numbers thirteen five eight two one in thirteen five nine three one united states of america versus jerry  and jeffrey whaley arguments not to exceed to exceed ten minutes for each defendant twenty minutes for the plaintiff mr stovall for the good morning your honors i'd like three minutes for bottle you may the key evidence in the case against mr curly was opinion testimony that was based on specialized underwriting knowledge but was improperly admitted under rule seven zero one as lay opinion the underwriting testimony address the materiality of the key issue in the case against mr curly and the only misrepresentation that the district court found he was involved with and that's misrepresentations concerning the source of down payments or closing payments for stated income or no document loans the underwriting guidelines for those loans were focused on the borrowers credit history not the source or amount of any down payment and in fact the underwriting guidelines did not require a down payment for these types of loans but the underwriters testimony was that the source of closing payments was material and the underwriters told the jury but if the linders had known the borrowers war in funding those payments the loans would have been rejected that testimony violated rule seven zero one in two ways first it was based on a reasoning process that is not familiar to an ordinary person underwriting is not basic math it's not computational an underwriter analyzes information about a b in light of the political god lines and interprets and applies those guidelines to a specific transaction based on her experience and training a lay person who doesn't have that experience and training and here's one way to put the point even if a lay person had all the same facts could perceive all the same information that an underwriter perceived the lay person could not analyze it the same way would not be capable of forming that judgment and there are two examples in the record here that make this quite clear the government called a different bank executive besides the two underwriters the government called a woman named kim miser who was a wholesale account executive and she testified that her responsibilities included learning underwriting guidelines so she could talk to mortgage brokers she was marketing the bank products and she needed to know underwriting guidelines so she knew much more about underwriting guidelines than any ordinary person would but when she was asked what about applying those guidelines how do you how do you evaluate credit history what stated income is reasonable for a stated occupation that bank executive said those are underwriting questions that she could not answer and if she can't engage in that reasoning process even though she's familiar with the guidelines and ordinary lay person surely cannot who viewed could you or did you use that i don't know testimony to undermine the other people's testimony no your honor if you have this allegedly top dog who doesn't know it would seem the jury might be impressed by the fact what the jury may have been but the reason i emphasize it now is the government's position in this case depends on the notion that underwriting is not specialized in any person could engage in that reason another bank executive couldn't for purposes of whether it's seven a one apart from a jury argument that testimony shows it's specialized also you have the testimony of the time that you made the argument of the judge no we moved before trial to exclude so that came out and it's at that point the fact that you happen to get a good answer from a witness later on doesn't on its own undermine the judge's legal reasoning does it i mean you're maybe a good cross examiner i think it undermines the government's position on appeal that underwriting isn't specialized and when one other question these were underwriters in the very people banks who were involved this wasn't the professor of underwriting somewhere coming down to tell you what underwriters do generally write well wouldn't that be much more like you know a stonemason may be very specialized in his stone masonry but if he says i did this for my boss my boss told me to do that and that was what was at issue that's why it seemed that the this people were talking about their own jobs were and they were your honor but they weren't they did not underwrite these loans at the time though and in fact neither knew what happened in the actual underwriting their analysis was after the fact but there's something else i want to say about this because there and i think this is a critical critical point because i think it destroys the government's position on appeal the notion that this is nothing more than linder specific guidelines now i think that's wrong because of the white case and i'll get back to that even if there's no on the job exception to seven a one but step back for a second the government's position does 't work on this record because these witnesses their opinion and analysis was not limited to linder specific guidelines so you're right judge boggs they weren't a professor of underwriting but the government rooted their analysis in general underwriting principles and it did that through out this trial the analysis of the particular misrepresentation that matters to mr curly's case the government's attack on that the government's materiality theory was rooted in general underwriting principles and that is that there is no question that that is expert testimony in opening statement the government said the government told the jury from the beginning of this case you're going to hear testimony from underwriters who will tell you that underwriters care about three things generally the ability to pay the motivation to pay the willingness to pay and the government in opening put it this way underwriters want to see skin in the game he used that phrase no fewer than nine times in the opening statement skin in the game skin in the game that concept