F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

U N I T E D S T A T E S O F A ME R I C A , Plaintiff-Appellee
,

v

.

P E T E R G R

E G O R Y M O R R I S , D efendant-Appellant

. No. 12-50302

D.C. No. 5 :11-cr-00090-VAP-1

OPI NI ON

Appeal from the United States District Court for the Central District of California Virg inia A. Phillips, District J udg e, Presiding

Argued and Submitted J anuary 8, 2014—Pasadena, California

F iled March 13, 2014

B efore: AlexKoz inski, Chief J udg e, and Stephen Reinhardt

a nd Richard R. Clifton, Circuit J udg es.
Opinion by

J udg e ReinhardtU N I T E D S T A T E S V

. M O R R I S 2

SUMMARY *

Crim inal Law

The panel affirmed a sentence in a mortg ag e fraud case in which the defendant contended that the district court erred in calculating the banks’ loss under the Sentencing Guidelines.

The panel held that, in a mortg ag e fraud case, loss under U.S.S.G. § 2 B 1 .1(b) is c a lculated in two steps. The first step is to calculate the g r eater of a ctual or intended loss, where actual loss is the reasonably foreseeable pecuniary harm from the fraud, which will almost alway s b e the entire value of the principal of the loan. The second step is to apply the “credits ag ainst loss” provision a

n d deduct from the initial measure o f loss any amount recovered or recoverable b y t h e creditor from the sale of the collateral, whether o r not the value of the collateral was foreseeable.

COUNSEL

Sean K. K e n n e dy
, F ederal Public Defender, and Michael Tanaka (arg

ued), Deputy F e deral Public D e f e nder, L os Ang eles, California, for Defendant-Appellant.

André B irotte J r., United States Attorney
, Antoine F

. Raphael and J oseph B

. Widman (arg ued), Assistant United States Attorney s, Riverside, California, for Plaintiff-Appellee.

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b eenp rep ared b y

co urt staf

f f o r th e co nv en i en ce o f

th e read er.U N I T E D S T A T E S V

. M O R R I S 3

OP INION

REI NHARDT, Circuit J udg e:

I n 2007, Peter Morris applied for three loans from th r ee financial institutions ( W ashing ton Mutual, L ehman B rothers, and B ank of America) to p urchase three properties, all located at “Sonic Court” in Rive rs i d e, California. In the loan applications, Morris claimed securities and assets that he did not own, e mploy

ment he did not have, and income he did not

earn. He falsely stated that h e was unmarried, was in the process of selling a different house, and was not oblig ated to pay child support. He supplied t h e t h r e e banks with false documents to substantiate these f al s e statements. He also withheld information—for ex ample, he did not tell any of the banks that he was apply

ing f or loans f rom the other two. All three banks approved Morris’s loan applications, and Morris purchased the three properties shortly a f terward. W h en Morris made only one mortg a g e pay ment, two of the three banks f o reclosed on their loans and sold the properties at a loss. Morris sold the remaining property in a s h ort sale, at a loss to the third bank.

I n 2011, in c o n n e ction with these fraudulently obtained loans, Morris pleaded guilty to wire fraud, 18 U.S.C. § 1343, and making a false statement on a loan application, 18 U .S.C. § 1014. T h e d istrict court sentenced Morris to 63 months imprisonment. I n choosing this sentence, the d istrict court beg an with a Sent e n c i n g G uidelines rang e o f 57 to 71 months, which reflected a 16-level increase to Morris’s base offense level based on the district court’s calculation that the banks h ad suffered a loss of $1,033,500. A lesser loss would have resulted in a lower Guideline rang e. Morris appeals his sentence.U N I T E D S T A T E S V

. M O R R I S 4

I.

Morris contends that the district c o urt erred in calculating the banks’ loss under t h e Sentencing Guidelines. Morris’s Guideline sentencing r ang e was calculated using U.S.S .G. § 2B 1 .1, which applies to offenses involving fraud o r deceit. Under § 2B 1.1, a defendant’s base offense level is increased according to the amount o f loss caused by the o ffense, where the initial measure of “loss ” i s t he g reater of actual o r intended loss. U.S.S.G. § 2B 1.1(b)(1); id. cmt. n.3( A ). B e c a u se Morris does not make any argument as to what he “intended” the banks t o l o s e, actual loss is the appropriate initi a l measure here. “ Actual loss” is “the reasonably f o r eseeable pecuniary harm that resulted from the offense

. ” Id. cmt. n.3(A)(i). “Reasonably foreseeable pecuniary harm”

means “pecuniary harm that the defendant knew or, under the circums t a n c es, reasonably should h ave known, w as a potential result of the o ffense.” Id. cmt. n.3(A)(iv). Relying

on this “reasonably foreseeable” lang uag e, Morris argues that the district c ourt should have calculated loss as the v a l u e o f the loa n s less the reasonably foreseeable value of the properties at the time the loans w ere obtained. He contends further that the reasonabl y f oreseeable value at the time the loans were obtained was considerably g reater than the actual value of the properties at the time they were sold because the drastic housing market downturn of 2 0 0 8

– 2 009 was not foreseeable.

