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United States v. Gary Peel

Citation: Not availableDocket: 07-3933

Court: Court of Appeals for the Seventh Circuit; February 11, 2010; Federal Appellate Court

Original Court Document: View Document

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The defendant, Gary E. Peel, was convicted of bankruptcy fraud, obstruction of justice, and possession of child pornography, receiving a sentence of 144 months in prison. His appeal contests both the convictions and the sentence. The case's background involves Peel's affair with his wife’s 16-year-old sister in 1974, during which he took sexually explicit photographs of her, which he later used to blackmail his ex-wife during contentious divorce settlement negotiations. After filing for bankruptcy in 2005 to discharge obligations to his ex-wife, he threatened to release the photographs if she did not drop her claim against him. Recorded phone calls confirmed his blackmailing actions. Peel was convicted on multiple counts, including bankruptcy fraud and obstruction of justice, and he argued that these convictions violated the double jeopardy clause of the Fifth Amendment, as one offense was included in the other. However, the court clarified that the double jeopardy clause protects against being tried or convicted multiple times for the same offense, not against multiple convictions in a single trial, as long as the sentences do not exceed legislative intent.

The final aspect of double jeopardy protects against cumulative punishments to ensure that court sentencing is limited by legislative intent. A key issue is whether bankruptcy fraud and obstruction of justice in a bankruptcy proceeding are considered the same offense under double jeopardy principles. Bankruptcy fraud requires proof that the defendant knowingly and fraudulently offered compensation to influence his ex-wife's decision to abandon her bankruptcy claim. In contrast, obstruction of justice involves corruptly impeding an official proceeding, which includes bankruptcy proceedings.

The legal standard for distinguishing offenses is whether each charge requires proof of a fact that the other does not, known as the Blockburger test. In this case, the test was not satisfied because proving obstruction of justice did not require any additional facts beyond those needed for bankruptcy fraud. Therefore, obstruction of justice was deemed a lesser-included offense of bankruptcy fraud, and subjecting the defendant to punishment for both constitutes double jeopardy unless Congress intended otherwise, which was not argued by the government.

The court drew parallels to cases involving murder and attempted murder, where one conviction inherently includes the other. An exception exists for cases where a lesser offense is convicted before the greater one; however, it does not apply here. Consequently, the case is remanded for the trial judge to vacate one of the convictions. The defendant contends that the obstruction of justice conviction should be vacated, despite its higher maximum sentence, as it is a lesser-included offense of bankruptcy fraud, having fewer elements.

The Blockburger test determines that if offense A has elements a, b, c, and offense B has elements a, b, c, and d, then a conviction of B also leads to a conviction of A, necessitating the elimination of duplicative convictions. The choice of which conviction to vacate lies within the trial judge's discretion and is generally guided by the severity of the penalties associated with the offenses. Typically, the conviction with the lesser penalty is vacated to avoid paradoxically granting a shorter sentence for a lesser offense than would have been imposed if only the more serious offense were charged. 

In this context, the lesser-included offense is obstruction of justice, which is considered the more serious charge compared to bankruptcy fraud. The defendant contends that he did not act "corruptly" regarding the obstruction charge since he intended to disclose photographs to the bankruptcy court. However, this argument misrepresents his actions, which involved attempting to prevent his ex-wife from revealing the photographs to ensure his deal with her remained undisclosed to the court. His expectation of secrecy was thwarted when she contacted the police, resulting in an attempted obstruction rather than successful obstruction, but the law penalizes attempts equally with completed offenses.

Regarding bankruptcy fraud, the defendant claims his objective was solely to persuade his ex-wife to drop her opposition in a state-court matter, which he argues does not constitute bankruptcy fraud in an "adversary proceeding." Adversary proceedings are specific disputes within the bankruptcy framework, and while some can be heard in state court, many cases suggest that fraud in adversary proceedings pertaining to dischargeability is indeed considered bankruptcy fraud under U.S. law. The legal interpretation of what constitutes a "case under title 11" remains uncertain, but existing case law leans towards recognizing certain adversary proceedings as falling within the scope of bankruptcy fraud.

A creditor or group of creditors favored by Congress may be negatively impacted if a debtor successfully obtains a discharge, prompting Bankruptcy Rule 7041 to prohibit the dismissal of a complaint objecting to the debtor's discharge without notifying the bankruptcy trustee and other specified parties. In this case, the defendant's ex-wife's claim was the largest in the bankruptcy, and if the defendant had successfully invalidated it through fraud, it would have constituted fraud within the bankruptcy process itself, rather than in a separate adversary proceeding.

The defendant was convicted under 18 U.S.C. 2252A for possessing child pornography, which includes sexually explicit images of minors as defined by 18 U.S.C. 2256(8). The original federal statute from 1978 defined a “minor” as anyone under 16, but this was amended in 1984 to include those under 18. The defendant, charged in 2005 and 2006, argues that the photographs were legal when taken, therefore, the amended statute should not apply. He does not contest Congress's ability to criminalize the possession of previously legal pornography but maintains that the statute creates an incoherent affirmative defense regarding depictions of either actual minors or non-minor representations.

