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United States v. Fadden

United States Court of Appeals, Seventh Circuit

November 1, 2017

United States of America, Plaintiff-Appellee,
v.
Leon Fadden, Defendant-Appellant.

          Argued September 12, 2017

         Appeal from the United States District Court for the Western District of Wisconsin. No. 15-cr-lOO - William M. Conley, Judge.

          Before Easterbrook, Kanne, and Williams, Circuit Judges.

          Kanne, Circuit Judge.

         A grand jury returned a three-count indictment against Leon Fadden for conduct related to bankruptcy fraud. Before trial, Fadden proposed a theory-of-defense jury instruction for Counts 1 and 2. The district court rejected that instruction, instead reciting the Seventh Circuit Pattern Instructions. A jury convicted Fadden of all three counts. Fadden now appeals his convictions on Counts 1 and 2, arguing that the district court denied him a fair trial by refusing to read the jury his theory-of-defense instructions. We affirm.

         I. Background

         Leon Fadden believed that the Internal Revenue Code did not apply to him. From 2005 to 2013, he earned over $100, 000 per year but did not submit tax returns. After an audit, the IRS determined that Fadden owed back taxes and began to garnish his wages.

         Facing further levies on his paycheck, Fadden filed for bankruptcy. This filing triggered an automatic stay that prevented the IRS from collecting during his bankruptcy case. The following month, Fadden filed bankruptcy schedules- forms in which the debtor lists financial information such as debts, assets, income, and expenses. There, Fadden claimed that he had no legal, equitable, or future interest in any real property. He also claimed that he had no interest in any decedent's life insurance policy or estate.

         But Fadden's schedules did not tell the whole story. Before he filed for bankruptcy, Fadden knew that he would receive proceeds from the sale of his mother's home-at the time listed by the executor of his mother's estate for $525, 000. And Fadden knew that he would receive thousands of dollars as a beneficiary on two of his mother's life insurance policies.

         Three days before Fadden was scheduled to meet with the bankruptcy trustee-and more than a week after filing his schedules-Fadden spoke to a paralegal in the U.S. Trustee's Office. During that conversation, Fadden mentioned for the first time that he was entitled to an inheritance and asked to postpone his bankruptcy. But when Fadden finally met with his bankruptcy trustee and an attorney for the U.S. Trustee, he confirmed that his schedules were accurate and denied receiving an inheritance. He also denied having spoken to the paralegal at the U.S. Trustee's Office.

         A grand jury returned a three-count indictment against Fadden for his failure to report these assets and for his statements during the meeting. Count 1 charged him with violating 18 U.S.C. § 152(1) by concealing assets in bankruptcy. Count 2 charged him with violating 18 U.S.C. § 152(3) by making false declarations on his bankruptcy schedules and statement of financial affairs. Count 3 charged him with violating 18 U.S.C. § 1001(a)(2) by making false statements during the investigation of his bankruptcy.

         Counts 1 and 2 required the government to prove that Fadden acted with an intent to deceive. At trial, Fadden planned to argue that the government hadn't shown that he acted with that intent. To bolster this strategy, Fadden proposed the following theory-of-defense instruction:

It is the theory of the defense that Mr. Fadden did not fail to disclose his inheritance on the schedules for the purpose of deceiving the bankruptcy trustee. Rather, his omissions were part of his continued failures to abide by the particulars demanded in the bankruptcy filings and his course of conduct throughout the bankruptcy, which is inconsistent with an intent to deceive. If you find that Fadden's omissions as charged ...

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