was not in any linder specific document in this case it was based on general principles and it had to be based on general principles because the specific guidelines didn't talk about the cash from borrower statements so the government got the key witness barbara de michel the key underwriter to explain the general principles governments worked in as a matter of underwriting generally governments words do you know the three principles she talked about those principles and the government came back to her in closing relying on her testimony the government argued that these particular misrepresentations were material not just because they violated any given company specific policy but because they undermined entire underwriting process thank you counsel you of counsel defense that is contemporaneous statements that he made that to law enforcement before he knew that he was the target of the investigation this in turn would have negated his government that would be hearsay wouldn't well that there's really two responses to that first if you were to testify on his own he could and this isn't a reply brief he could have used that statement to rehabilitate his own any deficiency in cross examination through his own prior consistent statement the second answer that question really is that it's possible to use it for a non hearsay purpose that is his it's his state of mind at the time that he was engaging in these transactions if in fact his attorney had told him go to this go to your bank get these checks that say were mr such and such name it doesn't matter whether or not that's true it matters that there was an attorney who was instructing him to do it and so it negated his intent to defraud the district court prevented him from from raising this defense it's also worth noting that the this possible defense was mutually and antagonistic to the defense of mr curly that is mr crawley's defense was i had no idea that they were that they were engaging in these these that real estate transactions were structured in this way and that was his defense the jury could either believe that or to believe mr curly mr whately is defense that i was acting on the advice of counsel so to to fail to grant the motion to sever is in effect hamstringing and clued ing our client mr whaley from presenting his preferred theory of defense and that is there was an attorney involved in these transactions i trusted when i went to closing that this was all above the board early and that's the that's the problem here is that if that the co defendants theory of defense is i don't know anything about the way they structured these transactions and mr whaley's defense is there was an attorney on board who told me that this was ok those defenses clash and to to what if the jury would find in favor of one then it necessarily would mean that they would find against the other and so there's a conflict there the best course of action in our view is to sever the trials  just as both defendants asked to allow this defense to reach winter when you said that it could have come in for in the state of mind whether whatever the attorney told him was true or not did you try to defense and the way it was resolved it was sort of want to ancillary basis that is look this is hearsay in any event under no circumstances whether you were tried individually or whether you were tried jointly with this ever reach the jury because it's hearsay and our position primarily was that that's that's going to be too far i was asking if you raised that is it's harder to pull the judge for making that statement ruling if you didn't say your honor we recognize it's hearsay but we can offer it for this limited purpose right that's correct or that the original basis evidentiary basis for admission was originally the rule of completeness or answer is no you didn't raise the theory before the judge our position that there was no intent argument over two that he lacked any intent to defraud we would know that there has to be an intent to harm the back and intent to defraud the bank mr whaley here he was a builder he spent most of his time on this black bear ridge property building cabinets they told him to show up to the closings because he had checks for him to cover his expenses  suggest that mr whaley himself intended to defraud the banks it was primarily that mr whaley participated in well really that the evidence was that mr there was a stop payment put on that check that was because mr lee's company couldn't cover the amount of the check from that mistaken and so to make sure that the transaction closed mr whaley used his own funds as he  primarily did for most of the transactions as well like for bill berger who example he did the same thing then again he thought that he was covering the closing costs for thirty thousand that was what he thought he had to  do to make sure that the deal was closed again he was acting at the direction of a legal they could get the money from sun trust you know the other citizens the other lender right again and out it may seem like this was a long time a galaxy far far away but actually back in those times everybody was making money doing this so the intent wasn't so much happened from there i mean that's one of the reasons the whole plane collapse right that the whole thing did collapse but again this was it's about his intent be the primary issue for the court to consider is whether or not a witness can testify about employers practices that witnesses employers practices policies and the application there of based on that witness contemporaneous knowledge of those policies and procedures that it is in these in this particular case these two witnesses were employed at the relevant time and so they had contemporaneous knowledge of the practices and procedures and policies of their employers and whether or not they can apply those practices and procedures to after the fact acquired knowledge that is at some point later in time they apply apply those practices