attorney

Adversary proceedings can be used to dispute, remove, or contest liens. The validity of a lien can be disputed by a trustee or a Chapter 11 debtor in possession under several of the various “avoidance” sections of chapter 5 of the Bankruptcy Code. For example:

  • Section 547:  Trustee or debtor in possession can avoid a lien as a voidable preference.
  • Section 548: A lien can be disputed as a “fraudulent conveyance.”
  • Section 544(b): A trustee can use a creditor’s avoidance rights (a creditor holding an unsecured allowable claim) under state or federal law.
  • Section 544(a): A consensual or statutory lien can be disputed as being invalid against a judicial lien creditor, execution creditor, or bona fide purchaser of real property from the debtor. Tax liens can be attacked using adversary proceedings, pursuant to In Re Dunmore, 262 B.R. 85, 87 (Bankr. N.D. Cal. 2001).
  • Section 545: A trustee or debtor in possession can avoid statutory liens on the property of the debtor in certain situations.
  • Section 549: A trustee or debtor in possession can avoid the transfer of most unauthorized post-petition transfers of property of the estate.

There are some situations in which the validity of a lien can be contested indirectly. For example, a secured creditor filing a proof of claim may claim a security interest. The trustee or debtor in possession can object to the claim under F.R. Bankr. P. 3007. If the creditor cannot verify its secured status, the claim may be disallowed as a secured claim.
Sometimes valuation of the collateral in question is an important issue. This issue can come up in adversary proceedings that attempt to strip away the second or third mortgage that is claimed to be wholly unsecured. In Re Mansaray-Ruffin, 530 F.3d 230 (3d Cir. 2008).

Here, the real issue is to what “extent” the secured creditor is secured. If there is no equity in the property to which a lien can attach, then the lien is said to be unsecured.
For example, suppose a house has a fair market value of $150,000. The first mortgage secured against the property is in the amount of $165,000. There is no equity left in the property for any second mortgage to attach to, since the mortgage is larger than the fair market value. Under Section 506(a) of the Code, secured claims are to be valued and allowed as secured to the extent of the value of the collateral, and unsecured for the excess over such value.

This provision is implemented by F.R. Bankr. 3012. Under Rule 3012, the court can determine the value of a claim secured by a lien on property on motion of any party in interest. If a debtor attempts to “strip off” or “strip down” a lien based on valuation, the majority view is that no adversary proceeding is required. Harmon v. U.S., 101 F.3d 574 (8th Cir. 1996); In Re King, 290 B.R. 641, 647 (Bankr. C.D. Ill. 2003); In Re Marsh, 475 B.R. 892, 896 (N.D. Ill. 2012). Local rules and procedures here will provide the best guidance on whether a lien can be removed by motion or by adversary proceeding.

Despite the case law supporting the idea that unsecured mortgages can be removed by motion, in practice most courts prefer that this by done by adversary proceeding, due to the nature of the rights of the creditor that are being affected.In the 8th Circuit, there is case law holding that a debtor can strip off a junior lien of a wholly unsecured claim on a debtor’s principal residence by confirmation of a Chapter 13 plan. In Re Fisette, 455 B.R. 177 (8th Cir. BAP 2011).

If a trustee is in doubt as to the priority of a lien in estate property, an adversary may be appropriate. For example, if the trustee is authorized to sell estate property under Section 363(b) of the Code “free and clear” of other interests, then an adversary might need to be used.A trustee could use Rule 7022 to do this, which permits him to interplead any competing claimants and obtain a determination of the rights of all the various claimants. An adversary proceeding can also be used under Rule 7001 to determine “other interests in property.”

Adversary proceedings have a wide range of uses. They can be used by a Chapter 11 debtor in possession, a debtor in a Chapter 7 or Chapter 13 case, by a trustee, or by a creditor. Besides providing a way to object to the discharge of certain debts, they are commonly used to determine property rights, valuations of secured collateral, extent of security interests, and determinations of ownership priority in collateral.

Read More:  Bankruptcy Adversary Proceedings Under Section 523:  Seeking To Prevent Discharge of Certain Debts

Computer-Based Child Pornography Cases And Defenses

Kansas City Sex Offense Attorney

Internet-based prosecutions for child pornography have skyrocketed since 1997.  Simply stated, internet obscenity cases have skyrocketed.  From 1997 to 2004, there was a 422% increase in federal cases of this type.  The numbers have grown steadily since then.  In 2011, prosecutions were up by 40% since 2006, with an increasing number of more than 9,000 active cases.  Similar numbers have been observed for state-level cases.  We will discuss the background, nature, and defense of computer-based child pornography cases to better understand this expanding and serious area of federal and state prosecution.  Law enforcement agencies have adopted the latest state-of-the art technologies in devoting resources to this area, and deploy their resources accordingly.

