United States of America v. NORMA LEONARD-ALLEN and WALTER STERN, III

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 12-3299 & 12-3663
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
NORMA LEONARD-ALLEN and
WALTER STERN, III,
Defendants-Appellants.
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 11-CR-301—Rudolph T. Randa, Judge.
ARGUED APRIL 17, 2013—DECIDED JULY 30, 2013
Before EASTERBROOK, Chief Judge, and WOOD and
SYKES, Circuit Judges.
WOOD, Circuit Judge. Norma Leonard-Allen and
Walter Stern became entangled in the financial arrange-
ments that underlie this case during the aftermath
of a lawsuit in which Stern served as Leonard-Allen’s
attorney. The government charged that Stern hid some
of Leonard-Allen’s assets so that she would not have to

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2 Nos. 12-3299 & 12-3663
declare them in her bankruptcy proceeding. It main-
tained that Stern knew of Leonard-Allen’s bankruptcy
when he opened certificates of deposit (CDs) with
Leonard-Allen’s money, and thus that his action
amounted to money laundering in violation of 18 U.S.C.
§ 1956(h). Leonard-Allen, it said, committed perjury in
violation of 18 U.S.C. § 1623 when she testified that Stern
had not referred her to her bankruptcy lawyer, contrary
to her representation on a client-intake form on which
she had listed “Walter Stern” as the person who referred
her to the bankruptcy lawyer. Both were convicted
after a jury trial.
On appeal, Leonard-Allen argues that the client-
intake form was subject to attorney-client privilege and
should not have been admitted against either defendant.
Stern argues that even if the form were not subject to
attorney-client privilege, the statement in the form is
inadmissible hearsay. He also argues that the court
erred when it excluded as hearsay his testimony about
why he purchased the CDs and when it excluded as
irrelevant testimony from Leonard-Allen’s daughters.
We affirm Leonard-Allen’s conviction because the client-
intake form was not a communication made in further-
ance of the legal representation and therefore was
not subject to the attorney-client privilege. Because the
trial court wrongly prevented Stern from testifying
about his own conduct—testimony central to Stern’s
defense that he did not intend to conceal assets—we
reverse Stern’s conviction.

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Nos. 12-3299 & 12-3663 3
I
Stern met Leonard-Allen when he represented her
in an employment discrimination suit. After the case
settled, Stern and Leonard-Allen became romantically
involved. They began living together in September 2006,
months after Stern opened the first of two CD accounts
underlying these charges. Leonard-Allen and her ex-
husband had separated in June 2005 and had executed a
Marital Settlement Agreement awarding Leonard-Allen
$95,000, to be paid in four installments. In July 2005,
Leonard-Allen visited a bankruptcy attorney, Mary
Losey. In response to a question on Losey’s client-
intake form asking “How did you select this office?,” she
checked the box “Friend/Referral” and wrote in
Walter Stern’s name.
In September 2005, Leonard-Allen filed for bankruptcy,
reporting $80,000 in liabilities and only $30,000 in as-
sets. She did not disclose the $95,000 marital settle-
ment. Between June 2005 and January 2006, while her
bankruptcy was pending, Leonard-Allen received four
personal checks, issued from the divorce attorney’s
trust account, for a total of $95,000. In January 2006, the
bankruptcy court determined that Leonard-Allen had
insufficient assets to pay her creditors and discharged
her debt. A month later, Leonard-Allen used the pro-
ceeds of the first three divorce settlement checks to pur-
chase a teller check; she promptly endorsed that check
to Stern. In March 2006, Stern opened a CD account in
his name with the proceeds of the check. In August 2006,
Leonard-Allen used the proceeds of the fourth divorce

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4 Nos. 12-3299 & 12-3663
settlement check to purchase another teller check, which
she also endorsed to Stern. In January 2007, Stern used
the proceeds of the second teller check and the first
CD to open another CD account in his name. In
January 2007, Leonard-Allen’s ex-husband’s attorney
informed the bankruptcy trustee that Leonard-Allen
failed to disclose the $95,000 divorce settlement in the
bankruptcy proceedings, and in October 2007, the bank-
ruptcy judge revoked the discharge of Leonard-
Allen’s bankruptcy.
Criminal charges followed, and Leonard-Allen pleaded
guilty to two counts of making a false declaration in
a bankruptcy proceeding in violation of 18 U.S.C. § 152(3).
After doing so, Leonard-Allen was subpoenaed to
testify before a grand jury in the case against Stern.
She told the grand jury that Stern had not referred her
to Losey. The government subpoenaed records from
Losey, including the client-intake form where Leonard-
Allen had listed “Walter Stern” in the “Friend/Referral”
box. Based on that evidence, the government charged
Leonard-Allen with making a material false statement
in a grand jury proceeding in violation of 18 U.S.C.
§ 1623. The court admitted the client-intake form as
evidence of Leonard-Allen’s perjury over Leonard-
Allen’s objection that it was subject to attorney-client
privilege. She was convicted of the offense and sen-
tenced to imprisonment for one year and a day.
Stern was charged with conspiring to commit money
laundering in violation of 18 U.S.C. § 1956(h). His
defense at trial was that he was unaware of Leonard-