and procedures to transactions that they were not personally involved  now let me let me take a step here and say that that may not exactly be the precise issue for mr owens because the neither defendant appears to dispute the fact that mr owens testified that in two thousand and five in two thousand and six she was the supervisor of the division the lending division at citizens bank that approved the two citizens bank loans and questions twelve thirty burden of sway in fourteen thirty seven eagle cloud way so to some extent the case could be made and the government takes this position in its brief is that she in fact oversaw those transactions and precisely what happened in those transactions was imputed to her as the supervisor over that the department she made it clear in her testimony that she was responsible for all of the lending decisions  citizens bank at that particular time so rowan's and barbara michael are not exactly the same but turning to mr michael who is a representative of sun trust mortgage she testified as the court knows that in two thousand and five she too was a supervisor of other underwriters so not only was she applying suntrust mortgages underwriting guidelines she was supervising others who was apply who were applying those guidelines at the time in question and the court will course will observe that the transactions in question were in the fall of two thousand and five going into the early spring of two thousand and six now what the what the appellant particularly mr curly contends is that the government central premise is the way he put it destroyed because the mr michael was relying on general principles of underwriting in stating her opinion to the court that is just factually inaccurate or i don't know another way to state it and we would point the court to page eleven of our brief were reciting the transcript pages twenty sixty four to twenty sixty five where mr michael says that her testimony w exclusively rooted in her understanding of the guidelines that sun trust mortgage had in play at the time and her particular review of those files it wasn't based on general underwriting principles she did say that as an underwriter at sun trust she looked for three particular issues the three the three concerns the three policy concerns that the appellant stated but these are not general underwriting principles these were the underwriting principles that she stated were followed by sun trust now the other issue that the other basis for the mr curly's position is that we know that mr michael's testimony is more like seven o two expert testimony because if we were to go up to a lay person on the street and ask them could you please describe underwriting principles of tranches for us that they wouldn't be able to do that but the court has that's hardly what the case law is in this area it is true that specialized knowledge is a term of art that applies particularly in real seven o two but if you look at rule seven one as it was amended in two thousand it said that exclusive except for except for testimony that would be governed by rules of a no two so the fact that the fact that this could be considered to be complicated or something that an ordinary lay person might necessarily not necessarily understand does not make it specialized knowledge and i ask these i guess i would point the court to the tampa bay ship builders decision where in that situation the owners of the company testified what was a reasonable cost for repairing the ship and certainly couldn't walk up on the street and someone say excuse me sir could you tell me what the reasonable cost is for repairing this million dollar vessel coarsely could it in the v where a witness was allowed to testify about what the impact on what the impact on index changes the the natural gas price of index changes the indices that were affected by the misrepresentations to those  publications witnesses allowed to testify what impact that had on the company's profits same question a lay person would not be able to provide that testimony without and here it is without the particularized knowledge that that particular witness had from working at that employer in that case dynasty this this this explanation is not inconsistent with the six circuits decision in white and that's a case that the defense would like to great emphasis on of course the court knows in why you were dealing with fiscal intermediaries not employers of a company that was under investigation or was the subject of an investigation these fiscal intermediaries receive cost reports from the provider who was being targeted for investigation and the fiscal intermediaries then applied their general industry understanding of medicare regulations principles and procedures so they took some information that they got not from their provider but they got from their work as fiscal intermediaries basically outside auditors so they were in that situation is as i believe a judge that they were to be they were in that situation expert as it relates to the way in which the medicare guidelines work but the court was careful to say that the vast majority of their testimony related to their analysis of the cost reports they were actually submitted and again if the touchstone is well could we go up to a person on an ordinary person could you please explain to us the way in which these costs reports could be evaluated in analyze using medicare guidelines layperson couldn't do that but this court held in that situation that the  on there based on those fiscal intermediaries review of the cost reports was admissible under seven a one the mr curly's counsel also says that another basis for why it's clear that this was complicated is because kim eiser could who was questioned at trial was not able to explain what the guidelines were and the reason why i'm following up on this is because drugs judge boggs you asked a question as to whether or not the fact that this in the believe the phrase used for this