case number fifteen dash thirty seven twenty five united states of america versus david oral argument not to exceed fifteen minutes per side ms will for the loss at sentencing where according to the guidelines the defendant is entitled to credit for the fair market value of collateral that has not been disposed of at the time of sentencing there were three categories of of collateral in the case there was land there was a quick meant there was one inventory and the f s a the farm services agency had a security interest in that collateral for loans they had made to mr kraus dr kraus to run to establish and run the winery with respect to the land it was the mason road property and the defendant produced at sentencing an appraiser appraisal from a local appraiser who was familiar with the area he did  not he was not able to find comparable vineyard properties to appraise so he did the best that he could in the larger local area to find comparable and it was supplemented by the report of a winery expert somebody who had for years owned and operated winery in pennsylvania and california who judge one competitions had extensive publication credentials and academic credentials as will fit if i could ask you a question about the layout and i think one of the more interesting questions in this case involves the the dispute about whether one a prison the other didn't did or did not assign any value to the improvements that have been made to some of the years since the two thousand and six appraisal or if i if they have the date right we have some pictures that not real clear but not bad of what this property looked like and i want you to ignore for just a second the fact that there are a lot of we i'm not particularly personally persuaded but the weeds make a whole lot of difference we can see that that somebody has put the posts in that support the wires that vines are then trained to grow on but i don't see any indication whatsoever in any of these pictures that there are actually any vines those pictures were taken by the prosecutor the day before sentencing and given to us the day of sentencing we never knew exactly what part of the property was photographed it was there wasn't even an opportunity to determine that  and you also have so that's that's all fine and good but is it your client's contention that there that there are vines at least on some of this additional seven acres absolutely and let me tell you the further part of that question vasyl you can answer it all the same time when when you plant a new vineyard you you put in a tap root that's called the trunk that's what has the roots under the soil and then you graft on  whatever grape vines you want to grow from that truck so it's it's very possible that there could be trunks on the sleigh and even if we can't see any vines so tell me what it is that your client claims is actually on this seven acres in question and we're in the record we could go to find any support for the two places one there are other photographs taken by the local appraiser staffer that looks very different than those photographs and the winery those are in the record those are on the record attached to his attach to his appraisal i don't think they show what your honor is asking about he wasn't a wine expert the wine expert the property he didn't photograph the property but he evaluated it and he say in his testimony what it is he saw when he walked the property another is here here's the here's the bigger sort of point of this question i can see that there are proved months that have been made to this land just from these pictures as  n as they are but that doesn't mean that it's worth the the ten thousand dollars an acre that was used for the other properties where there are wires pose drip irrigation systems tap root and violence that have actually grown up and you can see him along the wires that's two different questions well that it's a very it's a very specific and detailed question that  government had an opportunity to ask dr kerry we submitted his appraisal we've been submitted his direct by affidavit and the government did not take the opportunity he was available by phone  to cross examine him about that he just trying to figure out what you say the record establishes as to what this these improvements to the seven acres actually includes the the two thousand and six appraisal which the court relied on was an appraisal of the vineyard at that time where i believe it was seven of the acres had been planted and were operating as a vineyard to  the groups or the vines had grown up there on the wires and they were producing grapes i got that so how does that compare to the additional seven acres that essentially you're complaining your client didn't get credit for or our evidence of that was the appraisal of dr kerry who walked the property and as you are says he was not as detailed about what he saw but he saw a property going to ask you one more time that i'm going to give up what do what do you say the records establishes was on that additional seven acres beyond the posts in the wires what is the record tell us was on that additional seventy years i believe the answer is in the appraisal of dr carey where he says that evaluating this property not the land of what i see the land and that has been developed on the land i would appraise it at an additional two hundred forty thousand dollars so you're not going to tell me what it's what it what he what the record point was actually on the land you you won't tell me that or you don't know the answer to that so the only place i can look then apparently is the affidavit and the pictures attached to the appraisal that were stand pictures attached to the seller for appraisal and kerry appraisal yes all right i give up let me ask you one of the key legal factors that's important here is our standard of review  even if we are agreement or disagreement with what the court did is not the standard that governs here we're looking for whether there was clear error and what appeared to me to be the basis of the court's decision was a credibility determination and that is very inherently the right of the district court who views all the evidence and sees the witnesses and makes credibility determination so in light of day that why a