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United States v. Barnhart

March 26, 2010


Appeal from the United States District Court for the Central District of Illinois. No. 05-CR-20018-Michael P. McCuskey, Chief Judge.

The opinion of the court was delivered by: Sykes, Circuit Judge.*fn1


Before POSNER and SYKES, Circuit Judges, and DOW, District Judge.

A jury convicted Gregory Barnhart on two counts of wire fraud-one involving a fraud on a former employer and the other involving a fraudulent scheme to obtain a $500,000 loan from Sun Trust Bank secured by E. I. du Pont de Nemours and Company ("DuPont"). Barnhart argues that we should reverse his convictions for two reasons. First, he contends that the district judge's questioning of witnesses during his trial displayed an inappropriate bias in favor of the government. Second, he argues that the government prejudicially "paraded" before the jury the factual details of his prior convictions for theft and deceptive practices. Barnhart also challenges his sentence, claiming that the district judge improperly calculated the amount of loss and erred by ordering him to pay restitution based on relevant conduct.

We agree that the judge's questioning of the witnesses during this trial went too far, but it did not prejudice Barnhart's substantial rights given the overwhelming evidence of his guilt. Barnhart's "parading" argument is meritless, as is his contention that the district court im-properly calculated the amount of loss. We therefore affirm his conviction and sentence. On the limited issue of restitution, however, a remand is in order; the government concedes that the district court should not have ordered restitution based on relevant conduct, and we agree.

I. Background

A. The Frauds

In the spring of 2003, Barnhart approached Paul Tatman, owner of Tatman's Collision Repair Centers ("Tatman's"), to discuss the possibility of purchasing the business.

Barnhart was unable to raise the necessary capital for the acquisition, however, so Paul Tatman instead brought him into the business as an employee to implement improved systems and procedures at the company's four collision-repair service centers. Tatman's issued Barnhart a corporate credit card because the job required Barnhart to travel between these four locations, which were scattered throughout central Illinois. In September 2003, after Barnhart had been working at Tatman's for a few months, the company's accountant alerted Paul Tatman that Barnhart had used the corporate credit card to purchase a home-entertainment system-a plasma television, speakers, a wall mount, and a three-year service plan-for a total cost of $7,919.99. In making the purchase, Barnhart had represented himself as the president of Tatman's. Paul Tatman promptly fired him.

Also in the spring of 2003, Barnhart began seeing-first professionally and later socially-Dr. Sandra Schwartz, a chiropractor who operated a profitable chiropractic practice and had a net worth of roughly $1 million. After he lost his job at Tatman's, Barnhart presented Schwartz with his idea to start a collision-repair company called Blue Star Collision ("Blue Star"), and Schwartz loaned Barnhart $25,000 in November 2003 to start the business. Barnhart used most of that money to pay personal expenses. Over the next six months, Schwartz contributed about half a million dollars in capital to Blue Star with an understanding that she would receive an 85% owner-ship stake. But the two did not formalize this agreement, and Schwartz never became a shareholder. Barnhart also opened several corporate credit-card accounts in Schwartz's name and used the cards to charge approximately $100,000 in personal expenses.

Despite Schwartz's loans, Blue Star had cash-flow problems, and Barnhart needed to find another source of funds. In the spring of 2004, he entered into discussions with the regional sales representative for DuPont's auto-body unit, and Barnhart and DuPont executed a loan/guaranty/supply agreement in April 2004. Pursuant to the agreement, Barnhart received a $500,000 loan from SunTrust Bank, and DuPont agreed to guarantee the loan in exchange for Barnhart's agreement to purchase all of Blue Star's auto-refinishing paint from DuPont. Schwartz in turn personally guaranteed the loan, and she instructed Barnhart to inform her of all expenditures related to the loan. Exhibit B of the loan agreement required Barnhart to disclose Blue Star's "Indebtedness," which Barnhart listed as "none." Barnhart also represented to DuPont that Blue Star would not be insolvent after the execution of the agreement and agreed that the loan proceeds would be used only to purchase equipment for the body shop.

Soon after Blue Star and DuPont closed on this loan, Schwartz left for a few days to care for her sick mother. When she returned, the loan money was gone. Barnhart had transferred $30,000 into his personal account and used these funds to purchase a hot tub, a four-wheel all-terrain vehicle, a 50-inch plasma television, and to make child-support payments to his ex-wife. (Barnhart appears to have committed the rest of the loan funds to pay off various start-up costs, including equipment and building-design costs; the government did not question this use of loan proceeds.) Blue Star went out of business soon thereafter, and DuPont was left on the hook to SunTrust for the entire $500,000.

B. District-Court Proceedings

On May 6, 2005, a federal grand jury in the Central District of Illinois returned an indictment against Barnhart, charging him with three counts of wire fraud in violation of 18 U.S.C. § 1343. Counts One and Two concerned Barnhart's actions when he was employed by Tatman's, and Count Three concerned the $500,000 loan from SunTrust and DuPont. Specifically, Count One alleged that Barnhart committed wire fraud when he purchased a set of custom tires and rims on his Tatman's credit card without authority from his employer. Count Two related to Barnhart's purchase of the home-entertainment system using the Tatman's credit card. And Count Three alleged that Barnhart obtained the DuPont/ SunTrust loan through fraud.

The case proceeded to trial. Because this appeal primarily concerns Barnhart's conviction on Count Three-the most substantial of the frauds-we can skip further discussion of the evidence on the other counts. The government's theory regarding the DuPont fraud was that Barnhart intentionally misrepresented that Blue Star had no indebtedness and was not insolvent in order to obtain the loan, and that he fraudulently used some of the loan proceeds to purchase personal items and pay his child-support obligations. Much of the trial testimony focused on Exhibit B of the loan agreement, which required Barnhart to disclose Blue Star's indebtedness.*fn2 The government maintained that Barnhart's statement on Exhibit B that Blue Star had no debt was an intentional falsehood; the prosecution ...

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