top dog the fact that this top dog didn't know what the guidelines were could that have been a cross examination point i want to make it clear the court and this is clear from the transcript t no top dog she was not a bank executive she was doing nothing nothing more than going around to mortgage brokers like gateway and letting them know that sun trust has various products that they ought to consider course as we know mortgage brokers do is that they have a universe of lenders to which they can point the people who come in their door and kim miser was account it was an account representative and she was called of course the government wanted to make it clear that kim miser wasn't out there saying which we did a trial please come to suntrust because sundress doesn't care if you liar cheat on your application and kim miser clarified that for the jury that that's not what she was doing when she was cross examined about her knowledge of the guidelines no she didn't have the knowledge of an underwriter she had the knowledge of someone who was peddling suntrust mortgage products what the what the what mr cruise counsel seem to be seems to be most concerned about of the is the fact that mr michael testified that the sun trust guidelines at issue required a borrower a buyer to bring his or his or her own funds to closing what's interesting is that if you look at the cross examination of mr michael not one time was she asked a question about him one two and him four which were the telephone book size guidelines that the government put in evidence and the government did as mr michael i asked her i said based on these guidelines did suntrust require that the borrowers bring their own funds to closing and she said yes well there's no question about that under cross examination there the guidelines they could have asked her and said this position surfaces on appeal first in the opening brief it says it appears that the guidelines do not require the borrower to bring funds to closing and the more vatican reply and even more exotic lead to an oral argument the fact is that she was there they didn't ask the questions and in fact the focus of the cross examination of vista  michael the focus of the cross cross examination frankly was she was she she had put before her i don't know several i don't know the count several truth in lending statements and she was shown the truth in lending statement and basically the point of it was that or to full repayment on the amount of money that was barred from sun trust that rather than paying the original loan balance they would pay a whole lot more than the original loan balance over the amortization of thirty years and so therefore i think the point was that sundress just wanted to make a lot of interest and that's the reason why they're willing to look the other way and you know it was it was it was it was a good effort and an effective point to attack the credibility of sun trust that i think the united states made a straw borrowers in the sun trust they terminated their relationship immediately and that was in two thousand and six as we noted argument a trial and as we know in our brief this is at the height of the mortgage bubble and had suntrust been interested in just manufacturing loans based on brief that we think that's important to consider at this time as well is that let's just say for the sake of argument because we are not anywhere close to conceding this that even dismiss demonic goals testimony was a properly admitted that there were eight packets of closing instructions that were presented to the jury and all these closing instructions follow the same language that said that you jerry curley as owner of guarantee land title if you are aware that there is fraud in this transaction if you are aware that the borrower is not bringing his or her own phones to closing if you find out that a third party is providing funds for this closing then what are you supposed to do stop and call us and that was clear that in and of itself particularly clear when the court considers the materiality instruction that was given to the jury namely that the jury could find that if there was a natural tendency to influence the decision of the decision making body then that's immaterial the closing instructions themselves say that the lender wants to know this information it's of it's happening to the point that it wants to stop the transaction so that certainly meets the meets the definition of something having a natural tendency to affect the decision making body moreover there was another instruction that was that was given on opinion testimony that that that certainly made it clear that the jury was to consider the witnesses qualifications and how they reached those conclusions and to balance those against other instructions regarding credibility of the  witnesses including the point they've already made that these witnesses were clearly attacked based on the institutions that they represented were were attacked their motive was attacked why they were doing it that they were just greedy and wanted to make up what i wanted to make a lot of money in these jerry curley himself when he testified there cross examine him he admitted that whatever the loan product was that sun trust mortgage wanted to know whether the borrower was bringing his own money to closing and he would have stopped the transaction had he known other turning to the the other issue that mr whaley's mr whately recent issues and i hope i'll be able to get to those but most most important to the government other than this this is the issue relating to seven and one is the the last calculation because this were the court or the court to decide with the defense this would have far reaching implications in other to be one point one cases so this issue is very important to the united states  curly's position on this is not consistent with the plain language of the application it's under review the application it's under review of course is