NO T R EC OM M EN DE D F OR P UB LIC AT ION File Na me: 10a0667n.06 No. 09-1464 UN ITED STA TES C OU RT OF AP P EA LS F OR THE SI XT H C IR CU IT
United States of Am eric a, P laintif f-App ellee,
v. Aub r e y Te r br ac k, Defendan ts-Appellant. ) ) ) ) ) ) ) ) ) ) ) ON AP P EAL FROM THE U NI TED STATES DI STRI CT COURT FOR THE EASTERN DI STRI CT OF MI CHI GAN

BEF OR E: M ER RI TT, RO G ER S, SU TTON , C ir c uitJudg e s.
M ERR I TT , C ir c ui t J udge
. Au b rey Terbr ack, a

mortg ag e lende r, appe als his prison sentenc e of 78 months for wire fraud. L ike t he dis trict court, we are fac ed with a time-c onsuming
acc o u n ti n g ta s k

o f d e te r mi n in g w h ic h o f

tw o o v e r la

p p in gr an g e s o f

th e F e d e r a l S e n te n c ing Guidelines is “applica

ble,” see U.S
. S
. G. § 1B 1.1, both of which a llow a 78-month sentenc e. Terbr ack’ s principal Sentenc ing G uidelines argument is that the district c ourt, when e stimating the amount of “loss” c aused by his fraud pur suant to the Guidelines, fa iled to “cr edit” ce rtain items as

“ c o l l a t e r a l
. ” T h e s e i t e m s , h o w e v e r , ar e n o t c o l l a t e r a l w i t h i nan y m e an i n g o f t h a tt e r m . A c c o r d i n g l y,
we a ff ir m.No. 09-1464

United States v. Terbrack

-2- I. Terbr ack’ s fra

ud arose from his mortg ag e-loa n business. He owned a

nd operated Marathon Financ ial Corporation (“ Marathon”), whi ch orig inated and se rvice d mortg ag e loans. Those loans
wer e g uara

nteed by the Gover

nment National Mortg ag e Association (“Ginnie Mae ”). Ma rathon wa s ob lig a te d to fi le re po rt s w ithGi nn ie Ma e e a c h mon th, a s we ll a s w he n b or ro we rs pa id o ff

the ir loa ns . Th e fr a ud be g an in July 19 98 , w he n T e rb ra c k b e g an d ive rt ingmor tg a g e -p ay of

f p ro c e e ds to a sepa rate Marathon acc ount over whic h he had c ontrol. To cover up these diver

ted funds, he falsified his re ports submitt ed by wire c ommunication to Ginnie M ae. I n October 2007, Ginnie Mae discovere d the fra

ud throug h an interna l audit. I t immediately decla red Ma rathon in def

ault and
a c qu ir e d all of Maratho n’ s loans . Of the mor e tha n two tho us and

loa ns that Ma

ratho n s e rv ic e d, on ly about two hundre d wer e involved in the fraud. Ginnie M ae held all of Mar athon’s loans on its books fo r s e ve ra l mo nth s a s it

tr ie d to ide nti fy the fr a

ud ule nt one s. Whe n it

e ve ntu a lly

liq uid a te d th e loa

ns , Ginnie Mae estimated its losses at over $22 million. The g overnme nt char g ed both Terbr ack and hi s confe derate, Denise Money , with wire fr aud. Money wa s a vice president a nd an off ice mana g er of

Marathon, and she wa s intim ately involved in perpe trating the mortg ag e-f raud sc heme. Aside from rec eiving her regular pa y chec k, howeve r, Money did not benef

it from the fra

ud; she did not rece ive any of the diver

ted funds. More over, w hen Ginnie Mae first uncove red the fra ud, Money

provided Ginnie Ma e with assistance in determining prec isely which loans in Ma rathon’s portfolio wer e fra udulent. Both Terbr ack and M o n ey p led g uil ty . In T e rb ra c k’ s p le a a g re e me nt, he a g re e d n ot t o dir e c tly a pp e a l th e dis tr ic t c ourt ’s “ a dv e rs eNo. 09-1464

