Everyone seems to agree that there was plenty wrong with John Milwitt’s business, which purported to offer legal assistance for San Francisco apartment tenants. For one thing, Milwitt wasn’t a lawyer. Then there was the fact that he told clients that they should give him their rent money to pay “legal fees.” And let’s not forget about the fact that Milwitt, as part of his attempt to keep clients from having to pay their rent, went ahead and filed bankruptcy petitions for clients without notifying them.
But even with all that, a divided three-judge panel of the Ninth Circuit U.S. Court of Appeals Monday struck down (.pdf) Milwitt’s bankruptcy fraud conviction. The panel said prosecutors hadn’t adequately proven their fraud theory — a theory they were forced to change near the end of the case because of jury instructions from District Judge Charles Breyer.
Initially, the prosecutors said Milwitt had defrauded his clients. But because Breyer said fraud could be proven only when money was taken from a victim, Assistant U.S. Attorneys Michael Wang and Timothy Crudo — who inherited the case from another prosecutor — said in closing arguments that the scheme had defrauded the landlords of their rent.
That didn’t go over well with Ninth Circuit Judges Michael Daly Hawkins and Sidney Thomas, who authored the majority opinion, writing that it wasn’t proven that Milwitt deprived the landlords of cash. “The proof, in fact, tended to show that the landlords were ‘slum lords’ with a despicable record of repair and maintenance,” Thomas wrote. “Indeed, the government presented evidence that the tenants likely had valid claims against the landlords, justifying the withholding of rent.”
In his dissent, Senior Judge J. Clifford Wallace disagreed. He said it was clear that a fraud had occurred, and wrote that the majority had overreached by deciding whether a fraud conviction requires the intent to defraud a specific victim. “A reasonable jury could have concluded that Milwitt intended to defraud the landlords by having his ‘legal fees’ paid at their expense, which is precisely what occurred,” he wrote.
Michael Shepard, the Heller Ehrman partner who represented Milwitt in the appeal, said much of the credit for establishing the tough fraud questions is due to Milwitt’s trial counsel, Richard Zimmer, “for teeing up the issue at trial.”
Alas, after all the machinations of the justice system, Milwitt will see little benefit from the victory — he recently completed his two-year prison sentence. But, Shepard said, “he doesn’t have this on his record.”
— Justin Scheck