NOT RECOMMENDED FOR PUBLICATION

File Name: 16a0352n.06

No. 15-3725

UNITED STATES COURTS OF APPEALS

FOR THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

DAVID J. KRAUS,

Defendant-Appellant.

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ON APPEAL FROM THE 

UNITED STATES DISTRICT 

COURT FOR THE NORTHERN 

DISTRICT OF OHIO

OPINION

BEFORE: BATCHELDER, McKEAGUE, and STRANCH, Circuit Judges.

STRANCH, Circuit Judge. David J. Kraus pled guilty to making a materially false, 

fictitious, or fraudulent statement or representation to the United States Department of 

Agriculture, Farm Services Agency (USDA-FSA) in connection with the agency’s 

administration of the Direct Loan Program, in violation of 18 U.S.C. § 1001. In order to 

determine Kraus’s total offense level and sentencing range under the U.S. Sentencing 

Commission Guidelines, the district court calculated the total amount of loss to the USDA-FSA, 

including credit against loss for collateral Kraus had pledged to secure the loan, as required by 

Guidelines §2B1.1. In this expedited appeal, Kraus challenges the court’s credit against loss 

calculation and the resulting total loss amount on which his sentence was based. We AFFIRM

the court’s calculations.
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I. BACKGROUND

Kraus, a psychiatrist living and working in New York, owned and operated a winery 

adjacent to family farmland in Erie County, Ohio. To support operation of the vineyard between 

2005 and 2010, Kraus obtained $594,870 in loans through the USDA-FSA’s Direct Loan 

Program. Under the terms of the Direct Loan Program, Kraus pledged his vineyards and land, 

farming and wine-making equipment, and grapes and wine. Kraus also was required to estimate 

his anticipated sales for each upcoming year, report his actual sales for the prior year, and notify 

the USDA-FSA of any new customers. Kraus paid $122,556.97 of the loan’s outstanding 

balance before becoming delinquent on the loan payments and eventually filing for bankruptcy.

On March 4, 2015, Kraus pled guilty to Count 3 of a five-count indictment—making a 

materially false, fictitious, or fraudulent statement or representation to the USDA-FSA, in 

violation of 18 U.S.C. § 1001. Specifically, Kraus had falsified the 2008 tax return submitted to 

the USDA-FSA to show a larger loss from operating the winery in the 2008 tax year. The tax 

return submitted by Kraus to the USDA-FSA reflected a business loss of $99,646, while the tax 

return submitted to the IRS showed a loss of $41,647. The USDA-FSA learned of Kraus’s 

falsification during an investigation it launched after discovering Kraus’s failure to report 

$42,058 of the vineyard’s 2009 grape and juice sales and his spending of the funds without 

authorization from the USDA-FSA.

Under the terms of the plea agreement, Kraus reserved the right to dispute the 

government’s loss calculation and argue the appropriate net loss amount, an issue that the parties 

briefed before a two-day sentencing hearing was held. At the hearing, the district court 

considered competing appraisals for the three categories of collateral pledged by Kraus: real 

property, equipment, and wine inventory. The real property consisted of two parcels, the Mason 
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Road Property and the Hayes Avenue Property. The parties agreed to exclude the Hayes Avenue 

Property from the calculation of credit because the USDA-FSA had a subordinate lien position 

and thus was unlikely to recover from it. Although the government mistakenly submitted an 

appraisal of the Hayes Avenue Property, the court did not rely on it in valuing the Mason Road 

Property.

Kraus offered an appraisal of the Mason Road Property by John F. Stauffer, who valued 

the property at $215,000 as of May 7, 2015 but did not personally inspect the vineyard. Kraus 

introduced a second appraisal of the vineyard separate from the underlying land that was

completed on April 22, 2015 by Richard Carey, who owns a vineyard but is not a licensed 

appraiser. At the district court’s request, the government provided an appraisal prepared by 

Pfeiffer Appraisal Service, LCC originally for the USDA-FSA, which valued the property at 

$163,000 on February 17, 2006. After finding Stauffer and Carey “not credible,” the court 

adopted the Pfeiffer appraisal and increased Pfeiffer’s valuation of the property by 5% to account 

for the length of time between the appraisal and sentencing. Kraus thus received a credit of 

$171,150 for the Mason Road Property.