18 U.S.C. §2251 criminalizes the use of a minor to “engage in…explicit conduct for the purpose of producing any visual depiction of such conduct.”  The elements of the offense are:

  • The person was under 18 years of age at the time of the offense;
  • The defendant used, persuaded, enticed, or coerced the person to engage in sexually explicit conduct;
  • The defendant voluntarily and intentionally did this for the purpose of producing a visual depiction of such conduct;
  • The defendant knew or had reason to know that the image would be transported across state line; or the image was produced using materials that had been transported across state lines; or the image was actually transported across state lines.

18 U.S.C. §2252 prohibits the possession and distribution of depictions of minors engaged in sexual conduct with a “nexus” to interstate commerce.  The elements here are the following:

  • Transporting child pornography in interstate commerce;
  • Receiving or distributing child pornography that has been transmitted or shipped through interstate commerce;
  • Selling or possessing with the intent to sell child pornography that has been transmitted through interstate commerce;
  • Possessed books or videos of child pornography that has been transmitted through interstate commerce.

A defendant may be liable under this section of he or she uses a computer to access child pornography on a website and knows that his computer stores the images.  What has been heavily litigated is whether knowing possession occurs when a person merely accesses such websites, or views pornography without actively downloading it, and without the awareness that viewing the contraband may “store” the images in the cache.  See, e.g., U.S. v. Tucker, 305 F.3d 1193, 1205 (10th Cir. 2002).  It is also critical to distinguish between “possession” and “receipt.”  To show knowing receipt of such contraband, prosecutors have tended to focus on the following things:

  • Were the images found on the computer?
  • How many images were found on the computer?
  • Was the content of the images clear from the file names of the images?
  • Did the defendant have the knowledge and ability to access the storage area for images?

Problems in these cases can arise from sufficiency of evidence issues.  The hiring and employment of a computer forensics expert is critical in making actual determinations as to the government’s burden of proof.  The government must establish the age of the person(s) depicted in the images in question, and the defendant’s knowledge of such age, although both of these things may be established circumstantially.  U.S. v. Smith, 459 F.3d 1276, 1287 (11th Cir. 2006).

Where the accusation is one of “distribution” (the sharing of images with other parties), a question often arises about “delivery” of the images.  Does there have to be an affirmative “delivery” to someone else, or is “distribution” complete if the files or images are “made available” for sharing with others by means of file-sharing software.  The Ninth Circuit has held, and most courts also hold, that the mere downloading of file-sharing programs and understanding of how they work can satisfy the distribution requirement.  U.S. v. Budziak, 697 F.3d 1105, 1109 (9th Cir. 2012).

Some affirmative defenses to child pornography possession or distribution appear in 18 U.S.C. §2252(c ):

  • Possession of less than three matters containing any visual depiction;
  • Promptly and in good faith, and without retaining or allowing any person, other than law enforcement, to access any visual depiction of illegal conduct, the defendant did the following:
  • Took reasonable steps to destroy such visual depictions, or
  • Reported the matter to a law enforcement agency and afforded that agency access to such materials.

Searches of computers will raise a number of evidentiary issues.  As stated above, expert knowledge of computer forensics will be required to evaluate the following things:  expectations of privacy, probable cause, “good faith”, the plain view doctrine, and consent.  The computer expert witness has become a key player in the process.  Experts are needed to explain how computers work, the age of the persons depicted in visual representations, and the precise nature of the alleged “possession” or “distribution.”  File sharing networks are constantly changing, and it is absolutely critical to have the assistance of an expert in evaluation of these matters.  An aggressive defense that focuses on the nature and deficiencies of the computer evidence, and a solid understanding of the case law in this area, are the ways to successful outcomes.

Read More:  Computer Crimes And Cyber Crimes In Kansas And Missouri

Bankruptcy Crimes And Defenses

Overland Park White Collar Crimes Attorney

In extreme cases of alleged violations of federal bankruptcy laws, criminal accusations can arise.  Bankruptcy crimes are quite rare in practice.  There is a strong presumption that issues arising in bankruptcy cases are best handled by bankruptcy judges and trustees as civil matters.  In rare situations, criminal investigations and accusations do happen, and we will here discuss some of the possible criminal charges that have historically been used by federal prosecutors.  Bankruptcy crimes typically fall within one or more of the following types:  knowingly or fraudulently concealing property, making false oaths or accounts, fraudulently doctoring evidence, or withholding documents.  We will conclude this article with a general discussion of successful defenses to accusations of a bankruptcy crime.

