FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,  Nos. 06-50592

Plaintiff-Appellee, 06-50593

v. D.C. Nos.

CR-04-00309- JEFFREY D. CRANDALL; MICHAEL 

M DOC-7 CDONNELL,

CR-04-00309- Defendants-Appellants.

DOC-4

OPINION 

Appeal from the United States District Court

for the Central District of California

David O. Carter, District Judge, Presiding

Argued and Submitted

January 10, 2008—Pasadena, California

Filed May 13, 2008

Before: Jerome Farris and Milan D. Smith, Jr.,

Circuit Judges, and H. Russel Holland,* District Judge.

Opinion by Judge Holland

*The Honorable H. Russel Holland, Senior United States District Judge

for the District of Alaska, sitting by designation. 

5373
COUNSEL

Jerald L. Brainin Esq, Los Angeles California; H. Dean Steward Esq., for the defendants-appellants. 

Andrew Stolper Esq., Assistant United States Attorney, Santa

Ana, California, for the plaintiff-appellee. 

OPINION

HOLLAND, District Judge: 

Jeffrey Dean Crandall and Michael McDonnell (collectively, “Defendants”) appeal their convictions and sentences

for mail, wire, and honest services fraud, in violation of 18

U.S.C. §§ 1341, 1343, and 1346.1 Defendants challenge their

convictions based on the district court’s refusal to give their

proposed jury instruction on “intent to defraud.” They appeal

their sentences arguing that the district court erred in relying

on Application Note 2(F)(v)(III) to U.S.S.G. § 2B1.12 to calculate loss. McDonnell also argues that his sentence was

unreasonable because of the disparity between his sentence

and that of a codefendant’s. Finally, McDonnell argues that

his restitution order was illegal. We have jurisdiction to

1McDonnell was also convicted of bank fraud, in violation of 18 U.S.C.

§ 1344. 

2The district court employed and we refer to the Sentencing Guidelines

effective November 1, 2001. 

5376 UNITED STATES v. CRANDALL
review the convictions under 28 U.S.C. § 1291 and the sentences under 18 U.S.C. § 3742(a)(2). We affirm Defendants’

convictions but vacate and remand as to their sentences and

as to McDonnell’s restitution order. 

I

The charges against Defendants arose out of a fraudulent

scheme to convert apartment buildings to condominiums in

Huntington Beach, California between 1998 and 2003. The

scheme was hatched by codefendant Philip Benson, a real

estate broker. Benson solicited people who owned or were

willing to purchase four-plex apartment buildings. The apartment buildings were then fraudulently converted to stock

cooperatives through the creation of false back-dated documents. 

To legally convert an apartment building to individual condominiums, the City of Huntington Beach required a conditional use permit. Obtaining a conditional use permit was a

difficult and expensive process. There was an exception, however, for stock cooperatives. An apartment building held as a

stock cooperative could be converted to individual condominiums without first obtaining a conditional use permit. The

false back-dated stock cooperative documents were employed

by Defendants to avoid having to obtain conditional use permits from the City. 

Once the fraudulent stock cooperatives were created, the

buildings were then converted into individual condominiums.

This conversion process involved the creation of additional

false documents, including lease terminations and grant

deeds. After the buildings were converted into condominiums,

codefendant Harvey DuBose, who worked for Stewart Title

Company, prepared title insurance policies so the building

owners could sell the individual condominiums to unsuspecting buyers. The building owners paid Benson a “conversion

fee” for each building that was converted and also paid

UNITED STATES v. CRANDALL 5377
DuBose individually for his role in providing the title insurance. 

Defendants were purchasers of apartment buildings which

were fraudulently converted to individual condominiums.

Crandall bought two four-unit apartment buildings and subsequently sold seven of his converted “condominiums” for a

total of $1,938,400. Crandall retained the eighth “condominium” as his personal residence. 

McDonnell bought a total of five four-unit apartment buildings. McDonnell could not obtain sufficient financing to purchase all of the apartment buildings, so he recruited former

colleagues to act as his straw buyers. McDonnell sold all of

his converted “condominiums” for a total of $4,261,800. 