With respect to the equipment collateral, the district court considered three separate 

appraisals. USDA-FSA Farm Loan Officer Kurt J. Leber valued the equipment at $101,442 in 

January 2010, auctioneer Steve Andrews at $60,350 in May 2010, and Carey at $147,435 in 

April 2015. The court adopted Leber’s valuation after again finding Carey lacked credibility.

The district court, finding that Kraus intended to deprive the government permanently of 

the entire wine-inventory collateral, denied Kraus credit for all of it, not just the $42,058 that 

Kraus failed to report to the USDA-FSA.
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The parties agreed that the starting point to calculate the final loss amount should be 

$472,313.03—the total loan amount minus Kraus’s payments toward the outstanding loan 

balance. From this, the district court subtracted $272,592 in credit for the real property and 

equipment, resulting in a loss amount of $199,721. Pursuant to the Guidelines, because the court 

calculated the loss amount to be over $120,000, 10 levels were added for specific offense 

characteristics to Kraus’s base offense level of six. See United States Sentencing Commission, 

Guidelines Manual, §2B1.1(b)(1) (Nov. 2014). After deducting three levels for acceptance of 

responsibility, Kraus’s total offense level was 13, with a Guidelines range of 12 to 18 months of 

imprisonment. The court sentenced Kraus to 15 months imprisonment, a two-year term of 

supervised release, a $10,000 fine, and $447,406.33 in restitution. Had the court calculated the 

loss amount to be under $120,000, the increase for specific offense characteristics would have 

been smaller and the Guideline range would have been, at most, 8 to 14 months. See USSG 

§2B1.1(b)(1).

II. STANDARD OF REVIEW

On appeal of a district court’s application of Guidelines §2B1.1, we review de novo the 

method used to calculate loss, United States v. Wendlandt, 714 F.3d 388, 393 (6th Cir. 2013), 

and the determination of “whether collateral should be considered when determining intended 

loss,” United States v. Calkins, 193 F. App’x 417, 420 (6th Cir. 2006) (citing United States v. 

Katzopoulos, 437 F.3d 569, 574 (6th Cir. 2006)). We review the factual findings underlying the 

loss amount for clear error. Wendlandt, 714 F.3d at 393. Because “[t]he sentencing judge is in a 

unique position to assess the evidence and estimate the loss based upon that evidence,” USSG 

§2B1.1, comment. (n. 3(C)), the district court, for sentencing purposes, “need only make a 

reasonable estimate of the loss using a preponderance of the evidence standard,” Wendlandt, 
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714 F.3d at 393. This court “reverses the valuation only if it is outside the realm of permissible 

computations.” United States v. Lutz, 154 F.3d 581, 590 (1998).

III. ANALYSIS

Guidelines §2B1.1 and its application notes outline the appropriate method to calculate 

the loss amount, which is used to determine a defendant’s offense level and is designed to reflect 

his or her culpability. United States v. Simpson, 538 F.3d 459, 464 (6th Cir. 2008) (citing United 

States v. Austin, 479 F.3d 363, 369 (5th Cir. 2007) (“The Guidelines use loss as a proxy for the 

seriousness of the fraud.”)). Where pledged collateral is involved, determining loss is a two-step 

process. First, sentencing courts must use the greater of actual or intended loss. USSG §2B1.1, 

comment. (n.3(A)). “Actual loss” is defined as “the reasonably foreseeable pecuniary harm that 

resulted from the offense,” while “intended loss” means “the pecuniary harm that the defendant 

purposefully sought to inflict,” even if “impossible or unlikely to occur.” Id. In the context of 

loan-related fraud, “intended loss is the amount the defendant subjectively intended not to 

repay.” United States v. Moored, 38 F.3d 1419, 1426 (6th Cir. 1994). Second, sentencing courts 

must reduce “the loss by the amount of money the victim recovered by selling the collateral, or 

the fair market value of the property at the time of sentencing if the victim has not disposed of 

the collateral.” United States v. Kerley, 784 F.3d 327, 347 (6th Cir. 2015) (citing USSG §2B1.1, 

comment. (n.3(E)(ii))).