the credits against loss provision and the credit the credits against loss provision states in a situation where you have collateral that in determining the amount of loss the the sentencing court is to take into consideration this is important the amount recovered from the disposition of the collateral now the defense position is that when a lender makes a credit bid at a foreclosure sale that and therefore choir credit bid means it's not real money it's the value of their loan interest in the amount that they have loaned out for and that's exact they don't have to put new cash in for that that's exactly right in the reason for credit was not something that was the reason the general reasons why the why the occur is not something that was fully developed in the record below and that's why we look to the green case there's a isn't there a supreme court case directly on point that's in the your honor there is a the rover's case is the supreme court's that addressed the mandatory victim restitution ok but but because it's not precisely the same language we felt it was important to begin our presentation today with going to the language issue and it's amount recovered and judge boggs i believe that in a general sense you are absolutely correct about the process i think that the green court the green case from the seventh circuit provides a very good big picture understanding of what's happening here and why in a mortgage fraud context that is not a a that is not a reasonable way to determine the value but getting back to the plain language russell have time and if you think about what an amount recovered means i believe that the plain language of amount means a sum of money and recovered means that it's actually sold now if you just transfer title from if you take that security interest that the lender has and you convert that into actual legal and equitable title back to the lender is that is that and does that generate an amount recovered now all you're doing is you're transferring ownership and the reason why do that which which i think the green case and the green case points to other decisions that explain this lenders do this to they can better control the outcome of a sale obviously a foreclosure sale the courthouse steps is going to be downward pressure from  very nature downward price pressure from its very nature from the lender takes control of it it can put it into real estate owned assets arm of the audio asset department you've seen in our brief and then they can list and then they can make an effort to market and sell it for its real market value so our position is that you start with the plain language of the critic credits against loss provision and from that you can determine that no amount has been recovered when there's a transfer then if you look at the rationale behind that and that is to make sure that actual that  that it actually results in the real loss to the linder which is the objective of to be will be one point when it's a balancing it's wanting to give the defendant credit for an amount that's actually recovered and offset that against the actual loss to the lender in this situation the only time value is a substitute for amount is when the property hasn't been sold before sentencing when has it actually been sold and the credits against loss provision says that as  much the government encourages the court to look at the green decision with which states that was actually sold before sentence excuse me was actually sold or yes in this case it actually was sold know what its market value was at least when it was sold in principle the market value at the time they made the credit be a good in principle might have been different that is to say bear with me and see if i sort of understand this i have a credit my security interest for four hundred thousand dollars ok now maybe at that point the market value is three hundred thousand but nobody's going to come in from the outside and bid three hundred thousand because they know i've got this credit they'll never get it so how does that affect it at all when then it loses value between the two times if the if the if there are if there's a loss of value between the time the lender gets title and then sells it well i think there are number of decisions that address this think the malory decision and that we cite in our brief that there are number of cases that talk about the forsee ability of a downturn in the market and that even though that happens in that it's forseeable to the defendant that that could indeed happen and so that's no reason not to treat that's a reason to look at the credits against loss provision a differently just because that there could be a change without basically the defendant having messed up he doesn't have the right to to assess the market and try to sell it ahead of time or something of that sort well i think that a case could be made that if a diff if a defense could if the defendant could show that the lender word was just sitting on it to run the clock to increase the loss amount that's not the case here hypothetically he wouldn't want to do they want to they're running a business right that the credit bid is a little odd in the sense that if the credit bid were simply real cash in your pocket you might have a real auction and somebody else comes in and bids two hundred well i can bid to fifty he bids three hundred i can bid three fifty because i've got four hundred in my credit bid but that's not the way it works in the real world everybody knows you've forces and market forces you know my answer this question i'm out of time but my answer question market forces outside of a fraudulent context are always going to generate the right result and i think that the green green case points to the reason why you can't use a credit bid and a graciously given me his rebuttal time got the whole six minutes go down to six minutes to go back to the opinion issue the testimony on underwriting principles generally it's at record