In addition to using straw buyers for his own properties,

McDonnell agreed to act as the straw buyer of an apartment

building for Pamela Julien Houchen, who, at the time, was the

mayor of Huntington Beach and a member of the City Council. Houchen was prohibited from buying the apartment building in her name because it was located in a redevelopment

zone overseen by city council members. After allegations of

the fraud emerged, McDonnell retained an attorney to write

a demand letter to Houchen claiming that he was entitled to

the proceeds of the sales of the property in question, but

McDonnell failed to tell his attorney that he had agreed to be

a straw buyer for Houchen. 

At trial, the core of Defendants’ defense was the contention

that they did not know that the conversion documents were

false when they signed them, and thus they lacked the intent

to defraud. Crandall testified that he only glanced at the conversion documents that Benson gave him before signing them,

and McDonnell testified that he signed the conversion documents where Benson told him to sign, without reading them.

Although the parties stipulated to the use of the Ninth Circuit

Model Jury Instructions for wire and mail fraud, the parties

5378 UNITED STATES v. CRANDALL
did not agree as to the jury instruction defining the “intent to

defraud” element. The district court gave the Ninth Circuit

Model Instruction on “intent to defraud,” rather than Defendants’ proposed “intent to defraud” instruction. 

The jury ultimately convicted Crandall of 9 counts of mail,

wire, and honest services fraud; and McDonnell was convicted of 30 counts of mail, wire, bank, and honest services

fraud. At the sentencing hearing, Crandall argued that the

actual loss that resulted from his fraudulent scheme was

$63,000, the amount of loss incurred by Stewart Title Company in connection with the sale of his “condominiums.”

Crandall argued that there was no economic loss suffered by

the buyers of the fraudulently converted “condominiums”

because the units were worth more at the time of trial than

when they had been purchased from Crandall. McDonnell

argued that the actual loss that resulted from his fraudulent

scheme was $361,000, the amount of loss incurred by Stewart

Title Company in connection with the sale of his “condominiums.” McDonnell argued that there was no other economic

loss because he incurred a loss of $149,109.89 from the sale

of his “condominiums.” The district court rejected Defendants’ arguments and calculated the actual loss as the total

sales price of the “condominiums” each of them had sold.

This resulted in Crandall’s base offense level being increased

by 16 levels and McDonnell’s by 18. Based on a total offense

level of 22, the district court calculated the advisory Sentencing Guidelines range for Crandall to be 41 to 51 months.

Based on a total offense level of 28, the district court calculated the advisory Sentencing Guidelines range for McDonnell to be 78 to 97 months. After considering relevant 18

U.S.C. § 3553(a) sentencing factors, the district court imposed

sentences that were at the bottom of the guideline ranges, sentencing Crandall to 41 months and McDonnell to 78 months.

The district court also ordered that McDonnell pay $361,000

in restitution. 

UNITED STATES v. CRANDALL 5379
II

Defendants argue that their convictions must be reversed

because the district court erred in declining to give their proposed “intent to defraud”

3

 jury instruction. Defendants’

requested “intent to defraud” instruction was based on Arthur

Andersen LLP v. United States, 544 U.S. 696 (2005), an

obstruction of justice case, and read: 

An intent to defraud is an intent to deceive or cheat.

You can find an intent to deceive or cheat only if,

after reviewing all the evidence, you are convinced

beyond a reasonable doubt that the defendant knowingly and consciously engaged in criminal wrongdoing. 

The district court declined to give this proposed instruction

because the mail and wire fraud statutes do not require “consciousness of wrongdoing” and the Court in Arthur Andersen

did not indicate that its holding was to apply to other criminal

statutes. 

[1] “[A] defendant is entitled to have the judge instruct the

jury on his theory of defense, provided that it is supported by

law and has some foundation in the evidence.” United States

v. Fejes, 232 F.3d 696, 702 (9th Cir. 2000) (quotation omitted). We review de novo whether a proposed instruction is

supported by law. United States v. Garcia-Cruz, 978 F.2d

537, 540 (9th Cir. 1992). 