A. Method of Calculation

The parties agree that the district court properly began its loss calculation with the total 

loan amount minus Kraus’s payments toward the outstanding loan. Challenging the court’s 

method of calculating loss at the second stage—applying credits against the loss for the pledged 

collateral—Kraus argues that the court misconstrues the meaning of “fair market value” as used 
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in comment note 3(E) of §2B1.1. Throughout its analysis at the sentencing hearing, the court 

adopted the government’s definition of fair market value: “what the victim will recover from 

disposing [of] the collateral at the time of sentencing.” Kraus may have even agreed with this 

position by yielding that the Hayes Avenue Property should not be considered for credit against 

loss because “the value of the property, whatever it might be, would likely result in zero recovery 

for the government.” On appeal, though, Kraus maintains that fair market value should be the 

“retail value where the property was regularly sold in the retail market” by the defendant.

Kraus makes several interrelated arguments in support of his definition of fair market 

value. Kraus first points out that the 2001 Amendments to the Guidelines changed the language 

defining the value of undisposed pledged collateral from the amount the victim “can expect to 

recover” to the “fair market value of the collateral at the time of sentencing.” Compare USSG 

§2F1.1, comment. (n.8(b)) (Nov. 2000) with USSG §2B1.1, comment. (n.2(E)(ii)) (Nov. 2001) 

(emphases added). But this change in the language of the Guidelines does not require that we 

abandon the perspective of the victim, as Kraus suggests. In fact, when collateral has been 

disposed of, the focus of the then-applicable version of the Guidelines remained on “the amount 

the victim has recovered,” suggesting that fair market value should be assessed from the victim’s 

point of view. See USSG §2B1.1, comment. (n.3(E)(ii)) (Nov. 2014).

Kraus also cites cases holding that the fair market value of the actual loss of a victim 

depends on the market in which the owner, the victim, was selling an item at the time it was 

stolen. See United States v. Wasz, 450 F.3d 720, 727 (7th Cir. 2006) (holding that, in 

determining actual loss of merchandise stolen from retailers, a reasonable estimate is retail 

value); United States v. Hardy, 289 F.3d 608, 613–14 (9th Cir. 2002) (finding error where 

victim’s actual loss of wholesale goods were measured by retail price); United States v. 
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Warshawsky, 20 F.3d 204, 213 (6th Cir. 1994) (“The market value of goods stolen in wholesale 

lots from a wholesaler should be valued at . . . the wholesale price . . . rather than a fictitious 

retail price . . . .”). Because, according to Kraus, fair market value should have the same 

meaning throughout §2B1.1, he concludes from these cases that the fair market value of credit 

against loss should be based on the market in which the owner, the defendant, was selling the 

collateral at the time it was pledged.

Kraus’s conclusion is not supported by the case law he cites or the Guidelines. There are 

two fundamental hurdles to Kraus’s argument: he cites cases that address actual loss, not credit 

against loss; and the cases take the victim’s perspective, not the defendant’s. That the loss 

calculation assesses a defendant’s culpability, Simpson, 538 F.3d at 464, suggests a conclusion

opposite from Kraus’s—that credit against loss should be based on the market in which the 

victim will dispose of the collateral. Viewing the value of the collateral from the victim’s 

perspective best reflects the defendant’s culpability because the price the defendant could 

demand in the market may be higher than what the victim can recover, and what the victim 

recovers impacts the total harm he or she suffered at the hands of the defendant. See Wendlandt, 

714 F.3d at 394 (referencing with approval the Fourth Circuit’s determination in United States v. 

Mallory, 461 F. App’x 352, 361 (4th Cir. 2012) (per curiam), that a defendant “receives the 

benefit of what the victims recovered, not what they foreseeably might have recovered”). And, 

contrary to the premise of Kraus’s conclusion, looking at what the victim will recover keeps the 

meaning of fair market value consistent throughout §2B1.1—fair market value consistently takes 

the victim’s perspective.