valuation where he had both an evaluation of the planted a curse at one value and the un planted a curse at another value tell me how you can reach the clear error standard that makes this i think the rule we're looking for is outside the realm of permissible computations because the the pfeifer appraisal was nine increase because according to the information that we had presented that was more in line with how the market had gone and he did give a five percent increase so that was a a nine year old appraisal and it did not and judge me key questions were right on in the fact that it didn't account for the planting of the seven additional acres and our evidence of that again it was that the winery expert appraised it evaluated it and determined that those those fifteen acres had a value of two hundred forty thousand dollars so to adopt a nine year old print appraisal where and not require even the testimony of the appraiser was clearly erroneous when the court had before it the appraisal of a local appraiser and the person who is clearly an expert not an appraiser an expert what do you say not require the testimony of somebody minutes the publication of them the opportunity of both parties to come forward with whatever proof they want which can include testimony to the district judge preclude somebody from offering somebody some testimony they want to offer no it was the government this was a government appraisal and in order for the government to to take the position that the court should adopt this value we should at least have had an opportunity to cross examine the appraiser who the government didn't produce did you did you subpoena we didn't subpoena him we only learned that the government was relying on these appraisals six days before the sentencing yes for more time to prepare for the something they did and there was a conference call it was a scheduling call it was one recorded but i don't think the government would contestant's an offer of through the court i can tell you i court to adjourn the sentencing because it would require so much work to to a value way what the government had provided we had provided our appraisals to the government five weeks before the sentencing invited them to have the property appraised bring in their own appraisal and they didn't take advantage of that and i see you have seven seconds left and the big issue in this case is the wine inventory and it's a legal and factual issue and it's a two step process it is determining loss whether actual or intended and then crediting applying the credit to loss there was never there was never any question of intended loss in this case the the actual starting point loss was the amount of the unpaid loan there was no determination of whether there was some port portion of that the defendant intended never to repay what subsequently happened to this wine after the sentencing you know some of it was sold and the the proceeds were remitted to the government and much of it still exists or all of it still exists and is is not the wind selling season right now but will be sold at its fair market value so the other question that i had for you so we can get this on the table and then you can address to do so at least briefly and then we talk about when you come back and that's the proper loss table you're all operating from a table th shows you need to get on are one hundred fifty thousand dollars for all this to make any difference and it looks to me like the correct table for two thousand and fourteen is one hundred twenty thousand dollars you looked at the guidelines  right you looked at the guideline that was on rate that was on line which is the wrong one to look at the books don't change till the summer we were applying the two thousand and fifteen guidelines supposed to apply two thousand and fourteen that's the year of the s business we all did and the government in object to it and the probation department noted in the p s r that these were these these guidelines were pending amendment and she was level unhandsome and then you are to the ten level one or makes thirty thousand dollars difference and how much more credit you have to obtain from either the land the right or your the wide as i think about that and then whatever thought you have would be useful ok for three reasons first according ploy the appropriate methodology for calculating a reasonable estimate of the fair market value of the collateral to offset against the loss amount second the court's factual find both about the fraud scheme and about the value of the collateral were not clearly erroneous burked it was appropriate for the court to decide based on its factual findings not toward a credit against loss for the value of the inventory collateral based on the nature of dr cross is fraud scheme why wouldn't it be clearly erroneous at least with respect to the land if you use an appraisal that has seven acres under cultivation and seven that are not and then seven more acres get added but all you add is an inflationary i'm out you don't add anything for the improvements that have been made to the additional seven acres of the vineyard assuming that there really were improvements that have been made and how can you how can the district judge even under clear just ignore that your honor to answer that question and say it's based on the last part of the question which is assuming the improvements were actually made the court was required to calculate a reasonable estimate of the value of this collateral at the time so i got that but is it a reasonable estimate if he's told there are fourteen acres and he uses an appraisal that is seven acres including the improvements seven acres with the improvements  seven acres that had been a pretty improved meaning there were vines and grapes no your honor it's not clearly erroneous you are that that's yes the court should should take that into account sussing the fair market value of that land additional seven acres but where did the court take that into account thirty five through the five percent i thought the five percent was just two to reflect it was a two thousand and six appraisal and it's being used in two thousand and fourteen your honor the court stated on the record that the five the additional five percent representing