[2] Defendants’ proposed “intent to defraud” jury instruction was not supported by law. Arthur Andersen involved an

obstruction of justice charge under 18 U.S.C.

§§ 1512(b)(2)(A) and (B) and the meaning of “knowingly . . .

3To obtain a conviction on mail and wire fraud, the government must

prove that the defendant had a specific intent to defraud. See United States

v. Manion, 339 F.3d 1153, 1156 (9th Cir. 2003). 

5380 UNITED STATES v. CRANDALL
corruptly persuade” under that statute. 544 U.S. at 698. Arthur

Andersen did not involve either the mail or wire fraud statute

and there is no indication that the Court intended its holding

as to the mens rea requirement for obstruction of justice to

extend to other federal statutes. See United States v. Gay, 967

F.2d 322, 327 (9th Cir. 1992) (declining to apply a Supreme

Court tax decision to a mail and wire fraud case). Moreover,

the “intent to defraud” instruction that was given4 adequately

covered the defense theory of lack of intent. See United States

v. Mason, 902 F.2d 1434, 1438 (9th Cir. 1990) (“[I]t is not

reversible error to reject a defendant’s proposed instruction on

his theory of the case if other instructions, in their entirety,

adequately cover that defense theory.”). 

III

[3] Defendants argue that their sentences must be vacated

because the district court erred in relying on Application Note

2(F)(v)(III) to U.S.S.G. § 2B1.1 to calculate the loss caused

by the fraud. “We review the district court’s interpretation of

the Sentencing Guidelines de novo.” United States v. Garcia,

497 F.3d 964, 969 (9th Cir. 2007); see also United States v.

Grissom, No. 06-10688, 2008 WL 1722813, at *4 (9th Cir.

April 15, 2008). We review the district court’s application of

the Sentencing Guidelines to the facts for abuse of discretion.

United States v. Gonzales, 506 F.3d 940, 943 (9th Cir. 2007)

(en banc). Whether the district court’s reliance on Application

Note 2(F)(v)(iii) involves an interpretation or an application

of the guidelines is irrelevant because the result is the same

under either standard. 

Under U.S.S.G. § 2B1.1(b)(1), if a crime involving fraud

resulted in a loss of more than $5000, the base offense level

is increased depending on the amount of actual or intended

loss, whichever is greater. See U.S.S.G. § 2B1.1 cmt. n.2(A).

4The Ninth Circuit Model Instruction reads: “An intent to defraud is an

intent to deceive or cheat.” 

UNITED STATES v. CRANDALL 5381
“The guidelines do not present a single universal method for

loss calculation under § 2B1.1—nor could they, given the

fact-intensive and individualized nature of the inquiry.”

United States v. Zolp, 479 F.3d 715, 718 (9th Cir. 2007). For

that reason, “§ 2B1.1 is not to be applied mechanically in

valuing loss” and sentencing courts are instructed to “ ‘take a

realistic, economic approach to determine what losses the

defendant truly caused or intended to cause, rather than the

use of some approach which does not reflect the monetary

loss.’ ” United States v. Stoddard, 150 F.3d 1140, 1145-46

(9th Cir. 1998) (quoting United States v. Allison, 86 F.3d 940,

943 (9th Cir. 1996)). 

The guidelines do provide some “special rules” to assist

sentencing courts in calculating the amount of loss in particular cases. To calculate the amount of loss, the district court

relied on the “special rule” in Application Note 2(F)(v)(III),

which provides, in pertinent part: 

In a case involving a scheme in which . . . (III) goods

for which regulatory approval by a government

agency was required but not obtained, or was

obtained by fraud, loss shall include the amount paid

for the property, services or goods transferred, rendered, or misrepresented, with no credit provided for

the value of those items or services. 

The district court, based on the recommendation of the probation office, found that subpart (III) was applicable because in

order to convert an apartment building into individual condominiums, an owner was required to obtain governmental

approval through the conditional use permit process, but

Defendants had failed to obtain the proper approval. 