Fraudulent Concealment Or Transfers.  Bankruptcy crimes are described in the subparts of 18 U.S.C.A. §152.  Fraudulent concealment or transfer of assets is therefore criminally governed by 18 U.S.C.A. §152.  The requisite mental state here is one of “specific intent”:  it is necessary to prove that the action was taken “knowingly” and “fraudulently.”  This is often difficult to prove.  “Fraudulently” means making a false representation of a material fact, with knowledge of its falsity and with the intent to deceive.  U.S. v. Berry, 678 F.2d 856, 866 (10th Cir. 1982).  Intent to deceive is different from intent to defraud.  “Knowingly” means with knowledge, and not due to some mistake or accident.  Such knowledge can be inferred, in some situations, from the surrounding circumstances.  U.S. v. West, 22 F.3d 586 (5th Cir. 1994).

Debtors have a duty to disclose all property in their case, including “all legal and equitable interests.”  Concealment does not require physical “hiding” of the asset.  Concealment can be found when someone deliberately prevents discovery of an asset, or withholds knowledge of it.  U.S. v. Weinstein, 834 F.2d 1454, 1426 (9th Cir. 1987).  Concealment can also be the transfer of title coupled with the benefits of ownership.  In Re Bradley, 501 F.3d 421, 434 (5th Cir. 2007).  Section 152(1) of the 18 U.S.C.A. deals with concealing property from the bankruptcy trustee, while Section 152(7) involves deliberate concealment before a case is filed.  The act of concealment may continue for the entire period of concealment to avoid the bar of the statute of limitations.  U.S. v. Stein, 233 F.3d 6 (1st Cir., 2000).  In the Stein case just cited, for example, the bankruptcy was filed in 1990, but the federal indictment was not handed down until 1998.

Not all retaining of assets involves improper concealment.  There is a very important distinction between a transfer that relinquishes one of all interest in property, and a transfer that does not.  In Re Olivier, 819 F.2d 550, 553 (5th Cir. 1987).  If the transfer is absolute, it may not be an act of concealment, even if the creditors have been defrauded.  This distinction is important, as it bears directly on the statutes of limitations for the criminal prosecution of a transfer offense.

False Oaths.  A false oath is basically a false statement or omission in the debtor’s schedules, or a false statement made by a defendant under oath in any part of the bankruptcy proceedings.  The false oath must be made on a material issue.  In other words, a false statement on a minor issue will not suffice.  Section 152(4) of 18 U.S.C.A. deals with false claims.  A false claim is willfully and knowingly participating in the filing of a false claim for the purpose of defrauding the bankruptcy court and the other creditors in the case.

False Treatment Of Documents.  False treatment of documents is dealt with under 18 U.S.C.A. §152(8).  This would arise in cases where an individual falsifies or makes a false entry related to a document related to the affairs of a debtor.  Significantly, a court has held that false statements in disclosure statements and plans of reorganization are not considered knowing and fraudulent false entries under §152(8).  This is so because disclosure statements and plans of reorganization do not relate to a debtor’s financial recordkeeping.  U.S. v. McDaniel, 2006 WL 839095 (W.D. Mich. 2006).  Section 152(9) deals with situations where an individual fraudulently withholds documents from the trustee or the court after the filing of a bankruptcy case.

Defenses To Accusations Of Bankruptcy Crimes.  Most (but not all) defenses to bankruptcy crimes in general relate to (1) lack of materiality; (2) good faith; (3) mistake of law or fact; or (4) entrapment by estoppel.  This list is not exhaustive.  A defendant has the full range of defenses available to him under common law or case law, provided the judge allows it to be included in jury instructions.  “Lack of materiality” boils down to stating that even though a false statement was made, it was pertaining to an immaterial issue.  “Good faith” is the assertion that a defendant was acting without any culpable mental state, or may have been relying on advice from a spouse or governmental agency.  Mistake defenses are similar to the “entrapment by estoppel” defense.  In entrapment by estoppel, a defendant asserts that he or she was relying on the advice of some governmental agency, whose advice turned out to be incorrect.

Criminal charges involving bankruptcy crimes are rare, and are reserved for unusual or extreme situations.  However, if such an accusation is made, it is critical to have legal counsel who is experienced in both bankruptcy law and federal criminal defense.  At Phillips & Thomas LLC, we are uniquely placed in this regard.  Our practice focuses solely on these two areas of law.  When an issues arises that involves both the Bankruptcy Code and the federal criminal statutes, we are able to bring our more than thirty years of collective experience in these two complex areas of law to deal with the problem decisively and successfully.

