Chappelle Sentencing Postponed Again; Fairness of Prison Time Debated

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The Gerald R. Ford Federal Courthouse in Grand Rapids, Mich.

Local real estate developer Scott Chappelle was expected to be sentenced in federal court in Grand Rapids earlier today following his guilty plea on a tax evasion charge in April of this year.

But now the sentencing, originally scheduled for Aug. 2, has been postponed for a second time.

The postponement order issued by United States District Judge Jane M. Beckering puts off the matter until Oct. 11 and instructs, “Requests to adjourn or reschedule this hearing will not be favored.”

In the meantime, a trove of documents have been released by the court showing dueling views of Chappelle and his actions, with Chappelle’s legal team seeking a significantly lighter sentence than the Department of Justice prosecutors want.

This federal criminal case has stretched out over two years.

In June 2020, a federal grand jury had brought an indictment against Chappelle that included eight federal counts. Nearly two years later, in April of this year, Chappelle pleaded guilty to one count involving  “tax evasion arising from his near decade-long effort to prevent the IRS from collecting taxes he and his business owed,” according to a press release from the DOJ.

The case focused on Chappelle-operated companies including Terra Management Company, Strathmore Development Company Michigan LLC, and Terra Holdings LLC, “all of which were involved in real estate development and property management in the East Lansing area,” according to the April press release.

Operating under various company names, Chappelle was the developer who had proposed “City Center II,” a concept aimed at bringing forth a major public-private partnership redevelopment for a large area of East Lansing’s downtown stretching northwest from the corner of Abbot Road and Grand River Avenue.

For many years, the City of East Lansing and East Lansing’s Downtown Development Authority worked with Chappelle on that concept, in later years called the “Park District.” The properties became blighted as the project failed to happen, and buildings on them were eventually demolished.

100 W. Grand River Ave. prior to demolition.

Following foreclosure action, the main parcels along Grand River Avenue were bought and redeveloped by another set of developers, transformed into The Graduate Hotel and The Abbot apartments.

The Graduate Hotel (left) and The Abbot during construction of 2020.

The DOJ wants to see something close to the maximum sentence permissible.

Just released, the DOJ’s sentencing memorandum to the court, dated Sept. 2, names Chappelle’s actions as “truly egregious violations of the law.”

Prosecutors for the government say that Chappelle “concealed income and assets from the IRS, often using nominees to disguise his ownership of real property, all the while funding his lavish lifestyle out of the very companies that he claimed were suffering financial hardships and could not afford to pay what they owed.”

The government attorneys claim in the same filing that, while “he was telling IRS employees that he had little or no income because his business was floundering,” Chappelle was using “funds from his business to make down payments and mortgage payments on houses and condos where he and members of his family lived. He bought a yacht and paid for docking fees, fuel and maintenance.”

The following images of a vacation house in Harbor Springs, Mich., on Lake Michigan and a boat are included in the DOJ’s filing to illustrate the points.

The DOJ argues further in that Sept. 2 filing, “This is a serious case involving more than $1.6 million dollars in taxes, interest, and penalties that the defendant attempted to evade paying with his lies and sophisticated concealment. Therefore, the government submits that a term of imprisonment at the high end of the Guidelines range is sufficient, but not greater than necessary,” in this case.

The government wants $1,233,836.48 in restitution and “a term of imprisonment at the high end of the Guidelines range,” up to the statutory maximum of five years.

But Chappelle’s lawyers are arguing for a sentence well below that.

In the recently filed Defendant’s Sentencing Memorandum, Chappelle’s lawyers claim that the “appropriate total offense level” would put his sentence in the range of 24 to 30 months in terms of the federal sentencing guidelines.

But they have gone further, submitting a formal motion for variance to ask for an even lower sentence than they say the guidelines call for.

The motion “requests that the Court take into account the nature of the offense as well as [Chappelle’s] demonstrated contrition, background, and character in imposing [a] sentence below that range.”

The motion from Chappelle’s lawyers sketches out a rags-to-riches biography.

“With little more than a drive to excel,” Chappelle’s lawyers tell the judge, “he worked his way through school, starting off in community college but ultimately graduating from law school. After obtaining a self-funded education, he became a productive and high-functioning member of society.”

To support their argument, Chappelle’s lawyers provide evidence that they say shows misinterpretations of tax liability by the DOJ team along with other errors that, they say, overstate the amount due. They also blame the Great Recession for Chappelle’s troubles, an argument to which the DOJ attorneys take strong exception.

Chappelle’s attorneys dispute the DOJ’s claim that Chappelle used extraordinarily deceptive tactics – something that, if the judge agrees with the DOJ, could result in a relatively longer sentence. The motions on Chappelle’s behalf tell the court that “banks require organizational structures like Mr. Chappelle’s to transact business….He did not use shell companies or fictitious entities nor did he hide money offshore, all examples of conduct to which [sentencing] enhancement applies.”

Chappelle’s lawyers’ response to the DOJ quotes their client’s longtime in-house attorney Tom Eckhardt saying that the kinds of company structures Chappelle set up “are established primarily in response to ‘lender requirements, solvency issues, litigation issues, or just basic sound business practices.’”

To bolster their case, Chappelle’s attorneys attached to their motion letters from Eckhart and many others attesting to his strong character and solid business practices. These include supportive letters from his wife Laura Chappelle, from whom he has been separated for about a decade, Chappelle’s “companion of many years, Melissa Query,” former employee Rene Gilbert, accountant Daniel Warmels of Clark Schaefer Hackett, former business partner Eric Janes, and others.

“Mr. Chappelle recognizes the gravity of his offenses,” his attorneys conclude in their motion, saying that their client “gave into a set of bad decisions that led him to break the law.” But, they argue, “He is genuinely remorseful for his [sic] what he did and understands that a term of incarceration is appropriate.”

Judge Beckering is now expected to issue a sentence on Oct. 11 at the Gerald R. Ford federal courthouse in Grand Rapids.

Disclosure: In April 2021, Chappelle sued East Lansing Info and Alice Dreger (this reporter) for alleged defamation relating to reporting on his criminal indictment. In October 2021, Ingham County Circuit Judge Joyce Draganchuk granted a request brought by attorney Brian Wassom of Warner Norcross + Judd on behalf of the defendants to summarily dismiss Chappelle’s suit. Chappelle has now appealed Draganchuk’s decision. The State Court of Appeals is expected to hear oral arguments in that civil case later this year or early next year.

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