United States v. Terbrack

Th e g ov e rnme nt c on c e de d at the e vid e nti ary he ari ng that the e sc ro w a c c ount w a s c oll a te ra l, 1 such that it should se rv e as a cr edit under U .S.S.G. § 2B1.1 cmt. n.3(E)( ii). The par ties do not c on te st o n a

pp e a l w he the r t

he e sc ro w a c c ount i s c oll a te ra l. T h e d i s t ri ct court indicated that the car rying costs qualified as interest under U.S.S.G. § 2 2 B 1
. 1 c mt
. n . 3 ( D ) ( i) , w h ic h p r o v id e s th a t lo s s s h a ll n o t in c lu d e “ [i ]n te r e s t o f an y k in d, financ e char g es, late fe es , penalties, amounts based on an a g ree d-upon re turn or rate of re turn, or other simil ar c osts.” The idea

is that Marathon should not be pena liz ed for the time value of mone y over the tim e that G inn ie Ma e he ld t he loa ns be fo re liq

uid a tin g the m. -3- deter mination of any

disputed sentencingissue” unless it was ra ised “at or befo re t he sente ncing hear ing.” The district cour

t conducted a

n evidentiar

y sentenc ing hear ing for Terbra ck and Mone y . At the he ari ng , th e pr e do min ant i ssu e was wh e the r t he fr a ud c a us e d mo re tha

n $ 20 mil lio n in

los s to Ginnie Mae . All parties ag ree d that the pre liminary estimate of loss should be $21,578,095, but t hey differ ed on the amount of credits that should apply
. Terbr ack pr esente d seven items for this purpose: (1) the net value of

one of Ma

rathon’s e scrow a ccounts, (2) Ginnie Mae ’s “c arr y ing c osts” cause d by its delay in liquidating Mara

thon’s loans, (3) a

$760,000 settlement that Marathon had re ceive d from a title compa

ny , (4) a n alleg edly

misdirected c heck worth $707,180, (5) “ca sh on hand” w hen Marathon petitioned for bankr uptcy (in an amount of either $1.2 million or $986,000), (6) the value of ser vicing Marathon’s loan portfolio, and ( 7) a $750,000 f idelity bond posted by

Marathon. Th e dis tr ic t court c ho se to cr e dit the fi rs t two ite ms. I t f ound that th e e sc ro w a c c ount s ho uld be cr edit ed , an d i t estimated its net value at $287,000. I t also found that Ginnie Mae ’s ca rry ing 1

c os ts sh ou ld be c re dit e d, and it va lue d tho se a t $3 46 ,4 27
. B ut it re je c te d the re ma ini ng ite ms. I ts 2 final e s t i mate of loss wa s theref ore $20,944,619. B eca

use this estimate of loss exceede d $20No. 09-1464

United States v. Terbrack

-4- milli on, the district court incr ease d Terbr ack’ s Guidelines offe nse level by 22. I f it had estimated the loss at betwee n $7 milli on and $20 milli on, his G uidelines offe nse level would have inc rea sed instead by

only 20. See U.S.S.G. § 2B1.1( b). This two-leve l differ ence cause d Terbr ack’ s Guidelines sentenc ing rang e to be 78 to 97 months, rathe r t han 63 to 78 months. The district cour t sentenc ed Te rbra ck to 78 months. I t sentence d Money to one day in prison, followed by

six months in a supervise d ree ntry

cente r and six mont hs of home conf inement. Ter

brac k appea led. II. Terbr ack r equests to be r esente nced f or two reasons. First, he argues t hat the district cour t did no t pro pe rl y c re dit a ll ite ms that wou ld re du c e its e sti ma te of los s und e r the Gu ide lin e s to le ss than $20 million. S econd, he argues t hat t he dis parity in leng th betwee n his sentence and Money ’s
se nte nc e vio la te s th e Gu ide lin e s. F or the fo llo wi ngre a so ns , b oth argume nts fa il. A. The Di st r ic t C our t P r ope r ly E st im at e d t he Los s C aus e d by T e r br ac k’ s F r aud The district court “is in a unique position to assess the evidenc e” a nd “nee d only

make a
rea sonable e stimate of the loss.” U.S.S.G. § 2B1.1 c mt. n.3(C). Acc ording ly , we may not overturn its factual f

indings unless they are clea rly err oneous. United States v. Triana , 4 68 F .3 d 3 08 , 3 21 (6 th Cir . 2 00 6)
. Whe n the qu e sti on inv olv e s the a pp lic a tio n of a