His argument suggests redundancy in the statute’s clauses, proposing that the affirmative defense should safeguard the possession of pornography legal at the time of creation. Although this issue was not raised in the district court, it is central to his conviction challenge. During arguments, the government acknowledged the need to prove that an actual minor, rather than a computer simulation or an adult resembling a minor, was involved in the pornography's creation. The statute, while somewhat confused, does not appear to exempt previously legal pornography from current regulations.

The affirmative defense was introduced in 1996 with the Child Pornography Prevention Act, which specifically addressed virtual child pornography. The intent of Congress was to regulate computer-generated depictions of minors, not to include cases involving adults who may appear as minors.

The bill includes an affirmative defense for materials produced with adults, allowing defendants to argue that the material was made with consenting adult participants, provided they did not intentionally misrepresent it as child pornography. This defense, however, was later impacted by the Supreme Court ruling in *Ashcroft v. Free Speech Coalition*, which stated that non-obscene pornography without child involvement cannot be constitutionally banned due to the lack of sexual abuse. Consequently, the government must prove a child was involved unless the material is classified as obscene, which is a narrower category.

The affirmative defense was not intended to protect the distribution of child pornography created before the definition of a child changed from under 16 to under 18, nor was there any congressional intent to allow the market for such materials to remain open. The legislation aimed instead to shift the burden of proof regarding the age of models used in pornography to the defendant, reflecting a pre-*Ashcroft* understanding of the issue. The defendant argued that he was unaware of his sister-in-law's age when he took the photographs, but evidence demonstrated he had known her since she was in elementary school and had significant interactions with her during her teenage years, which supported the government’s claim of his knowledge. The focus now shifts to sentencing issues.

In determining the intended loss for bankruptcy fraud and obstruction of justice, the judge assessed the defendant's obligations to his ex-wife based on their marital settlement, totaling $230,000 owed immediately and future payments of $2,500 per month over an estimated life expectancy of 17.5 years, amounting to $525,000. The defendant contended that this future sum should be discounted to present value, arguing that receiving a smaller amount now could yield the same total if invested wisely. In civil cases, courts typically reduce future losses to present value to ensure plaintiffs are compensated as if the wrongful act had not occurred. However, in criminal cases, the focus is on punishment rather than restitution, leading to different considerations in loss calculations. Although some criminal cases have allowed for discounting future losses to present value, the district court in this instance rejected the defendant's evidence of a $314,000 present value calculation. The court maintained that the sentencing guidelines do not permit discounting to present value as a credit against loss, which only recognizes specific forms of credits such as the fair market value of returned property. Thus, the court's decision resulted in an offense level higher than what the defendant argued should apply.

Credits assume that a loss has been established and subsequently partially restored, as illustrated by a case where an embezzler successfully returns the embezzled funds after gambling with them. In determining loss, the amount of embezzlement is identified as the loss, but the voluntary actions of the criminal can mitigate the harm. Loss calculation occurs before applying any credits due to the defendant, and the present value calculation need not complicate federal sentencing. Judges are positioned to reasonably estimate losses based on evidence, and their determinations are afforded deference. 

Although sentencing guidelines are no longer mandatory, the court is not required to prioritize present value calculations. The specific nature of a crime, such as Peel's blackmail attempt, may limit the usefulness of discounting intended future losses. Blackmailers are likely to seek additional gains, meaning the initial intended loss may underestimate the victim's total potential loss. Even if the defendant returns all photos as promised, uncertainty remains regarding compliance, causing ongoing victim fear and additional costs.

The case is remanded, allowing the district judge discretion on whether to discount the intended monetary loss from the blackmail attempt to its present value. Furthermore, the judge erroneously added $611,000 in unrelated claims from the bankruptcy proceedings to the intended loss, raising it above $1 million and improperly increasing the sentencing range. Such claims did not align with the defendant's intentions and could have benefitted other creditors had the blackmail succeeded, as it would reduce the number of creditors sharing the defendant's limited assets.

The court addressed the application of section 2G2.2(b)(3)(A) of the sentencing guidelines, which increases the sentencing range for child pornography if distributed for pecuniary gain. The judge concluded that the pecuniary gain was the money the defendant sought from blackmailing his ex-wife by offering to sell pornographic photographs to alleviate part of his debt to her. The enhancement aims to deter trafficking in pornography, which correlates with increased creation of such materials and the exploitation of child models. Although the term "distribution" typically implies multiple transactions, the guidelines define it broadly to encompass any act related to the transfer of material involving sexual exploitation of minors, including a single sale. The court noted that selling multiple photos to one person is not less serious than selling individual photos to several people, as both actions contribute to the harm inflicted on child models. Ultimately, the judgment was partially affirmed and partially reversed, with instructions for the judge to vacate either the bankruptcy fraud or obstruction of justice conviction, recalculate the intended loss, reassess the sentencing range, and resentence the defendant according to 18 U.S.C. 3553(a).