[4] The district court erred in relying on Application Note

2(F)(v)(III) to calculate loss. This Application Note is concerned with schemes involving “goods” which are subject to

regulatory approval by the government. “Goods” are com5382 UNITED STATES v. CRANDALL
monly defined as “[t]angible or movable personal property

other than money[.]”

5

 The fraud in this case involved real

property, not personal property. Although there is one reference in the note to “property,” the focus of subpart (III) is on

“goods.” In short, the plain language of Application Note

2(F)(v)(III) indicates that this subpart applies to cases involving goods, not cases involving real property.6

Moreover, the use of Application Note 2(F)(v)(III) was not

a realistic, economic approach to calculating the loss caused

by the fraud. The converted “condominiums” that were purchased from Defendants were not completely worthless at the

time of purchase, even though the buyers did not get that for

which they bargained. The buyers bargained for condominiums and they got apartments which had not been legally converted. Nevertheless, the apartments had significant value

because the buyers could live in their units or they could rent

their units out as apartments.7 Without Sentencing Commission direction or policy, it is improbable from a realistic, economic perspective that the “condominiums” had no value to

the victims of the fraud, even though the units may have been

difficult or impossible to resell. 

While it is clear that the district court erred in relying on

Application Note 2(F)(v)(III) to calculate loss, it is not immediately apparent how the district court should have calculated

the loss suffered by the victims of the fraud. Defendants suggest that Application Note 2(E)(i) or (ii) could apply here, but

5Black’s Law Dictionary 714 (8th ed. 1999). 

6The only two published cases that make reference to Application Note

2(F)(v) both involve consumer goods, not real estate. See United States v.

Canova, 412 F.3d 331 (2d Cir. 2005) (pacemakers); United States v. Milstein, 401 F.3d 53 (2d Cir. 2005) (misbranded drugs). 

7We are mindful that at least one of the McDonnell units was not habitable when purchased due to construction problems that arose during the

“conversion” process; but, from the record that is before the court, it

appears that most of the units sold by Defendants were habitable at the

time of purchase. 

UNITED STATES v. CRANDALL 5383
neither of these fit this case. Application Note 2(E)(i) provides that “[l]oss shall be reduced by . . . the fair market value

of the property returned,” but Defendants did not “return” any

property to the victims. Application Note 2(E)(ii) provides

that 

[l]oss shall be reduced . . . [i]n a case involving collateral pledged or otherwise provided by the defendant, [by] the amount the victim has recovered at the

time of sentencing from disposition of the collateral,

or if the collateral has not been disposed of by that

time, [by] the fair market value of the collateral at

the time of sentencing. 

But, Defendants did not pledge or otherwise provide collateral

to any of the victims. 

[5] In calculating loss for sentencing purposes, our focus is

on the loss inflicted upon the victims, who are, in this case,

the buyers of the fraudulently converted “condominiums.” See

United States v. Harper, 32 F.3d 1387, 1392 (9th Cir. 1994).

As noted above, “loss” can involve both actual and intended

loss, but here we are dealing only with actual loss. Defendants’ fraudulent scheme was intended to enhance the marketability and value of the apartments which were sold.

Defendants did not intend that the buyers would suffer any

loss. Hence, the loss, if any, suffered by the buyers must be

measured in terms of “actual loss,” not intended loss. 

“Actual loss” is defined as “the reasonably foreseeable

pecuniary harm that resulted from the offense.” U.S.S.G.

§ 2B1.1 cmt. n.2(A)(i). “Pecuniary harm” is “harm that is

monetary or that otherwise is readily measured in money” and

“does not include emotional distress, harm to reputation, or

other non-economic harm.” Id. cmt. n.2(A)(iii). “Reasonably

foreseeable pecuniary harm” is “pecuniary harm that the

defendant knew, or under the circumstances, reasonably

should have known, was a potential result of the offense.” Id.

5384 UNITED STATES v. CRANDALL
cmt. n.2(A)(iv). In calculating actual harm, “[t]he court need

only make a reasonable estimate of the loss.” Id. cmt. n.2(C).

