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United States of America v. Philip Colasuonno

October 12, 2012

UNITED STATES OF AMERICA,
APPELLEE,
v.
PHILIP COLASUONNO, DEFENDANT-APPELLANT.



Appeal from a judgment of the United States District Court for the Southern District of New York (Hellerstein, J.), resentencing defendant to four months' incarceration after he was found to have willfully violated probation by failing to pay ordered restitution.

The opinion of the court was delivered by: Reena Raggi, Circuit Judge:

11-1188-cr

United States v. Colasuonno

Argued: November 15, 2011

Before: KEARSE, WALKER, and RAGGI, Circuit Judges.

Defendant, who filed for bankruptcy after his initial sentencing, submits that the automatic stay provision of the Bankruptcy Code, see 11 U.S.C. § 362(a), temporarily relieved him of his restitution obligations and precluded the district court from revoking his probation for failing to pay restitution. Alternatively, he submits that the record evidence did not permit the district court to reject his advice-of-counsel defense to the charged violation of probation. In any event, he asks this court to modify the amended judgment to reconcile a purported inconsistency between the written and oral sentence regarding his obligation to pay restitution while incarcerated.

AFFIRMED IN PART and DISMISSED IN PART.

Defendant Philip Colasuonno, who stands convicted of substantive and conspiratorial bank fraud and tax crimes, appeals from an amended judgment entered on April 6, 2011, in the United States District Court for the Southern District of New York (Alvin K. Hellerstein, Judge) resentencing him to four months' imprisonment on the substantive tax count upon a finding that Colasuonno violated his original sentence of probation by willfully failing to pay court-ordered restitution. Colasuonno, who declared bankruptcy after his initial sentencing, submits that the automatic stay provision of the United States Bankruptcy Code, see 11 U.S.C. § 362(a), temporarily halted his obligation to pay restitution and barred the district court from revoking his probation for nonpayment. This argument presents us with a question of first impression in this Circuit as to what effect, if any, the Bankruptcy Code's automatic stay provision has on court-ordered conditions of a criminal sentence or proceedings to address violations of those conditions. We conclude that such orders and proceedings fall within an express exception to the automatic stay because they constitute a "continuation of [the] criminal action or proceeding." Id. § 362(b)(1). In the alternative, Colasuonno argues that he relied in good faith on advice of counsel in not paying restitution and that the record evidence does not support the district court's rejection of this defense. Because this argument is also meritless, we affirm the amended judgment of conviction.

Insofar as Colasuonno, who has now completed his four-month incarceratory sentence, asks this court to modify the amended judgment to clarify that he was under no obligation to pay restitution while incarcerated, we dismiss that part of his appeal as unripe for adjudication.

I. Factual Background

A. Colasuonno's Conviction and Initial Sentencing

On November 2, 2006, Colasuonno was found guilty after a jury trial of substantive and conspiratorial bank fraud, see 18 U.S.C. §§ 1344, 1349, relating to deceitfully inflated financial statements that Colasuonno and his brother Dominick submitted to J.P. Morgan Chase in order to secure business loans from that institution. Thereafter, Colasuonno waived indictment and, on June 18, 2007, pleaded guilty to an information further charging him with conspiracy to commit tax fraud and aiding and abetting the preparation of false tax returns. These crimes originated in his "off the books" cash payments to certain employees over the course of five years and in his resulting underpayment of $781,467 in payroll taxes. See 26

U.S.C. § 7206; 18 U.S.C. § 371.

On July 19, 2007, in a consolidated proceeding, the district court sentenced Colasuonno principally to time served (one day) with concurrent terms of five years' supervised release on the two bank fraud counts and the tax fraud conspiracy count, and to a concurrent five years' probation on the false tax preparation count. In explaining its decision not to sentence Colasuonno within the recommended Guidelines prison range of 46 to 57 months for his crimes, the district court cited Colasuonno's serious health problems. The court nevertheless imposed special conditions on Colasuonno's probation, confining him to his home for 46 months and requiring him to pay restitution to the Internal Revenue Service ("IRS") in the amount of $781,467. The judgment of conviction directed Colasuonno to cooperate with the IRS in working out a schedule for such repayment.

B. Colasuonno's Initial Failure To Pay Restitution Prompts a Court-Ordered

Schedule for Monthly Payments

For almost a year after sentencing, Colasuonno made not a single payment toward the restitution ordered by the district court. This prompted the district court to issue a summons requiring Colasuonno to appear and to answer a charge that he had failed to abide by a condition of his probationary sentence. A number of hearings ensued at which Colasuonno, who had a monthly income of $7,059 dollars from Social Security benefits and private disability insurance, disputed whether he could be compelled to use the insurance payments to satisfy restitution.*fn1 The district court resolved this question against Colasuonno and, on December 12, 2008, ordered that, beginning January 15, 2009, Colasuonno pay 15% of his monthly income--$1,058.55--toward restitution. When Colasuonno's attempts to secure a stay or modification of this payment schedule proved unsuccessful, he started to make the ordered payments, so that by July 15, 2009, he had paid approximately $6,630 in restitution.

C. Colasuonno Files a Chapter 7 Bankruptcy Petition

On July 24, 2009, without notice to either the district court or the Probation Department, Colasuonno and his wife jointly filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Southern District of New York. See 18 U.S.C. § 3563(a)(7) (requiring defendant on probation to notify court of any material change in economic circumstances that might affect ability to pay restitution).

When, on September 3, 2009, Colasuonno again moved in the district court for modification of his restitution schedule, citing financial hardship, he made no mention of the pending bankruptcy petition, much less did he indicate that it would affect his ability to pay restitution. On October 21, 2009, the district court denied modification, observing that Colasuonno's professed financial hardship arose from his "own choices and preferences," including his expenditures on "unnecessary luxuries." Order Denying Request for Modification of Restitution Payment Schedule at 3, No. 05-cr-1110 (Oct. 21, 2009), ECF No. 112.

That same day, Colasuonno moved pro se for reconsideration, for the first time revealing his bankruptcy filing but not arguing that it relieved him of his obligation to pay restitution on the schedule set by the court. The district court granted reconsideration on October 27, 2009, and directed Colasuonno to provide further information about his financial condition. Instead, Colasuonno filed a notice of appeal, divesting the district court of jurisdiction. Subsequently withdrawing that appeal, Colasuonno again sought reconsideration of the restitution payment schedule, which the district court denied on January 20, 2010, without prejudice to renewal "after good faith negotiations, providing full knowledge to the [bankruptcy] trustee." Endorsed Letter Ruling, No. 05-cr-1110 (Jan. 20, 2010), ECF No. 117.

D. The Probation Violation Proceeding

Colasuonno continued making full restitution payments through November 2009. Although the district court never reduced the ordered monthly payment, from December 2009 through February 2010, Colasuonno paid only $300 per month toward restitution, after which he ceased paying restitution ...


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