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Nos. 12-3299 & 12-3663 5
Allen’s bankruptcy proceeding and therefore did not
realize that he was hiding assets when he opened the
CDs with Leonard-Allen’s money. The court admitted
the client-intake form as evidence that Stern likely
knew of Leonard-Allen’s bankruptcy; it overruled
Stern’s objection that Leonard-Allen’s out-of-court state-
ment on the client-intake form was inadmissible hear-
say. See FED. R. EVID. 801 & 802. It reasoned that the form
was a business record, admissible under the business-
records exception to the hearsay rule, see FED. R. EVID.
803(6)(b). It also held that Leonard-Allen’s statement was
made in furtherance of a conspiracy between Stern and
Leonard-Allen and was thus admissible under the co-
conspirator exclusion found in FED. R. EVID. 801(d)(2)(E).
During Stern’s testimony, the court prohibited him
from answering the following series of questions on
the subject of his reason for purchasing the CDs for
Leonard-Allen:
Q [Stern’s lawyer]. Do you recall going to the bank
on [March 3, 2006]?
A. Yes, I do.
Q. And how did that come about?
A. Well, about three days or so before—
Government: Objection. Calls for hearsay answer.
Stern’s lawyer: Not for the truth of the matter
asserted, Judge. As to impact on him.
Government: That’s not an exception to the hearsay
rule.

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6 Nos. 12-3299 & 12-3663
The Court: Yes. The Court will sustain the objection.
. . .
Q. Prior to going there on March the 3rd, 2006, did
you have an understanding of what was asked of
you for you to go to the bank and purchase C.D.’s?
A. Yes.
Government: Objection. Calls for a hearsay answer.
The Court: It does, and so the objection will be sus-
tained.
. . .
Q. And you having control of [Leonard-Allen’s money]
was to serve what purpose?
Government: Objection. Calls for hearsay answer.
The Court: That will be sustained.
The court also excluded testimony that Leonard-
Allen’s daughters were unaware of Leonard-Allen’s
bankruptcy. Stern sought to introduce this testimony
in support of his claim that he was unaware of the bank-
ruptcy. The court reasoned that the testimony was ir-
relevant because the daughters had a different relation-
ship with their mother from the one Stern had, and
what they knew was therefore not probative of what
Stern knew. We first address Leonard-Allen’s convic-
tion, then Stern’s.

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Nos. 12-3299 & 12-3663 7
II
Leonard-Allen argues that the intake form was pro-
tected by the attorney-client privilege and thus should
not have been produced or introduced into evidence at
the trial. The scope of attorney-client privilege is a ques-
tion of law that we review de novo. In re Subpoenaed
Grand Jury Witness, 171 F.3d 511, 512 (7th Cir. 1999). The
privilege extends to confidential communications be-
tween client and attorney, made “in order to obtain
legal assistance.” Fisher v. United States, 425 U.S. 391, 403
(1976). Its purpose is “to encourage clients to make full
disclosure to their attorneys,” and its scope is informed
by this purpose. Id. Because the privilege may operate
“in derogation of the search for truth,” we “construe
the privilege to apply only where necessary to achieve
its purpose.” United States v. BDO Seidman, LLP, 492 F.3d
806, 815 (7th Cir. 2007) (internal quotation marks and
citations omitted). Accordingly, we have said that the
privilege covers “only those communications which
reflect the lawyer’s thinking [or] are made for the
purpose of eliciting the lawyer’s professional advice or
other legal assistance.” Id. (internal quotation marks
omitted).
Losey’s form does not meet that description. Leonard-
Allen’s disclosure of who referred her does not reflect
either the lawyer’s or the client’s thinking, and it was
not instrumental to the substance of the bankruptcy
advice that Losey provided. The form is more akin to
information about attorneys’ fees. The latter information
falls outside the scope of the privilege because fees