Gu ide lin e s p ro vis ion

to a se t of fa c ts, howeve r, we revie w de novo. Un ite d S tat es v . W olf e , 71 F.3d 611, 616 ( 6th Cir. 1995).No. 09-1464

United States v. Terbrack

Th e Ap pli c a tio n N ote s to § 2 B 1. 1 c re a te tw o c oe qu a l c la sse s th a t e ff e c tiv e ly se rv e a s c re dit s 3 ag ainst loss: “ex clusions” under Application Note 3( D) a

nd “cr edits” under Application Note 3( E). I n turn, there are two ty

pes of exclusions and two ty pes of c redits. U.S.S.G. § 2B1.1 c mt. n.3. Of these four ty pes of cr ed i t s , the only

one that ar g uably

applies in this case is the one for c ollatera l under A pplication Note 3(E) (ii). -5- Ap pli c a tio n N ote 3( E) (i i) ins tr uc ts that lo ss “ sh a ll be re du c e d” by the va lue of any c oll a te ra l. 3 U.S.S
. G. § 2B1.1 cmt. n.3(E)( ii). Specifica lly , it provides that “[i] n a ca se involving c ollatera l pledg ed or othe rwise provided by the defe ndant,” the court must c redit “the amount the victim has
rec overe d at the time of sente ncing from disposition of the collatera l, or if the collate ral ha s not been disposed of by

that time, the fair ma

rket va lue of the c ollatera l at the time of sentenc ing.” Id. A threshold re quirement to invoke this provision is t h at an it em constitute “c ollatera l.” Ne ith e r the Gui del ines no r i ts A pp lic a tio n N ote s d e fi ne thi s f ina nc ia l te rm . Co llate ra l g e ne ra lly implies the ex istence of

a sec urity

interest held by

a cr editor in proper

ty owned by a debtor. See, e.g. , Bla ck’s L aw Dic tionary 218 (8th ed. 2005) ( defini n g collater al as “ [p] roper ty that is pledg ed
as sec urity

ag ains t a d eb t; the property subject to a sec urity

interest or a g ricultural lien” ). Other
c ir c uit s th a t ha

ve c on str ue d App lic a tio n N ote 3( E) (i i) have us e d a tr a dit ion a l de fi nit ion

of c oll a te ra l. See, e .g. , United States v. Dullum , 5 60 F .3 d 1 33 , 1 39 (3 d Ci r. 20 09 ) ( “ B a se d o n a c omm on se ns e
rea d i n g o f the Application Note’ s straig htforwa rd languag e, howe ver, w e believe the cor rec t interpre tation limi ts its application to si tuat i o n s i n volving a traditional notion of collater al.”) (collec ting c ases)
. Terbr ack prese nts f

ive items on appea l that he argues are collater al: (1 ) a $ 760,000 settlement that Marathon had re ceive d from a titl e company , (2) a n alleg edly

misdirected c heckNo. 09-1464

United States v. Terbrack

Ginnie Mae had not re ceive d any of the first four items by the time Terbr ack w as sentenc ed. 4 (Indeed, al though it is not releva nt to our analy sis, the gove rnment re veale d at ora l argument that Ginnie Mae sti ll had not rece i v ed any money from these items from Marathon’s bankruptc y proce eding as of Oc tober 15, 2010.) A s for the fifth item, Ginnie M ae possessed Mara thon’s loan portfolio, but the rig ht to se rvice it was arguably valueless be cause no investor would purc hase loa ns fr om a ta int e d p or

tf oli o. Th e dis tr ic t c ourt

a pp a re ntl y a g re e d. Re g ard le ss, we fi nd that th e se ri g hts are not c ollatera l unde r Application Note 3(E)( ii), so they cannot se rve a s a cr edit ag ainst loss even if they had value
. -6- worth $707,180, (3) a $750,000 fide lity bond, (4) “ ca s h on hand” w hen Mar athon petitioned for bankruptc y