Read More:  White Collar And Financial Crimes

Criminal Conspiracy Cases In Kansas And Missouri

Overland Park Criminal Attorney

In the United States, the modern laws related to criminal conspiracy began to take shape in the late nineteenth century.  In the most basic definition, conspiracy is an agreement between two or more persons formed for the purpose of committing a crime.  The purpose behind criminalizing conspiracy was twofold:  to exercise some control over “inchoate” (i.e., unripe or incomplete) activities, and to punish group behavior that had crime as its object.  The crime of conspiracy is the illegitimate agreement.  Although simple to define, the offense presents many difficult problems in further analysis.  What is an “agreement”?  At what point does it begin?  What happens if there are multiple agreements over time, or if a person withdraws from the agreement?

Since the essence of the crime of conspiracy is the agreement, the prosecution must first show that an agreement existed to commit a crime.  Direct proof of a formal agreement is not necessary; the existence of an agreement may be shown by drawing reasonable inferences from the conduct of the actors or other circumstantial evidence.  A common course of conduct, aiding and abetting, collusive actions, or other types of circumstantial evidence may suffice, if it is convincing enough.  Conspiracy charges are seen most often in federal court, rather than in state court.  The greater resources available to federal law enforcement agencies for complex investigations with surveillance, wiretapping, and confidential informants may be one of the reasons for this.

In some situations, no overt act need be taken by the conspirators once the agreement is made.  In other words, criminal liability may attach upon the formation of the agreement.  To avoid complicity in a conspiracy, some courts have held that “one must withdraw before any overt act is taken in furtherance of the agreement.”  See, e.g., U.S. v. Karr, 742 F.2d 493, 497 (9th Cir. 1984).  As a further example, one court held that “For drug conspiracies under 21 U.S.C. Sect. 846, no overt act is required.  Once the agreement is made, the offense is complete.” U.S. v. Francis, 916 F.2d 464, 466 (8th Cir. 1990).  Once the conspiracy has formed, a conspirator may withdraw from it, but may still be faced with a conspiracy charge, and for any acts in furtherance of the conspiracy before his withdrawal.  To withdraw from the conspiracy, a person must show that he or she deliberately acted to disavow the purpose of the conspiracy.  A defendant must take timely action, and give notice to his co-conspirators that his participation is finished.

One of the main issues in conspiracy cases is the “overt act” requirement.  In most conspiracy scenarios, the prosecution must show that one of the conspirators took some step in furtherance of the conspiracy.  The step need not be hugely significant, and it need not be unlawful in itself.  Generally, any step in preparation will suffice.  Any act taken by any conspirator will normally be used against all the defendants.  However, some courts have held that if the overt act(s) were performed by defendants who were ultimately acquitted of conspiracy charges, then those overt acts may not be used against other defendants.  U.S. v. Hutchinson, 488 F.2d 484 (8th Cir. 1973).

Generally, the prosecution must show that the conspirators specifically intended both to agree, and to commit, the object offense.  Mere association with a conspirator is not enough:  there must be an intent to agree.  Some uncertainty can arise when the defendants have no knowledge of the illegal nature of the conspiracy’s goal.  This so-called “corrupt motives” doctrine has been resolved in various ways by state and federal courts.  In general, at the federal level, knowledge of the federal nature of the crime (interstate commerce, assault on a federal officer, etc.) need not be shown in a conspiracy prosecution except where the substantive crime requires such proof.

The so-called “Wharton’s Rule” prohibits the prosecution of both the conspiracy and the principal offense when both charges involve the same activity.  In recent years, this rule has been somewhat restricted.  The rule does not apply when the principle offense has not been completed.  The Supreme Court case of Ianelli v. U.S., 420 U.S. 770 (1975) stands for the idea that there is a judicial presumption that dual prosecution for the two offenses is not allowed.

What is important is to examine the nature of the relationships between the parties in such cases.  “Wheel” conspiracies involve one central person who makes arrangements with different persons, who form the “spokes” of the wheel.  “Chain” conspiracies involve various persons who are linked by some unity of purpose in the illegal goal.  Conspiracy law is vast and complex, and became more so with the advent of the RICO statute (18 U.S.C. Sect. 1961-1968).  Entire criminal “enterprises” could be pursued, based on predicate crimes.

Prosecutors may attempt to improperly join multiple defendants in the same indictment, so as to “taint” some by association with others.  Defendants may be joined together if they participate in the same transaction.  The key question in joinder is whether there has been prejudice to the defendant.  Severance—that is, separating one or more defendants from others in an indictment—is at the discretion of the trial judge.  Key considerations that courts will weigh are:  the “spill-over” effect of evidence among joint defendants, conflicts between defendants, and the possibility of antagonistic defenses among defendants.