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8 Nos. 12-3299 & 12-3663
are incidental to the substance of representation. In re
Subpoenaed Grand Jury Witness, 171 F.3d at 513 (quoting
Matter of Witnesses Before Special March 1980 Grand Jury,
729 F.2d 489, 491 (7th Cir. 1984)).
It is true that we have found that the privilege applies
in the limited situation when a lawyer’s disclosure of
the identity of a third party who paid the defendant’s
fees would implicate another previously unknown client
who was involved in the targeted criminal activity. Id.
at 514. In that instance, the disclosure of the fee
payor risks revealing another client’s motive for seeking
representation from the lawyer. This risk is not present
in Leonard-Allen’s acknowledgment that Stern referred
her to Losey. That referral sheds no light on Leonard-
Allen’s motives for seeking legal assistance. On the
other hand, her statement on the form was powerful
evidence for the government’s perjury case, since it
contradicted her grand jury testimony.
While the form listed Leonard-Allen’s reason for
seeking representation as “financial,” it was widely
known that Losey represented Leonard-Allen for bank-
ruptcy, and so that aspect of the intake form did
not reveal otherwise confidential information about
Leonard-Allen’s motives. If Leonard-Allen had been
concerned about the revelation that she had approached
Losey for help in financial issues, she might have
objected to that portion of the form. It could have been
redacted, and the form would have been just as proba-
tive in the perjury proceeding. Because the referral state-
ment is incidental to the representation and reveals

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Nos. 12-3299 & 12-3663 9
nothing confidential about Leonard-Allen’s motives, it
falls outside the scope of the attorney-client privilege,
and the district court did not err by admitting it as
relevant evidence against both defendants. Furthermore,
the statement was one of a party-opponent for Leonard-
Allen, and so there was no hearsay bar to its admission.
FED. R. EVID. 801(d)(2)(A). We address Stern’s additional
arguments below.
III
Stern challenges a number of the district court’s eviden-
tiary rulings, but we review these decisions only for
abuse of discretion. United States v. Gajo, 290 F.3d 922, 926
(7th Cir. 2002). We begin with his objection to the court’s
decision to exclude on hearsay grounds his testimony
about why he went to the bank. Hearsay is an out-of-court
statement that “a party offers in evidence to prove the
truth of the matter asserted in the statement.” FED. R. EVID.
801(c). The government contends, and the court ruled,
that hearsay responses were called for by the exchange
we reproduced above, which included questions about
why Stern went to the bank on the day he purchased
the CD, whether he planned in advance to purchase the
CD, and what he thought was the purpose of his having
control over Leonard-Allen’s money. This is wrong on
two levels. First, the government lawyer objected so
quickly and so vociferously that it was not even
apparent that Stern’s response to any of these questions
would have included an out-of-court statement. For all
we know, Stern may have said “I went to the bank

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10 Nos. 12-3299 & 12-3663
because I wanted to inquire about higher-interest
savings accounts,” or “I was looking into which institu-
tions might be best for my clients.” More importantly,
even if Stern was planning to repeat something Leonard-
Allen told him about why he should go to the bank and
purchase the CDs, that kind of out-of-court statement is
not hearsay. That is because Stern would not have been
repeating the statement to establish the truth of what
Leonard-Allen said. A witness’s statement is not hearsay
if the witness is reporting what someone told the
witness and what the witness thought she meant, and
that statement is offered as an explanation of what the
witness was thinking at the time or what motivated him
to do something. In this context, the out-of-court statement
is not being offered as evidence that its contents are true.
Talmage v. Harris, 486 F.3d 968, 975 (7th Cir. 2007) (“The
key issue is . . . the effect of the [out-of-court statement]
on [the party]’s state of mind. The truth or falsity of
the [statement] is irrelevant to the latter question, and
thus [it] did not fall within the definition of hear-
say.”); United States v. Hanson, 994 F.2d 403, 406 (7th
Cir. 1993) (“An out of court statement that is offered to
show its effect on the hearer’s state of mind is not hear-
say.”) (citations omitted).
In our case it is more likely that Stern would have
reported Leonard-Allen’s out-of-court statements to
show that they were untrue and that they misled him
by hiding the real purpose for purchasing the CDs. This
testimony falls outside the definition of hearsay, and
the court abused its discretion by excluding it. That is so

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Nos. 12-3299 & 12-3663 11
even though, in response to the government’s hearsay
objection, Stern’s lawyer does not appear to have
made an offer of proof pursuant to FED. R. EVID. 103(a)(2)
showing that Stern’s responses would not have relayed
Leonard-Allen’s out-of-court statements at all. The gov-
ernment has not argued that Stern forfeited his objection
to the exclusion of this testimony by this omission, and
therefore the government has forfeited any argument
about forfeiture. Stern’s lawyer focused on the point
that Leonard-Allen’s out-of-court statements would not
have been hearsay because they would not have been
introduced to prove the truth of the matter asserted. As
we have said, we agree with that assessment.
The court’s error was not harmless, because the
excluded testimony was central to Stern’s defense. Stern
maintained that he was unaware of Leonard-Allen’s
bankruptcy when he purchased the CDs. He intended to
support that position before the jury by explaining that
Leonard-Allen asked him to hold the money in order to
help her manage it. This would have explained how he
might have purchased CDs with Leonard-Allen’s
money without any intent to hide the money from
the bankruptcy court (or anyone else). This alternate
explanation would have made Stern’s defense more
believable, because it would have offered the jury a
theory under which Stern innocently purchased the
CDs, rather than making the purchases to launder
Leonard-Allen’s divorce proceeds. Since this testimony
was central to Stern’s defense, we cannot be confident
“that the same judgment would have been rendered