Kraus lastly argues that ignoring the price the defendant could demand leads to a 

commercially unreasonable valuation. However, merely because a victim’s recovery is lower 
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than a defendant’s market expectation does not necessarily make the recovery commercially 

unreasonable. In Wendlandt, moreover, the defendant similarly argued that the district court had 

accepted commercially unreasonable “fire-sale” valuations, based on an “unforeseeable 

downturn in the housing market,” of the three properties he pledged as collateral. Wendlandt, 

714 F.3d at 394. We held that, because the Guidelines require only a “reasonable estimate” that 

is not “outside the realm of permissible computations,” the sentencing court need not employ a 

burden-shifting commercial reasonableness standard to assess fair market value of the pledged 

collateral. Id. at 397. The same is true here.

In a separate attack on the district court’s methodology, Kraus contends that the court 

incorrectly assigned him the full burden of proving the value of the collateral. Our case law 

explains, however, that in the analogous context of credit against loss for services rendered by 

the defendant to the victim pursuant to comment note 3(E)(i) to §2B1.1, “the defendant has the 

burden of proving the specific [fair market] value by which the loss amount should be reduced.” 

United States v. Reid, 764 F.3d 528, 534 (6th Cir. 2014) (citing United States v. Washington, 715 

F.3d 975, 984–85 (6th Cir. 2013)). Kraus provides no basis for assigning the burden of proof 

differently for proving credit against loss for pledged collateral pursuant to comment note 

3(E)(ii) of §2B1.1. See United States v. VanderZwaag, 467 F. App’x 402, 412 (6th Cir. 2012) 

(“[T]here is no obligation imposed by the case law for the government to obtain an independent 

appraisal of the property . . . in order to calculate the value of the property [collateral pledged].”). 

Kraus instead seeks to rely on United States v. Scott, but Scott is inapposite because it addresses 

the respective burdens for establishing mitigating and aggravating adjustments under Chapter 3 

of the Guidelines, not the burden of proving a type of credit against loss under §2B1.1, comment 

note 3(E). 16 F.3d 1223, 1994 WL 25077, at *2 (6th Cir. 1994).
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Because the district court employed the right definition of fair market value and properly 

assigned the burden of proof, we conclude that the district court applied the correct method in 

calculating the loss amount, including the amount of collateral.

B. Valuation of Mason Road Property

Kraus appeals the district court’s valuation of both the Mason Road Property and 

vineyard equipment. In valuing the Mason Road Property, the court made credibility 

determinations as to Kraus’s appraisers and their reports. The court emphasized that Stauffer 

had no experience appraising vineyards and had not personally inspected the vineyard to become

familiar with the current condition of the vines, while Carey had not discussed the condition of 

the vines and, at any rate, “is not a wine appraiser. He may own a winery but that does not make 

him an expert in appraisals.” The court then adopted the Pfeiffer appraisal, increasing the value 

by 5% to account for any appreciation between the appraisal date and the sentencing hearing. 

This set the fair market value of the Mason Road Property at $171,150.

Kraus argues that the Pfeiffer appraisal, even with the 5% adjustment, was too low 

because it predated the planting of vines on seven additional acres, which would have increased 

the Pfeiffer valuation of each acre by approximately $10,000. But the government argued at the 

sentencing hearing that an inspection would demonstrate that the vineyard, in its current 

condition, added no value to the Mason Road Property. Based on the record, the district court 

reasonably could have agreed and in fact may have done so, as it described the photos depicting 

the Mason Road Property at the time of sentencing as showing “property in disrepair[,] . . .

weeds[,] and lack of attention.” Regardless, adding the approximately $70,000 to the value of 

the Mason Road Property would not have decreased the loss amount below $120,000, the 
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threshold for adding fewer specific-offense-characteristic levels to Kraus’s base offense level. 

