Judicial abuse of 'process': examining the applicability of Section 2F1.1(b) (4) (B) of the Federal Sentencing Guidelines to bankruptcy fraud.

• Author: Sano, Hideaki

INTRODUCTION

The proliferation of bankruptcy filings over the past decade has coincided with a comparable increase in the incidence of bankruptcy fraud.(1) In response to this growing problem, the United States Department of Justice has placed greater emphasis on federal prosecution of bankruptcy fraud.(2) As a result, federal judges are increasingly applying the Federal Sentencing Guidelines ("Guidelines")(3) to bankruptcy fraud and have begun to implement uniform standards for sentencing defendants convicted of this crime.(4)

Congress enacted the Guidelines pursuant to the Sentencing Reform Act of 1984.(5) In instituting the Guidelines, Congress sought honesty, reasonable uniformity, and proportionality in sentencing.(6) Congress attempted to achieve honest sentencing by eliminating parole.(7) In order to realize uniformity and proportionality, Congress created the United States Sentencing Commission ("Sentencing Commission") to devise a sentencing scheme that balances the tension between uniform and proportional sentencing.(8)

The Sentencing Commission has mandated that courts apply the Guidelines' provisions in a consistent manner in order to maintain this balance.(9) Most courts agree that bankruptcy fraud should be sentenced under section 2F1.1, the Guidelines' base offense provision for fraud.(10) Courts disagree, however, about the propriety of applying section 2F1.1(b)(4)(B), one of several enhancement provisions under section 2F1.1, to bankruptcy fraud.(11) Section 2F1.1(b)(4)(B) (the "process enhancement") allows a sentencing court to increase a defendant's sentence if the defendant violates "any judicial or administrative order, injunction, decree, or process not addressed elsewhere in the guidelines."(12) The Sentencing Commission, however, failed to define the word "process" in the text of, or commentary to the Guidelines.(13)

According to Black's Law Dictionary, there are two potential definitions of "process."(14) Defined narrowly, "process" means a legal instrument issued by the court and directed at the defendant to inform him of the institution of proceedings against him and to compel his appearance.(15) Defined broadly, "process" constitutes the "proceedings in any action or prosecution."(16)

The different definitions of "process" affect the scope of the process enhancement. With the narrower definition of "process," the enhancement applies only to situations in which a defendant convicted of fraud has violated a formal legal instrument, such as a summons or an order issued by a court and directed specifically at the defendant.(17) With the expansive definition, however, the process enhancement would apply to the more extensive range of misconduct known as abuse of process.(18) Such conduct "includes any serious misuse of judicial or administrative proceedings intended to inflict unnecessary costs or delay on an adversary or to confer undeserved advantages on the actor."(19)

The Sentencing Commission's failure to define "process" has resulted in a controversy among several federal circuit courts over the meaning of the process enhancement and its applicability to bankruptcy fraud.(20) The majority of circuits have held that the word "process" should be read broadly and that the phrase "violation of judicial process" in the process enhancement should be interpreted as abuse of process (the "abuse of process argument").(21) Thus, several courts have held that because bankruptcy fraud inherently involves abuse of process, it constitutes a violation of the process enhancement even when the defendant has not violated a specific judicial order, injunction, or decree.(22)

Other circuits have upheld enhancement of a bankruptcy fraud sentence under the process enhancement based on a different rationale: they rely on the defendant's violation of several bankruptcy rules and forms that mandate truthful and complete disclosure of assets and liabilities by debtors.(23) Although such rules and forms are not technically instruments issued by a court, several courts have analogized them to court or administrative orders or directives within the meaning of the process enhancement (the "analogy argument").(24) Under this interpretation, the process enhancement would apply to bankruptcy fraud even if the Sentencing Commission intended "process" to be read narrowly.(25)

A third group of circuits, however, has held that bankruptcy fraud does not necessarily merit an adjustment pursuant to the process enhancement.(26) The First Circuit has rejected the analogy argument and held that the process enhancement pertains only to defendants who violate a formal legal instrument issued by the court, such as a summons or court order.(27) Moreover, by analyzing "process" only in its narrow sense, the First Circuit logically foreclosed the abuse of process argument.(28) The Second Circuit has explicitly rejected the abuse of process argument in dicta by indicating that in the context of the process enhancement, "process" should be read narrowly.(29) These courts have concluded that the process enhancement should only be invoked where a bankruptcy fraud defendant violates a judicial or administrative order or decree.(30)