The difficulty with Morris’ s a r gument is that the Sentencing Guidelines ex plicitly dictate how to measure loss in mortg ag e fraud cases that involve collateral. In such cases, the “cre dits a g ainst loss” p rovision mandates that the initial

measure of loss ( actual or intended loss) be r educed by “the amount the victim has recovered at the time of senten cingU N I T E D S T A T E S V

. M O R R I S 5

from d isposition of the collateral” or, if the collateral has not been disposed of at that time, the fair market value of the collateral as of the date o f conviction. I d

. cmt. n.3(E)(ii)–(iii). Morris’s proposal for calculating loss conflicts with this provision.

W e adopt the two-step approach first articulated by the Eastern District of Virg inia, a n d subsequently adopted by the Second, Six th, and Tenth Cir c u i ts. I n calculating loss in mortg ag e fraud cases, these Circuits hold that the first step is to calculate the g reater of actual o r intended l o ss, where actual loss is the reasonably foreseeable pecuniary harm from the fraud. This amount will almost alway s be the entire value of the principal of the loan, as it is reasonably foreseeable to

an unqualified borrower that the entire amount of a fraudulently obtained loan may be lost. The second step is to apply the “credits ag ainst loss” provision and deduct from the initial measure of loss any amount r ecovered o r r e c overable by the creditor from the sale of the c ollateral

. T his second calculation is made without any conside r a tion of reasonable foreseeability

. See United States v

. C r o w e , 735 F

. 3d 1229, 1236–41 (10th Cir. 2013); Un i t e d States v. W endlandt
, 714 F .3d 388, 393–94 (6th Cir. 2 013); U nited States v. Turk
, 626 F

. 3d 743, 748–51 (2d Cir. 2010); United States v

. Ma l l o r y , 709 F

. Supp. 2 d 455, 4 57–60 (E.D. Va. 2010), aff ’d., 461 F ed. Appx

. 352, 361 (4th Cir. 2 012) (unpublished). 1 The resulting amount is the final loss amount.

1 In so h o ld in g , w e j o in th e Seco n d Circu i t in rej ectin g th e o n ly case to th e co n trary , Un ited

S ta tes v. Pa rish , 5 6 5 F.3 d5 2 8
, 5 3 5 (8 t h Cir. 2 0 0 9 ). W e ag ree w ith t h e S e c o n d Circu it t h at th e Eig h th Circu it’ s reaso n in g in Pa rish is co ntrary to th e p lain lan g u ag e o f th e Sen ten cin g G u id elin es b ecau se “ it co n f

lates th e in itial calcu l atio n o f lo ss (w h ere f oreseeab ility is

a co n s id eratio n ) w ith th e cred its ag ain s t lo ss av ailab le at senten cin g (w h ere it is n o t ).” Tu rk , 6 2 6 F.3 dat 7 5 1

.U N I T E D S T A T E S V

. M O R R I S 6

Such an approach is not only dictated b y t h e plain languag e of the G uidelines and their accompany ing com m e n t ary , but also “necessary to ensure that defendants who fraudulen t l y induce f inan cial institutions to assume the risk of lending to

an unqualified borrower are r esponsible for the natural consequences of their fraudulent conduct,” no more, n o less. Mallory
, 709 F

. Sup p

. 2 d a t 459; see also Turk
, 626 F .3d at 750 (“To accept [ the def e n dant’s] argument would be to encourag e would-be fraudsters to roll the dice on the chips o f others, assuming all of the upsi d e b en e fit a nd little of the downside risk.”).

II.

I n conclusion, we hold that, in a mortg ag e fraud c ase, loss under U.S.S.G. § 2B 1.1(b) is calculated in two steps. The first step—calculating a c tual or intended loss—allows f or a reasonable foreseeability analy sis, a lthoug h the a ct u a l loss ge n e r a l ly consists of the entire principal of the fraudulently obtained loan. The second step—creditingag ainst the actual

or intended loss the value of any collat e r a l r ecovered o r recoverable—do es not permit a foreseeability analy sis. Rather, the value of the colla t er a l is credited a g ainst the amount of the loss calculated at the first step, whether or not the value of the collateral was foreseeable. B ecause the district court followed this r ule in c alculat i n g the loss attributable to Morris as $1,033,500, we affirm h is sentence.

AF F IRMED.