entry one sixty seven pages page id numbers twenty one thirty one to twenty one thirty two and the government's own words were in underwriting generally are you familiar with the principles of underwriting but and this is the more fundamental point whether it's underwriting generally or not some jobs are specialized and the fact that you learn it on the job doesn't mean you get to analyze it for the jury it's not a question of  knowledge or the facts themselves yes you can talk about what you saw in your job and so a business owner can talk about his lost profits the difference is in the reasoning process and the business owner cases involve basic math and they are a traditional exception to expert rule so that the exception that the government the exception in the advisory committee notes for business owners that the government is trying to stretch in this case doesn't fit here because we're not talking about basic math and underwriting testimony is not a traditional form of lay opinion testimony the advisory committee notes explicitly say this and the tampa bay decision from the levees or am i wrong to think that labeling the label underwriting is leading us into territory that maybe isn't justified every time we label it underwriting we all go to all underwriters there are very talented well trained people but here the term is can be really to describe a person skilled in their work of lending it could be and i think depending on the testimony an underwriter could give life in your testimony but the testimony here didn't just cross the line because in gauged in underwriting analysis not just i'm an underwriter this is what i do this is what i look at that would be perfectly ok whether it's an underwriter or a rocket scientist just the lenders say that again if a lender well but they went beyond describing practice practices to on the stand underwriting itself and the white case shows why that was wrong why is not distinguishable in any way that matters in that case this court found that  medicare auditor the government says they were fiscal intermediaries but that's because medicare so contracted to work they were medicare auditors and that this court found that it violated seven a one for them to explain medicare requirements and the meaning of medicare terms in that case that was their job it wasn't something they learned anywhere else they were the only auditing they did was medicare auditing and this court said it crossed the line either being i don't know i think that we could maybe distinguish that auditing is is really kind of pedestrian work well but but your honor auditors in that case the analysis they did was specialized enough even though they were just auditors that this cou crossed the line ok and i think what's significant the testimony in this case went far beyond the testimony and white in white the auditors simply explained the requirements they didn't take the next step and tell the jury these cost more reasonable this was a related party they just explained what related party met that judge cook even that crossed the line here the auditors the underwriters not only explain the requirements they told the jury these particular transactions violate the requirements of these particular transactions would have been rejected the auditors in white didn't go anywhere near that and it was still too far for this court and they were talking about their own employers at that particular and in response to that they were talking about sun trust and citizens in other words they weren't giving general abstract opinions about anything they were talking about basically the practices that were occurring in their own companies they were judge in other words the question that they have a piece was would your company have made their loan if the knew that the thirty eight thousand or thirty nine thousand dollar down payment was being used to get a loan from you for six hundred thousand dollars they were going to give it to the very people that were came up with a thirty nine i mean what kind of deal is there i mean that's a perfect deal if they had known it i don't think it would be an expert answer that question your honor i think you do because it's an underwriting judgment on this and and judge twist the auditors and what we're talking about their employer to their employer for practical purposes w medicare there's no difference here they were talking about their job what would you have noticed as an auditor on your job the only person they worked for was medicare there is no difference in that respect there is no difference that and that no distinction with  difference in that respect and here this the government presented this as an underwriting issue these were the only underwriters who testified it wasn't the only way they could get to that point which especially now it seems obvious of course that would matter the guidelines didn't say the guidelines didn't even appear to require a downpayment and i think this is important this is not a sufficiency argument the government says well that the closing instructions that this is not about sufficiency the question is did this testimony contribute to the verdict and the underwriters testimony went beyond anything in the written record the closing instruction said that down payments were not a political ball so they tied it together for the jury in a way that no other evidence your honor may i say one thing about  other night i understand that he doesn't have to but as a simple matter usually it takes four seconds to do one of those things you walk in your lay down the hole and the only other point i would say on that if they if they started with an option where if they literally went in and said you know one hundred thousand two hundred thousand and there's some outsider bidding then you would have something but that's just not the way it works is that it can work that way it could but as a general matter it doesn't people banks you know be tentative time one hundred