* The Honorable Frank M. Coffin, Senior Circuit Judge for the United States

Court of Appeals for the First Circuit, sitting by designation. 

## F I L E D United States Court of Appeals Tenth Circuit 

### APR 28 1997 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

UNITED STATES OF AMERICA, Plaintiff - Appellee, v. JOHN J. PAPPERT, Defendant - Appellant. No. 95-3071

Appeal from the United States District Court

for the District of Kansas (D.C. No. 94-20016-01)
Tanya J. Treadway, Assistant United States Attorney(Randall K. Rathbun, United States Attorney, with her on the brief), Kansas City, Kansas, for PlaintiffAppellee. Daniel E. Monnat, Wichita, Kansas, for Defendant-Ap pellant.

Before TACHA , COFFIN , * and LUCERO , Circuit Judges.

LUCERO , Circuit Judge.1 This panel previously issued a published opinion inthis case, United States

v. Pappert , 104 F.3d 1559 (10th Cir. 1997), but stayed the ma ndate pending the Supreme Court’s decision in United States v. Wells , No. 95-1228. That decision has now been issued. See United States v. Wells , 117 S. Ct. 921 (1997). Based on the Wells decision, we now vacate our previous opinion. -2- Defendant-appellant John J. Pappert, principal in a n office equipment business, appeals from his conviction for three cou nts of mail fraud, four counts of wire fraud, and two counts of submitting false d ocuments to a federally insured financial institution. See 18 U.S.C. §§ 1341, 1343, 1014. Pappert challenges (1) the district court’s rulings on jury instructions i nvolving good faith and materiality; (2) the sufficiency of the evidence of intent to commit fraud, use of the United States mails, and knowledge of submissio n of false documents to a federal bank; and (3) several sentence enhancements . Our jurisdiction arises under 28 U.S.C. § 1291 and Fed. R. App. P. 4(b). W e affirm. 1 Pappert was the president and majority shareholder of Century Office Products, Incorporated ("COPI"), a business that le ased, sold, and serviced photocopier machines and other office equipment fro m its inception in 1980 until its demise in 1993. Pappert managed the finances a nd day-to-day operations of COPI, and was in charge of leasing. COPI's leasing operation worked as follows: a repr esentative of the company would initiate a leasing agreement with a c ustomer, and Pappert would usually close the deal. Many of these customers we re schools and school-3-

districts. Pappert sold most leases to banks or other financing sources, sometimes through a lease broker. These financing sources wo uld pay COPI in exchange for the rights to income from the lease and to the equi pment itself. If the transaction took place through a broker, the broker would pay C OPI and execute a second assignment to the financing source. COPI’s practice of assigning leases was a key issue at trial. Each lease agreement contained a provision allowing COPI to as sign the lease to third parties, and permitting reassignment. COPI was notobligated to notify customers of assignments, and Pappert often did not do so. I n some instances, he would tell customers that he would not sell their lease, then would proceed to do so. Although Pappert claims that customers were given t he choice to pay either COPI or the financing source, some customers testified t hat they were simply told to pay COPI and never learned that their leases had been a ssigned. Periodically, Pappert would offer to replace his cu stomers’ old machines with new equipment. He convinced the customers that he would “pay off” the old leases if the customer would take out new leases on better, more up-to-date equipment. If a customer agreed to enter into a ne w lease, Pappert would substitute the new equipment for the old. However, his practice was to take over the installments withoutpaying off in full the old lease. It was in this fashion that customers unwittingly became liable on multipl e leases.-4-

Pappert also misled lending institutions by replaci ng equipment and taking over the customers’ payments on their old leases wi thout informing the lenders. Many creditors thought that the original equipment was still in place and the customers were still making payments. Representati ves of the financial institutions testified that if they had known of Pappert’s repossession, they would have at least reevaluated the creditworthiness of t he transaction. Most indicated that they would not have accepted the new arrangeme nt because COPI did not have the good credit of its school district custome rs. Ultimately, Pappert’s operation began to implode. As he fell behind on more and more payments, several financing instituti ons began to call in Pappert’s debt. This led him to submit forged leases through his lease broker to another bank, Superior National Bank, in an attempt to brin g in cash. When that bank notified the lessees of their delinquency, the less ees discovered Pappert’s ruse. Nonpayment on the customers’ many leases eventuallyled the financing sources to seek payment directly from the lessees. A slew of lawsuits ensued. The government tells us that 39 entities lost over $5.5 million, and Superior National Bank was put into receivership as a resultof Pappert’s conduct.
II Pappert makes two arguments challenging the trial c ourt’s jury instructions. “The appropriate standard of review for challenges to jury instructions is whether-5-