(of e ither $1.2 million or $986,000), and (5) the va l u e of se rvicing Marathon’s loan portfolio. His theory

is essentially

the same f

or ea ch: Marathon’s regulatory and con t ra ct u al 4 relationship wit h Ginnie M ae cause d all of Marathon’s assets to constitute Ginnie Mae ’s collater al beca use Ginnie Mae could proc eed a g ainst any of them in c ourt. He points to a fe dera l regulation permitting G innie Mae “ to proce ed ag ainst other assets of the issuer” w hen mortg ag e issuers, like Maratho n, de fa

ult
. 24 C.F .R. § 3 20 .3 1 ( 20 10 ). He a lso po int s to a g ua ra nty c on tr a c t be tw e e n G inn ie Ma e and Maratho n, wh ic h p ro vid e s th a t up on Maratho n’ s d e fa

ult , M arat hon “ sh a ll a

uto ma tic a lly g ive up and f

orfe it, a nd here by rele ase to Ginnie Ma e, all of its rig ht, titl e, and inter est” to any and all assets and pr ocee ds “re lated in any way to the Mortg ag es.” Te rb ra c k’ s argume nt, ho we ve r, re qu ir e s an e xce ssi ve ly br oa d d e fi nit ion

of c oll a te ra l. Although the g uara

nty contra ct requires Marathon to “for feit” and “re lease ” it s assets t o Ginnie Mae up on de fa ult , it do e s not g ra

nt Ginnie Ma e a

se c ur ity int e re st i n th os e a sse ts; it m e re ly g ive s G inn ie M a e le g a l g r o u n d s s h o u ld it d e c id e to li ti g a te
. T e r b r a c k ’ s ar g u me n t im

p li e s th a t a ll a s s e ts owned by a debtor should be consider ed “c olla t er al ” fo r a debt whene ver a n unsecur ed cr editor, such a s Gi n n i e M ae he re, c ould liti g ate to re cover them. Such a def

inition i s broade r than a

ny commonNo. 09-1464

United States v. Terbrack

I n Un ite d S

tat es v . W e lls , which construe d a compa rable Application Note in the Guide lines 5 reg ardingestimation of loss, the Eig hth Circ uit affirme d the district court’s c rediting of the va lue of a strea m of pay ments t h at t h e d ef

endant’s company

had assig ned to its victims. 127 F.3d 739, 74 8–49 (8 th C ir . 1 99 7) . A lth ou g h th os e pa y me nts we re a ssi g ne d r a the r t ha n p le dg e d to the vic tim s, the cour t rea soned t hat t his technica l distinction was inapposite because the victims were protec ted under the Uniform Commercia l Code to the same extent as if a pledg e had oc curr ed. Id. at 749 & n. 3. No sim ila

r a ssi g nme nt o c cur

re d h e re . T e rb ra c k a lso c ite s United States v. Calkins , 1 93 F. App’x 417 (6th Ci r. 2006). B ut in that case, the victim possessed a sec urity interest in the condominium units that the cour t held to be collater al. Id. a t 41 9– 22 . A nd th e court e xpre ssl y re je c te d th e de fe nd ant’ s argume nt— c omp ara ble to T e rb ra c k’ s argume nt h e re —th a t “ pr e vio us ly unsecur ed per sonal pay

ments or pay

ments from third par

ties should count as collater al.” Id. at 422. -7- understandingof that term; in fa ct, Ter brac k’s counse l at oral ar gu m en t co n cede d that assets in a hy po the tic a l de fe nd ant’ s b ank a c c ount t hat are un re la te d to a fr a

ud do no t be c ome c oll a te ra l si mpl y be c a us e the vic tim c ou ld purs ue the m in lit ig a tio n. Un surp ri sin g ly , the c a se s Te rb ra c k c ite s in his brief provide no authority for his pr offe red definition. Acc ording ly , we uphold the leg al conc lusion 5 of the district cour

t that none of these five items ar e collate ral within t h e m ea n ing of Application No te 3( E) (i i) . T he dis tr ic t c ourt wa s c or re c t no t to c re dit

any of the m a g a ins t it s e sti ma te of los s. Terbr ack ne x t urg es us to reve rse the district c ourt’s fa ctual finding reg ardingthe value of an item that it did credit—Mar athon’s esc row a ccount. Te rbra ck asse rts that this account ha d a value of $825,197, rather than the $287,049 cre dited by the district co urt. Even if w e found that the
acc ount should be valued at the gre ater amount, it would not suffice to reduc e the loss esti mate fr om $2 0, 94 4, 61 9 to be low

