Tuesday, February 6, 2007
Ninth Circuit Reverses Bankruptcy Fraud Conviction of Phony Attorney
By TINA BAY, Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday reversed the bankruptcy fraud conviction of a northern California man who posed as a lawyer in order to swindle fees out of numerous tenants facing eviction.
Although prosecutors showed that phony attorney John Milwitt schemed to defraud the tenants, they nevertheless failed to prove the allegations in the indictment, which specifically charged him with defrauding the landlords, the panel concluded in a 2 to 1 decision.
Using a deceptive phone book advertisement for a company called “AP Assistance,” Milwitt—who never attended law school and has never been admitted to practice law—successfully lured numerous tenants seeking help in defending unlawful detainer actions, prosecution evidence showed.
Witnesses said Milwitt convincingly represented himself as an attorney, advising tenants among other things that they were entitled to withhold rent from their landlords. He collected fees from them with the understanding that he would represent them in court.
After obtaining payment from the tenants, Milwitt listed them as appearing in pro per on their court documents and did not appear in court for any of them, resulting in default judgments being entered favor of each of the landlords. For all of their court filings, he had listed an address corresponding to a mailbox he rented out from a public mail service business, which prevented them from immediately discovering that he had failed to represent them.
Milwitt then filed Chapter 13 bankruptcy petitions on behalf of six of the tenants, which they testified were filed without their knowledge or authorization, and included the relevant landlords as creditors on the petitions. The petitions triggered an automatic stay preventing the landlords from collecting on their judgments.
Milwitt was indicted on six counts of bankruptcy fraud under 18 U.S.C. Sec. 157. The indictment alleged that by filing the sham bankruptcy petitions on behalf of the tenants, Milwitt “fraudulently obstructed the creditors’ legal right to collect back rents, and repossess the properties.”
The prosecution’s theory at trial was that Milwitt schemed to defraud the tenants of their money by pretending he was a lawyer, and that the sham bankruptcy petitions allowed him to continue representing to them that he was taking care of their cases.
After U.S. District Judge Charles R. Breyer of the Northern District of California indicated that bankruptcy fraud required a finding that Milwitt acted fraudulently with respect to the landlords, the prosecution clarified in its closing argument that the landlords were the indirect victims of Milwitt’s scheme.
A jury found Milwitt guilty on five counts.
Specific Intent Required
Overturning his conviction, the Ninth Circuit concluded that Sec. 157 requires a specific intent to defraud an identifiable victim or class of victims, and that the government could not prove its case unless it showed evidence Milwitt specifically sought to defraud the landlords.
Writing for the Ninth Circuit, Judge Sidney R. Thomas, who was joined by Judge Michael Daly Hawkins, explained:
“[T]he only connection made between Milwitt’s actions and loss ot the landlords came through the tenants’ testimony regarding the amount of rent withheld and the expert witness’s testimony regarding the effect of bankruptcy petitions on outstanding judgments and pending actions. No evidence was presented concerning any scheme to defraud creditors, only debtors.”
Dissenting, Senior Judge J. Clifford Wallace called the majority’s conclusion “unnecessary, unwise, and unsupported.”
“The success of Milwitt’s scheme to collect legal fees was dependent in large measure on the landlords being successfully defrauded of rent money and forestalled from asserting their rights against the tenants.”
The judge went on to say:
“It is true that the government erroneously pursued a wrong trial theory in focusing on fraud on the tenants. However, the evidence reveals that Milwitt possessed no shortage of fraudulent intent.”
The case is United States v. Milwitt, 05-10344.
Copyright 2007, Metropolitan News Company