Conspiracy cases present many challenges for the defense.  They require an awareness of investigative methods and a nuanced understanding of the factual details of a case.  At the early stages of a case, attacking an indictment based on misjoinder, improper venue, multiplicity, or various other legal bases can force the prosecution to narrow its allegations.  Intense scrutiny can then be applied to the following key legal or factual issues:  the alleged “agreement” and “overt act(s)”, the defendant’s state of mind, the merger of the conspiracy and the substantive offense (a favorite prosecution tactic), double jeopardy issues, the duration of the conspiracy, severance, peremptory challenges, and any co-conspirator declarations.  Indeed, the very fact that conspiracy cases are complicated presents many opportunities for an aggressive defense.

Read More:  Computer Crimes and Cyber Crimes In Kansas And Missouri

Using Intoxication As A Defense In Kansas And Missouri

Overland Park Criminal Attorney

It sometimes happens that accusations of crimes happen when one or more parties are under the influence of drugs or alcohol.  Sometimes this intoxication is voluntary (i.e., a person knowingly and deliberately consumed intoxicants) and sometimes it is involuntary (i.e., a person was given intoxicants without his or her knowledge).  Suppose, for example, a person attends a party and drinks punch that has been “spiked.”  He then commits a crime at the party.  When is intoxication (voluntary or involuntary) a defense to a criminal charge?  What are the rules?  The answers can get complicated, depending on a variety of factors.  We discuss the basic outlines here.

First, what is the meaning of the term “voluntary intoxication”?  The word “voluntary” here is generally taken to mean “self-induced”, in that the person intended to have intoxicants introduced in his or her system, and knew of the chemical effects of the intoxicants.  But there are nuances to this definition.  The actor must know he is introducing the substance into his system, but apparently need only be “negligent” as to its chemical effect on his body.  Also, it appears that drugs taken as part of a program of medical advice is not considered “voluntary intoxication.”  This makes sense, as a person should be able to rely on the sound advice of medical professionals.  “Involuntary intoxication” by contrast is intoxication obtained by fraud, deceit, trickery, compulsion, or some other factor that makes the introduction of drugs into the body not a deliberate act.

Where someone’s intoxication is involuntary (as described above), this fact can be used as a defense where the intoxication negates a required element of the offense.  This makes good sense, and it ties in the basic idea of the prosecution needing to prove every element of an offense beyond a reasonable doubt.  But where the intoxication is voluntary or self-induced, the situation can be quite complicated.  Cases and situations will vary greatly, but the following general principles are good ones:

1.      Some jurisdictions permit voluntary intoxication as a defense if it negates any required element of an offense.  Courts have taken steps to limit this rule, but it has some historical lineage.  For example, the 1981 version of the Kansas Statutes (K.S.A. 21-3208(2)) references it.

2.      Some other jurisdictions do not allow voluntary intoxication to negate “recklessness” if the defendant would have known of the risk had he been sober.  The idea here is that a person should not be able to take advantage of a situation (intoxication) that he himself created, and then use that as a defense.  This approach is basically a limitation on the voluntary intoxication defense.  In other words, voluntary intoxication will only be able to negate elements of offenses in certain circumstances.  Under this approach, voluntary intoxication will typically be available to negate the elements of “purpose, motive, or intent.”

3.      Another approach, somewhat older and based on common law, is to allow voluntary intoxication as a defense for “specific intent crimes” but not allow it for “general intent crimes.”  General intent is defined as the intent generally to do the physical act in question.  Specific intent is different.  It is some intent in addition to do the physical act in question that the crime requires.

4.      Some jurisdictions allow voluntary intoxication only as a defense to homicide, if the defendant can show it negates the elements of deliberation or premeditation.  Here again, we have the idea of limiting the scope of the voluntary intoxication defense.

5.      Some jurisdictions refuse to recognize the defense under any circumstances, or only in cases where the voluntary intoxication causes the legal equivalent of insanity.  This rule is a harsh one, not favored by most courts, and can result in unfair outcomes.  Although such jurisdictions may permit intoxication as a mitigating factor in sentencing, that does little to soften the harshness of this approach.

The key thing here is, as in all cases, to a proper analysis of the facts of the case and the law of the jurisdiction in question.  Both Kansas and Missouri have model jury instructions, as do the federal courts, and these should be the starting point for any attempt to use intoxication defenses.  If the facts merit it, and the case law supports it, non-standard jury instructions can be offered to a court during trial, even if they are not found in the model jury instructions.

Read More:  Disorderly Conduct Charges