See USSG §2B1.1(b)(1).

In valuing the equipment, the district court again rejected Carey’s appraisal, finding 

Carey “less than persuasive with respect to his analysis.” The court noted Carey’s lack of detail 

regarding the equipment and its condition, and failure to disclose market resources used to find 

comparable equipment and pricing, but appeared to rely primarily on its disagreement with 

Carey’s conclusion that individual pieces of used and aging property had increased in value 

because of the increasing price of stainless steel. The court found Carey’s reliance on the 

increasing price of stainless steel “just simply . . . not credible” and appears to have attributed 

Carey’s higher total valuation of the equipment to this flaw. Kraus correctly points out that the 

court was silent on the Carey appraisal’s inclusion of a higher number of items, which could 

have accounted for Carey’s higher total valuation. Kraus’s reasonable arguments, however, do 

not rebut the court’s determination that Carey lacked credibility. In place of the Carey appraisal, 

moreover, the court adopted the Leber appraisal, upon which Carey heavily relied in valuing the 

equipment.

Under the generous latitude afforded to sentencing courts by the reasonable estimate

standard, we cannot conclude that the district court clearly erred in discrediting the Stauffer and

Carey appraisals or that the Pfeiffer and Leber appraisals were “outside the realm of permissible 

computations.” See Wendlandt, 714 F.3d at 393, 396 (quoting Lutz, 154 F.3d at 590). Based on 

the record evidence, the court’s valuations of the Mason Road Property and equipment were 

reasonable estimates.
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C. Exclusion of Wine Inventory

The district court denied Kraus credit for the value of the entire wine inventory. At the 

sentencing hearing, the court announced:

I confirm that the defendant may not profit from his fraud by claiming a credit for 

the bottled wine inventory. I agree with the government that defendant’s covert 

attempt to dispose of the wine inventory negates any allowance for this credit. He 

used these sales for personal use. He directed these sales, he fudged the books 

and should not be allowed to capture relief from this misconduct. He, in short, 

hid the grapes and juice from the government. And this fraud, the case law says, 

should not support a credit . . . .

The court then cited Calkins, 193 F. App’x 417, and United States v. Nichols, 229 F.3d 975 (10th 

Cir. 2000).

On appeal, Kraus challenges both the legal and factual underpinnings of the district 

court’s holding. Kraus takes issue with the court’s factual finding that he intended to deprive the 

government permanently of the entire wine inventory. The evidence, according to Kraus, at 

most shows that he failed to disclose $42,058 of proceeds from the sale of grapes and wine.

The record included evidence that Kraus: failed to disclose many of his customers to the 

USDA-FSA; only repaid $122,000 towards the loan between 2005 and 2011, despite having over 

$2,000,000 in sales during that time period; stopped making payments in 2009 or early 2010,

after which he brought in over $1,000,000 more; instructed an employee in 2011 to contact and 

sell to wineries that had not been subpoenaed by the USDA-FSA; and comingled his USDA-FSA 

loans with personal funds. Although Kraus disputes large portions of the Presentence Report, he 

did not object to paragraph 21, which contains most of this information and was referenced by 

the district court. In objections to the Presentence Report, Kraus does explain the motivations 

behind his comingling of funds and instruction to contact non-subpoenaed wineries, but he does 

not dispute the underlying facts. The court was at liberty to discount Kraus’s explanations and 
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make its own conclusions as to his intent. Based on this record, the court’s factual finding that 

Kraus intended to conceal the entire inventory, which we review for clear error, is supported by 

evidence in the record and undisputed facts in the Presentence Report.

