United States v. Annamalai Annamalai (11th Cir. September 2019)
Bankruptcy Fraud – Income from a defendant’s second business, opened after the first business files a petition for bankruptcy and providing the same services as the first business, does not constitute post-petition property of the first business’s estate if the businesses otherwise operate as two separate entities and the government cannot pierce the corporate veil.
The Court reversed the defendant’s convictions for bankruptcy fraud, money laundering, and conspiracy to harbor a fugitive.
Annamalai was charged and convicted of bank fraud, bankruptcy fraud, money laundering, and conspiracy to harbor a fugitive based on his operation of a Hindu temple. He was sentenced to 327 months in prison based in part of a loss amount of over $500,000.
On appeal, the Court affirmed in some respects and reversed in others. The Court rejected a First Amendment claim from Annamalai, where he argued that the Government’s case was an impermissible attack on the verity of his Hindu beliefs. While the Court stated that referring to Annamalai and his temple as a “scam” was a “fair comment on the evidence,” the Court agreed that some of the Government’s comments regarding “so-called priests” at Annamalai’s temple “went too far,” though not far enough to warrant reversal. The Court noted that just because the priests were former salesmen with no religious training, “generally it is not for the government to pass on religious qualifications.”
The Court reversed Annamalai’s convictions for bankruptcy fraud since they were based on funds that Annamalai received through a new Hindu temple he set up after his first one filed for bankruptcy. The donations and credit card transactions for spiritual services from the second temple “did not constitute property of the bankruptcy estate” of the first temple since it was exclusively the second temple providing these services, even though one donation check had been sent to the first temple and deposited into the second temple’s account. The first temple had completely ceased doing business after filing its bankruptcy petition. It was not sufficient that the trustee of the first temple believed that the first temple’s estate included “post-petition receivables” generated by the second temple. Even though the temples had the same followers and founder, they were operating as two separate businesses—and that meant they were not one estate under bankruptcy law. The Court noted that the Government had not presented a case that would have allowed the jury to “pierce the corporate veil.”
The Court also reversed Annamalai’s conviction for harboring or concealing a fugitive, which was based on evidence that Annamalai had told his wife to tell a co-defendant to flee the country. This was not harboring or concealing though, since it did not involve an “affirmative physical act” as required by the statute.
Finally, the Court held that the district court erred in calculating the loss amount under the Guidelines, which was based on the total amount from all of the credit card disputes for the the temple’s merchant services accounts. The Government had identified a $100,000 in fraudulent losses and then merely estimated the remaining $400,000 based on that methodology. This was too speculative, the Court held.
Appeal from the Northern District of Georgia
Opinion by Jordan, joined by Wilson and Moore (by designation from S.D. Ga.)