The guidelines offer the following general instructions for

estimation of loss: 

The estimate of loss shall be based on available

information, taking into account, as appropriate and

practicable under the circumstances, factors such as

the following:

(i) The fair market value of the property

unlawfully taken or destroyed; or, if

the fair market value is impracticable

to determine or inadequately measures the harm, the cost to the victim

of replacing that property. 

(ii) The cost of repairs to damaged property. 

(iii) The approximate number of victims

multiplied by the average loss to each

victim. 

(iv) More general factors, such as the

scope and duration of the offense and

revenues generated by similar operations. 

Id. This Application Note suggests several different methods

that the district court might employ to estimate loss from the

real estate fraud committed by Defendants.

First, the district court could use fair market value appraisals of the property involved in the fraudulent sales to estimate

loss (what the victims paid less the fair market value of what

they received at the time of the sale8). However, the use of fair

8Although U.S.S.G. § 2B1.1 is silent as to the appropriate valuation date

for a loss determination, in this case, the actual loss to the victims at the

UNITED STATES v. CRANDALL 5385
market value appraisals has some drawbacks because obtaining appraisals is expensive and may cause unacceptable delay

in sentencing. Moreover, on the facts of this case, the

appraisal approach may not fairly reflect economic reality—

the actual monetary loss to the victims. Whereas an illegally

converted condominium may be unmarketable and therefore

have little or no value in the market, that “condominium” may

have significant, actual economic value to the buyer, if the

buyer purchased the unit for purposes of occupancy and not

resale. 

District courts can also estimate loss by considering the

“cost of repairs to damaged property.” U.S.S.G. § 2B1.1 cmt.

n.2(C)(ii). Here, although the real property was not physically

“damaged,” the buyers faced thousands of dollars in fees in

order to bring their units into compliance. These fees would

be analogous to paying to repair damaged property. Thus, a

reasonable estimate of loss may be the cost that the victims

of the fraud would have had to pay to make their “condominiums” legal, but for the fortuitous settlement between Stewart

Title Company and the City of Huntington Beach. This is a

realistic, economic estimate of loss inasmuch as it reflects

what it would have cost the victims to become whole and

reflects the value of what the victims actually lost, namely the

ability to sell the property if they chose. 

As a third alternative, the district court might be of the view

that the loss from the fraud cannot be reasonably determined,

time of the fraud, as opposed to the time of trial or sentencing, best captures Defendants’ culpability. The volatile nature of the real estate market

is wholly independent of Defendants’ actions and, for sentencing purposes, they should not benefit from the ultimate conversion of the units

into condominiums. See United States v. Gordon, 393 F.3d 1044, 1052 n.6

(9th Cir. 2004) (“there is little logic in increasing or decreasing a defendant’s sentence as a result of unpredictable fluctuating values for misappropriated items in a punitive context”); United States v. Bae, 250 F.3d

774, 776 (D.C. Cir. 2001) (“the loss associated with their fraudulent procurement is equal to the value of the goods at the time of the offense”).

5386 UNITED STATES v. CRANDALL
given the nature of the property involved in the fraud. Should

that be the case, the district court could rely on Application

Note 2(B) to U.S.S.G. § 2B1.1 to calculate the loss for sentencing purposes. Application Note 2(B) provides that “[t]he

court shall use the gain that resulted from the offense as an

alternative measure of loss only if there is a loss but it reasonably cannot be determined.” Here, Defendants purchased

four-plexes and then resold them as though the individual

units were condominiums. Defendants’ “gain” might be valued by comparing Defendants’ cost of purchasing the apartment buildings to the gross sale prices of the buildings to the

victims. 

[6] Depending on the nature of the fraudulent scheme

involved, there may be still other approaches a district court

could properly employ to determine loss for purposes of sentencing in a fraud case involving real property. For example,

if the fraudulently sold property has been resold by the victim,

a comparison of the price on resale to the price paid to the

defendant may be a realistic measure of the economic loss to

that particular victim. It is also possible that tax assessor valuations might be useful in some cases in estimating the loss

suffered by a victim of the fraud. But, whatever approach the

district court takes, it must take a realistic, economic approach

that reflects the monetary loss to the victims of the fraud.