$2 0 milli on . B ut r e g ard le ss, thi s f ind ingby the dis tr ic t c ourt

wa s n ot c le a rl y
erro n eo us. A Ginnie Mae employ ee te stified at the evide ntiary hear ing that the net value of the
escr ow ac count, af

ter subtra cting other obligations, wa s $287,049. We ha ve re viewed T erbr ack’ sNo. 09-1464

United States v. Terbrack

-8- sprea dsheet e x hibit entitl ed “Corr ecte d GNMA L iq u id a ti o n Rep o r t” a n d d o not believe that it re nders the dis tr ic t court ’s fi nd ing , whi c h wa s bas e d on unc on tr ov e rt e d te sti mony , to be c le arl y e rr on e ou s. I n s um, no ne of

the fi ve ite ms l ist e d a

bo ve c on sti tut e s co ll ate ra l un de r A pp lic a tio n N ote 3(E)( ii). Nor did the district cour t clea rly err in estimating the va lue of the c redited e scrow a ccount to be $287,049. Acc ording ly , the district court prope rly estimated the amount of loss at $20,944,619 and sente nced T erbr ack w ithin the corre ct Guidelines ra ng e. B. The District C ourt Did Not Abuse Its Discr etion Due to t he Sentencing Disparity Terbr ack a

rg ues that the district cour t abused its discretion whe n it sentence d him to a signific antly

longe r term of imprisonment than his confede rate , Denise Mone y . Terbr ack r ece ived 78 months; Money , on the other ha nd, rec eived imprisonment of one day , followed by six months in a supervise d ree ntry cente r and then six months of home confine ment. Terbr ack did not objec t to t his dis pa ri ty a t th e tim e of

se nte nc ing , s o th e g ov ernm ent c ounte rs tha t T e rb ra c k w a ive d th is argument pursuant to the appe al waive r in his p l ea ag ree ment. Terbr ack r esponds in turn that he
c ou ld n ot o bje c t be c a

us e Mo ne y

wa s se nte nc e d s e ve ra l mi nu te s a ft e r h e wa s. As su min g wi tho ut d e c idi ngthat T e rb ra c k d id n ot w a ive his ri g ht to ap pe a l by fa ili ngto ob je c t a t th e se nte nc ing h eari ng , th e dis tr ic t c ourt did no t a bu se its dis c re tio n in

or de ri ngthe se dis pa rate se nte nc e s. Al tho ug h the Gu ide lin e s re qu ir e the dis tr ic t c ourt to c on sid e r “ the ne e d to a vo id
un wa rr ante d s e nte nc e dis pa

ri tie s a mon g de fe nd ants wi th sim ila r re c or ds wh o have be e n f

ound g uil ty of similar conduc t,” 18 U.S.C. § 3553(a)( 6), that provision i s s ai d t o be conc erne d with national disparities, not those betwee n co-de fenda nts, United States v. Simmons , 5 01 F .3 d 6 20 , 6 23 –2 4 ( 6th Cir
. 20 07 ). A dis tr ic t c ourt may exercise its discretion to deter mine a defenda

nt’s sentenc e in lightNo. 09-1464

United States v. Terbrack

-9- of a c o-def

endant’ s sentence
. Id. B ut i n th e ins tant c a se the di st ri ct court wa s w e ll w ith in i ts discretion not to do so. Terbr ack was t he leader of the m ortg ag e-f raud sc heme, owne d Marathon, and conve rted the proce eds of the fra ud to his own use. None of this wa s true of Mone y . Moreove r, the g overnme nt moved for a substantial assistance dow nwar d depart u re fo r M oney , but not for Terbr ack. T he dis trict court was there fore within its discretion in sentenc ing Terbr ack a nd Money to d isp arate se nte nc e s. III . For the fore g oing r easons, we AF F IRM the jud g me nt o f t he dis tr ic t c ourt
.