This Note argues that neither the abuse of process argument nor the analogy argument justifies applying the two-level process enhancement to bankruptcy fraud. Rather, sentences should only be enhanced under this provision when defendants violate legal instruments issued by courts or administrative agencies, such as orders or decrees. Part I explains why the abuse of process argument fails to justify applying the process enhancement to bankruptcy fraud. Part II discusses why the analogy argument also does not justify enhancing the sentence of a defendant convicted of bankruptcy fraud under the process enhancement. Part III contends that allowing courts to apply the process enhancement to bankruptcy fraud regardless of whether the defendant violated an order and based solely on a desire for proportionate sentencing undermines the policy of the Guidelines. Part IV argues that courts that wish to punish a bankruptcy fraud defendant's abuse of process should sentence bankruptcy fraud under section 2J1.3, the Guidelines' base offense provision for perjury, instead of under section 2F1.1. This Note concludes that sentencing bankruptcy fraud defendants under section 2J1.3, as opposed to adopting a broad definition of "process" in section 2F1.1(b)(4)(B) or applying the provision by analogy, would best fulfill the Sentencing Commission's goals of uniform and proportional sentencing.

1. THE ABUSE OF PROCESS ARGUMENT FOR APPLYING SECTION 2F1.1(b)(4)(B) TO BANKRUPTCY FRAUD

   A majority of the circuits that have examined the application of the process enhancement to bankruptcy fraud have read the word "process" broadly and interpreted the phrase "violation of process" to mean abuse of process.(31) These courts have held that reading "process" in the process enhancement broadly to include submitting a false bankruptcy petition is more reasonable than reading "process" narrowly.(32) They have reached this conclusion, however, with little or no analysis of the text of, or commentary to the process enhancement.(33)

   This Part analyzes the abuse of process argument as a basis for applying the process enhancement to bankruptcy fraud. Section I.A discusses why the text of the process enhancement would favor reading "process" narrowly rather than broadly. Section I.B argues that the commentary to the process enhancement contradicts the inference that the Sentencing Commission intended "violation of any judicial ... process" to mean abuse of process. This Part concludes that both the text of and the commentary to the process enhancement support the position that the Sentencing Commission intended the process enhancement to be applied only to misconduct in contravention of a court or administrative order or decree.

   1. The Text of Section 2F1.1(b)(4)(B)

      An analysis of the text of the process enhancement demonstrates several flaws in the majority's logic. First, the use of "violation" in the phrase "violation of any judicial or administrative ... process" indicates that process should be read narrowly. The word "violation" "strongly suggests the existence of a command or warning followed by disobedience."(34) Courts, for example, commonly describe conduct in contravention of a preexisting court order as a violation.(35)

      By contrast, the conduct that courts characterize as an abuse of process focuses more on the misuse of the power and time of the court rather than a violation of a particular rule.(36) The court in United States v. Lloyd, for example, held that the defendant abused the bankruptcy court process because he "sought protection from his creditors under the shelter of bankruptcy ... and [then] hindered the orderly administration of the bankruptcy estate," not because he violated any particular rule or form.(37) Other examples of abuses of process include use of pleadings to coerce payment of a debt or surrender of property unrelated to the litigation, unreasonable use of force or excessive attachment to enforce a right of action, use of process to gain a collateral advantage extraneous to the merits, and improper use of a subpoena.(38) Thus, disrupting "process" in its broad sense would be more appropriately described as an abuse rather than a violation.

      Reading "process" in the process enhancement broadly would also contravene the restrictive language in the process enhancement that indicates that the provision only covers violations of process "not addressed elsewhere in the guidelines."(39) Section 3C1.1 provides an enhancement for obstruction of justice, including the submission of false documents to a court.(40) Many courts have applied section 3C1.1 to enhance the sentences of defendants who have submitted false documents in the context of a formal hearing.(41) Bankruptcy fraud involves an analogous abuse...