crease in property values over time the appraisal that are relied on that's inflation that's correct your honor not for the additional seven acres so how you keep saying the same thing why is it appropriate to use an appraisal that doesn't reflect the improvements to the additional seven acres assuming that they actually had been approved improve short answer is it's not clearly erroneous because the court looked at several prisons looked at photographs of the land and assessed what value if any those improvements would have had where do we find that the record the photographs  no the fact that he actually assigned a value to the whatever improvements have been made to the other seven acres i must i missed that apparently your honor and i believe that's not clearly  back to this additional seven acres without wasting your time in this whole thing we can see that assuming the photograph was this is your photograph right your guys photograph of these additional seven acres that's correct yeah you can see that there are the posts th then this is in june of two thousand and fifteen shortly before the sentencing hearing based on what we can see in the photographs it appears that whatever's on there is not bearing any sort of i don't i don't understand where you're coming from at all you can't see anything on the wires or weeds and that's that's what the district court said you are if the question is where in the record i'm just saying you're the government i'm trying to figure out do you say there were vines or there were violence i don't care it doesn't matter to me what the answer is just tell me what your position is there's the short answer is that there's nothing in the record showing that there are definitively showing that there are improvements on these additional seven acres you know there are improvements because you see in the photograph you've got the pose and you've got the wires that costs money to put that in you have to invest that because the every culture department requires you to raise the vines up so the much so the pickers don't have to bend over to don't know if you don't know you know we don't ok was found really in two places first as in dr carey's appraisal which contains one page discussing the improvements on land the bulk of dr cures appraisal was an article written about wineries in the long island region new york had nothing as will of tells us that there are actually additional pictures of the of this seven acres attached to that appraisal if i understood it correctly is that right or wrong that's wrong you want to the cure appraisal can be found in page id seven seven forty eight two zero there are photographs in that appraisal of other wineries in the new york region as part of this article that was attached the appraisal the portion of the appraisal we're going to call it that dealing with the improvements on the land the vines themselves is one page about three paragraphs discussing how he reaches this two hundred forty thousand dollar increase in value on the land itself and that is what stuff or relied on in calculate stuff or relied on calculating his appraisal of the improvements on the land i would know stealth for in his appraisal and in his declaration stated that he thought that kerry's assessment of the improvements was overstated and so he decreased it based on talking with another local vineyard he included he decreased it from what two hundred forty question is to try to determine whether the vacant land reference in that exhibit relates to the previously unplanted i curse or if there's actually some bike land within the bo of the piece of property are my understanding of that is that it relates to the value of the underlying real estate if it were vacant without improvements on it not that there is another portion of the real estate that's vacant and on plan your honour's continuing on the thorny legal issue in this case is whether or not it was appropriate for the court to decide to withhold a credit against loss for the value of the wine inventory here the court may factual findings that yes dr cross is fraud scheme involved concealment involved disposal involved conversion of wine inventories grapes juice used  secure its debt with farm services agency in a previous unpublished opinion the sixth circuit has said that in the caucasus case that when a court finds that there is concealment an attempt to permanently deprive the lender of the value of the collateral securing that debt that it would be appropriate in certain circumstances to deny credit against loss for the value that collateral when the courts and gauged and i would agree with you that that's a more problematic area in this case also because what you're doing is assuming they actively no value for that here you are assuming that he was made on it because part of what we're talking about is how do you value it is it more commercially valuable than has been assumed or is it not so what happened to you are in the short answer is since the sentencing hearing there have been two restitution payments made that involve what we understand to be proceeds from the sale of wine or wine inventory the first is made almost immediately after the sensing hearing is related to a different figure we understand that to represent twenty fourth that is the twenty four thousand dollars payment was made shortly after the sensing hearing but it represented sales that we believe occurred prior to sentencing so at some point after detection but prior to since well all he pled guilty to was failing to disclose forty two thousand fifty eight dollars of proceeds isn't that correct that's correct your honor and to get to the point about why that forty two why the failure to disclose that forty two thousand dollars in sales results in a denial of a credit guess loss for the value of one inventory whatever that one inventory is determined to be valued  these are sales that simply were not disclosed to farm services agency this is collateral that securing their dead it's being sold out from under their noses without any sort of reporting other on the front end or the back in which is what dr cross was required to do he said there was a second sale gone or there were additional sales that are made after the sentencing hearing i believe