Here, the district court, by relying on Application Note

2(F)(v)(III) to calculate loss, failed to take such an approach.

As a result, the district court erred in calculating the applicable guidelines ranges for Defendants. Because this error was

not harmless, Defendants’ sentences are vacated,9 and we

remand for resentencing. 

9Because we vacate Defendants’ sentences on this ground, we need not

consider McDonnell’s other sentencing argument, in which Crandall

sought leave to join. McDonnell argued that his sentence was unreasonable because it was disproportionately longer than that of codefendant

Howard Richey. Had we considered this argument, we would have

rejected it because “[d]isparity in sentences between codefendants is not

UNITED STATES v. CRANDALL 5387
IV

McDonnell argues that his restitution order of $361,000

was illegal10 because it appears to be based on the loss to

Stewart Title Company (“Stewart Title”) rather than on the

loss to the persons who purchased the fraudulently converted

“condominiums.” At sentencing, the district court made it

clear that it did not perceive Stewart Title as a victim and that

Stewart Title was not to receive any restitution. However, the

amount of restitution that the district court ordered was calculated by the probation office, and the only “victim” identified

by the probation officer in McDonnell’s presentence report

was Stewart Title. 

[7] Loss for purposes of evaluating the seriousness of a

fraud under the Sentencing Guidelines and loss for purposes

of restitution are, on the facts of this case, potentially quite

different. The purpose of restitution “is to make the victims

whole” while “the Sentencing Guidelines serve a punitive

purpose[.]” Gordon, 393 F.3d at 1052 n.6. “[T]he amount of

restitution . . . is limited to the victim’s actual losses.” United

States v. Bussell, 504 F.3d 956, 964 (9th Cir. 2007) (emphasis

in the original). 

[8] As a result of Stewart Title’s settlement with the City

of Huntington Beach, the “condominium” buyers may ultimately have gotten the legal condominiums for which they

sufficient ground to attack a proper guidelines sentence.” United States v.

Whitecotton, 142 F.3d 1194, 1200 (9th Cir. 1998). In addition, the differences between Defendants’ sentences and that of Richey were warranted,

given that the district court found that Crandall perjured himself during the

trial and McDonnell sold many more units than Richey for approximately

twice as much money, was convicted on charges relating to his involvement in the Houchen scheme and for bank fraud, and had tried to “shake

down” Houchen when the fraudulent scheme came to light. 

10Crandall withdrew his argument that his restitution order of $63,000

was illegal. 

5388 UNITED STATES v. CRANDALL
bargained. The buyers may have suffered no loss for purposes

of restitution. McDonnell has not briefed nor argued the issue

of whether the district court erred in concluding that Stewart

Title was not a victim of the fraudulent scheme in which its

dishonest employee joined. We need not decide this issue

because the government concedes that the basis for the district

court’s restitution order was not adequately set forth. Accordingly, we vacate McDonnell’s restitution order and remand to

the district court to reassess restitution as to McDonnell. We

leave it to the district court to reconsider whether Stewart

Title was a second-tier victim for purposes of restitution. 

V

In conclusion, Defendants’ convictions are affirmed

because their proposed “intent to defraud” jury instruction

was not supported by law and because the jury instructions

that were given adequately covered their lack of intent

defense theory. Because the district court improperly relied on

Application Note 2(F)(v)(III) to calculate the loss that resulted

from the fraud, Defendants’ sentences are vacated. McDonnell’s restitution order is also vacated because it is unclear

whether the restitution amount is based on what was actually

lost by the victims of the fraud. This matter is remanded for

resentencing and for reassessment of the amount of McDonnell’s restitution. 

Convictions AFFIRMED; sentences and McDonnell restitution order VACATED; REMANDED for resentencing.

UNITED STATES v. CRANDALL 5389