Challenging the district court’s interpretation and application of the Guidelines and 

applicable case law, which we review de novo, Kraus argues that courts cannot deny credit for 

existing collateral in the government’s possession at the time of sentencing, even if the defendant 

intended but failed to conceal it. In determining loss under the Guidelines, though, sentencing 

courts must use the greater of actual or intended loss. USSG §2B1.1, comment. (n. 3(A)). Even 

in the context of credit against loss, intended loss should be used if greater than actual loss 

because “[t]he fact that a victim has recovered part of its loss after discovery of a fraud does not 

diminish culpability for purposes of sentencing.” Nichols, 229 F.3d at 979. Pursuant to the 

Guidelines then, credit may be denied for collateral that the defendant intended but failed to 

conceal, even if the victim has or will recover from that collateral.

We accordingly recognized in Calkins that under the “intended loss theory a court may 

decline to reduce the intended loss by the collateral pledged where the district court finds that the 

defendant intended to deprive the lender of its collateral. Such a finding has been supported 

where the defendant conceals the collateral.” Calkins, 193 F. App’x at 421; see United States v. 

Williams, 292 F.3d 681, 686 (10th Cir. 2002). Tellingly, Calkins focused on the intent of the 

defendant rather than the existence of the collateral in concluding that, because there was “no 

way in which [the defendant] could conceal the collateral,” the district court erred in finding that 

the defendant “intended to permanently deprive the banks of the collateral.” Calkins, 193 F. 

App’x at 421.
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Attacking the district court’s equitable statement at the sentencing hearing that Kraus 

“should not be allowed to capture relief from this misconduct,” Kraus relies heavily on the 

reasoning of United States v. Snelling, which rejected an equitable argument in similar but 

inapplicable circumstances. 768 F.3d 509 (6th Cir. 2014). There, the defendant participated in a 

Ponzi scheme that defrauded investors by soliciting funds for two fictitious financial companies. 

Id. at 510. The defendant argued that the loss should be reduced by the amount of money the 

defendant returned to the investor victims over the life of the fraud, id. at 512, as required by the 

Guidelines, see USSG §2B1.1, comment. (n.3(E)(i)) (“Loss shall be reduced by . . . [t]he money 

returned . . . to the victim before the offense was detected.”). We reversed the district court’s 

denial of credit for the money returned and rejected the government’s equitable argument, 

explaining:

[T]here is intuitive appeal to the government’s argument that [the defendant] 

should not be allowed to benefit from the payments he made “not to mitigate the 

losses suffered . . . but to create the means to convince new victim-investors to 

pay him even more money.” We need not reflect, however, on whether it is 

unseemly for [the defendant] to benefit from the money he paid out to investors in 

an effort to perpetuate his Ponzi scheme. Undoubtedly, it is. The only question 

we must consider is whether the district court correctly applied the Guidelines and 

whether it used a correct Guidelines range.

Id. at 514 (alteration in original). In other words, despite the district court’s equitable concerns 

in Snelling, it could not ignore the Guidelines.

Snelling comports with the intent-based view of the Guidelines outlined by Calkins and 

Nichols. In Snelling, the defendant’s return of money to a victim, though ultimately meant to 

attract new victims, speaks to the defendant’s intent and necessarily reduces the defendant’s 

intended loss amount as to that victim. Here, Kraus’s concealment of proceeds and customers 

suggests an opposite intent—to hide the wine-inventory collateral from the government. 

Moreover, the district court’s equitable concerns here, unlike in Snelling, are in line with the 
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outcome suggested by the Guidelines. Other cases cited by Kraus also turn on the defendant’s 

intent, not the victim’s possession of the collateral. See United States v. Schild, 269 F.3d 1198, 

1202 (10th Cir. 2001) (affirming denial of credit for cattle pledged as collateral because not 

clearly erroneous for district court to discount the defendant’s assertion that he did not intend to 

cause loss to the victim by selling the cattle).

Because the Guidelines allow credit to be denied for collateral that a defendant intended 

to conceal even if the victim will recover from it and because the district court did not clearly err 

in finding that Kraus intended to deprive the government of the entire wine inventory, we 

conclude that the court acted within its discretion in denying Kraus credit for the inventory.

IV. CONCLUSION

For the foregoing reasons, we AFFIRM the district court’s calculation of the credit

against loss and total loss amount.