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12 Nos. 12-3299 & 12-3663
regardless of the error.” Goodman v. Ill. Dep’t of Fin.
& Prof’l Regulation, 430 F.3d 432, 439 (7th Cir. 2005); see
also United States v. Peak, 856 F.2d 825, 834-35 (7th Cir.
1988).
IV
Because this error calls for reversal, strictly speaking
we do not need to determine whether either of the
other two evidentiary rulings to which Stern ob-
jects—admitting the client-intake form under the co-
conspirator exception to the hearsay rule and excluding
the testimony of Leonard-Allen’s daughters—constituted
an abuse of discretion that would warrant reversal. None-
theless, similar questions may arise if there is a retrial,
and so we address them now.
In order for Leonard-Allen’s statement on the client-
intake form to be admissible under the co-conspirator
exception, the government must prove by a pre-
ponderance of the evidence that a conspiracy between
Leonard-Allen and Stern existed at the time the
statement was made, and that the statement was made
“during the course and in furtherance of the conspiracy.”
United States v. Cruz-Rea, 626 F.3d 929, 937 (7th Cir.
2010) (citation omitted); United States v. Santiago, 582
F.2d 1128, 1131 (7th Cir. 1978), overruled on other
grounds by Bourjaily v. United States, 483 U.S. 171 (1987).
A timeline of events that the government introduced as
an exhibit at trial shows that Leonard-Allen signed the
intake form in July 2005, three months before she filed
for bankruptcy and seven months before Stern took any

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Nos. 12-3299 & 12-3663 13
action in furtherance of the alleged conspiracy (i.e.,
opening the first CD). The government’s evidence is
consistent with the possibility that Leonard-Allen did
not even intend to file for bankruptcy at the time she
filled out the form, let alone have a plan in place to hide
assets from the bankruptcy court. The district court did
not identify any supporting evidence when it
summarily concluded that “the preponderance of the
evidence is that, as charged in the indictment, the
money laundering conspiracy existed as of the date, July 6,
2005, when Leonard-Allen completed the intake form.”
This suggests that the court relied on Leonard-Allen’s
act of writing Stern’s name on the form as the only evi-
dence of a preexisting conspiracy. Standing alone, this
statement tells us nothing about the subject matter of any
agreement that may have existed between Leonard-
Allen and Stern in July 2005. In determining whether
the statement is admissible under the co-conspirator
exception, the district court should take care to cross
the “T’s” and dot the “I’s”: that is, ensure that there is
proof of an agreement to launder the money and that
Leonard-Allen’s act of writing the name fell within the
scope of that agreement.
We turn briefly to the testimony of Leonard-Allen’s
daughters. Evidence is relevant if “it has any tendency
to make a fact [of consequence] more or less probable
than it would be without the evidence.” FED. R. EVID. 401
(emphasis added). The word “any” signals that evidence
is relevant even if it only slightly or marginally alters
the likelihood of a consequential fact. See Thompson v.

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14 Nos. 12-3299 & 12-3663
City of Chi., 472 F.3d 444, 453 (7th Cir. 2006) (“To be rele-
vant, evidence need not conclusively decide the ultimate
issue in a case, nor make the proposition appear more
probable, but it must in some degree advance the in-
quiry.”) (Internal quotation marks omitted). The fact
that the relationship between Leonard-Allen and her
daughters is, as the district court observed, “qualitatively
different from her relationship with Stern,” suggests
that what Leonard-Allen’s daughters knew is not con-
clusive proof of what Stern knew. But evidence need
not be conclusive proof in order to be admissible, and
even if it does not prove that Stern was unaware of the
bankruptcy, what Leonard-Allen’s daughters knew of the
bankruptcy could “in some degree advance the in-
quiry” into what Stern likely knew, if it suggests that
Leonard-Allen was keeping her financial woes to herself.
V
We AFFIRM the conviction of Leonard-Allen. We
VACATE Stern’s conviction and REMAND for a new trial
consistent with this opinion.
7-30-13

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