it was approximately forty thousand dollars worth of one that was sold we asked for additional documentation regarding again this is not in the record but just to the court's clear on the issue we asked for additional documentation reflecting the sales of that want for exactly the reason the judge planche put forward today which is to understand fifteen or fourteen i'm sorry are twenty fifteen or twenty fourteen twenty fifty fifty and your honor to be clear during the during the hearing the court did not take credit gets lost for the value of the collateral but in doing so it also stated if it were to award value it thought that the appropriate measure of that was that documented in the andrews appraised now mr andrews has been an accredited option near since one nine hundred seventy his credentials are in in his appraisal of page i d a two for the if not online seller right he's not a line option you your honor in his difficulties with auctioning off one including some of the logistics as far as advertising sales selling it in bog as opposed to the f s a effectively running a retail operation out of dr crosses now out of d cross is one of the court's stated that the appropriate measure for the value that collateral if anything going to be awarded at all was approximately fifty cents to two dollars per bottle now if we accept at the high end th appraisal has approximately sixteen hundred cases of wine effectively nineteen thousand bottles even if the court were to apply what he thought the appropriate measure was that's two dollars per bottle times nineteen thousand nine hundred the equivalent of one thousand thousand bottles not taking into account the value of repotting reprocessing re blending or re bottling this wine that's still not going to get to the seventy eight thousand dollars that's needed to get dr crossing to the next lower the next lower sentencing range that was in effect at the time of sentencing will it is enough if he was if he didn't properly get the additional ten thousand dollars an acre for the seven acres that is that are in dispute as to whether they had been improved and headlines on your honor depending on how how much the record would have warded for these additional four improvements on the additional seven acres understand that again the point that i'm making your honor is that in order for this to even if the court were to find that there was some mistake in this process with a fine mistake of acquittal and a seventy eight any questions well thank you all right thank you mr hood thank you wolf you have your three minutes thank your honour's one of the questions was whether there were photographs attached to the appraisals no photographs attached to carry appraisal but photographs attached to the staff for appraisal the other the other comment i think  judge me strang made was that he pled guilty to forty two thousand dollars in conversion of collateral he he didn't plead guilty to that he played guilty to a one thousand and one violation regarding a statement that he had made to the farm services agency about the filing of a tax return all of this all of the discussion thousand that might help your client because there is other evidence in the record were guarding the time period from two thousand and five from two thousand to two thousand and eleven and two thousand and nine in early two thousand and that would show there were much larger so my question the as we were not looking at the two million dollars in sales from two thousand and five to eleven or the one million dollars of sales and nine to ten and is it all that we are talking about in his pleading that it was forty two thousand that he failed to disclose or are we looking at a higher figure well in all that we're talking about in the p s i i in the p s i was based on the information given to them by the government is a failure to disclose forty two thousand dollars we made a full presentation on that we gave the probation department a chart and we said it is at most twenty three thousand dollars because nineteen thousand dollars of it we can't figure out how the government came up with it and our argument was that that does not show an intent to conceal and deprive the government of two hundred eighty eight thousand dollars worth of wine and also the important concealment issue really didn't have anything to do with the this is the confusing part about this that supposedly he didn't report some sales that he had before i guess probably before he got indicted that's a different one than the one that's in the inventory  the question becomes if you had whether they could prove that that he was and that he was regularly concealing the sales of wine in there that's why they then exclude all the wine that's in the imagery i thought that the reason was with the poor of the primaries and was that when he learned he was being investigated he started to sell wine to two places that had not received a subpoena from the government he changed the way in which he was distributing the wine in a way the government claims evidences his intention to conceal that from the government do i get that do i understand it correctly that's the government's allegation what's a response that had to do with great he had great purchasers who he was required to disclose them to the government the names of those people and how much he had sold and and how much he intended to sell in the coming year wine was different it was sold from a winery barn you don't collect my identification information from people who buy bottles of wine or order a glass of wine that information the government never expected him to disclose they expected him to disclose the cash register receipts which he did not a fear front's least from the government standpoint that if he's trying to cheat the government out of the proceeds of the grapes that he was presumably going to cheat them out of the proceeds of the why that's their argument isn't it that's the argument but when they're when their evidence of that is and and it's disputed a total of forty two thousand dollars over a period of four years the inference is then not this was an expedited appeal and expedited oral argument because of the length of the sentence and we hope it will remain an expedited track thank you