the jury, considering the instructions as a whole, was misled.” United States v. Smith , 13 F.3d 1421, 1424 (10th Cir.), cert. denied , 115 S. Ct. 209 (1994). Only where the reviewing court has “substantial doubt th at the jury was fairly guided” will the judgment be disturbed. Id. (quoting United States v. Mullins , 4 F.3d 898, 900 (10th Cir. 1993)). We review de novo to determ ine the propriety of a jury instruction to which objection was made at trial, a nd for plain error where no objection was made. Id.
A Pappert first contends that the court was wrong to instruct the jury that “it is no defense to a charge of mail fraud or wire fra ud that the defendant honestly believed in the ultimate success of his business,” Appellant’s Partial App. at 53 (Instruction No. 22), while failing to instruct it that “good faith” in one’s representations is a defense. At trial, the court overruled Pappert’s request that the court give “the good faith instruction as I com mented in chambers.” Tr. at 748. No record is available of the conference in c hambers. Pappert did not object to the inclusion of the “honest belief” inst ruction. Applying de novo review, we conclude that the lack of an instruction on good faith, considered in light of the entire set o f instructions, was not misleading. Although Pappert insists that the goodfaith instruction was essential to his defense, a defendant is not entitled to such an instruction without a-6-

reasonable factual predicate. United States v. Gri ssom , 44 F.3d 1507, 1512 (10th Cir.), cert. denied , 115 S. Ct. 1720 (1995). There is sufficient factual support for this defens e “when the jury could reasonably find . . . that the defendant in good fa ith believed that the plan would succeed, that the promises made would be kept and t he representations carried out.” United States v. Hopkins , 744 F.2d 716, 718 (10th Cir. 1984) (en banc). The record indicates that Pappert misled customers to think that he would pay off the loans in their entirety, sometimes sending written guarantees that loans would be paid off by a certain date, and on at least one occasion sending a copy of a check with which he falsely claimed a customer’s lo an had been paid off. In addition, he submitted falsified leases to financin g sources. Finally, Pappert admitted to improprieties when called to task on hi s overdue debts, once referring to his own conduct as a “scam.” In light of this r ecord, we find that the jury could not reasonably have found that the defendant believed his own promises in good faith. Because there was not adequate factual support for the good faith defense, the district court properly refused to giv e a “good faith” instruction. Because objection was not made to the “honest beli ef” instruction at trial, we review the district court’s instruction for plai n error. Smith , 13 F.3d at 1424. “Plain error, in this context, is error that affect s the defendant’s right to a fair and impartial trial.” Id. The court, in its instruction, accurately stated the law.-7-

United States v. Reddeck , 22 F.3d 1504, 1507 (10th Cir. 1994) (“‘[E]ven tho ugh a defendant may firmly believe in his plan, his belie f will not justify baseless or reckless representations.’” (quoting United States v. Themy , 624 F.2d 963, 965 (10th Cir. 1980))). The evidence supported giving such an instruction. Therefore, the district court did not commit plain error. B Pappert next asserts that the court erred in instru cting the jury on the offense of submitting false documents to a federall y insured financial institution. The court properly instructed the jury that materia lity was an element of the offense, but added: You are further instructed that whether the stateme nt was material is a question for the Court, and that the Court has de termined that the statements in question were material as a matter of law. Appellant’s App. at 55-56 (Instruction No. 24). Al though Pappert did not object to this instruction at trial and never contested th e materiality of the relevant statements, he claims that the court’s failure to s ubmit the element of materiality to the jury was plain error, reversible under Unite d States v. Gaudin , 115 S. Ct. 2310 (1995), decided after this case was tried. The first question before us is whether the distric t court erred. See United States v. Olano , 507 U.S. 725, 732-33 (1993). Although this circu it, like many others, treated materiality as an element of § 1014 , United States v. Smith , 838-8-

F.2d 436, 439 (10th Cir. 1988), the Supreme Court h as recently decided that materiality of a falsehood is not an element of a § 1014 offense, United States v. Wells , 117 S. Ct. 921, 926-31 (1997). Because the § 101 4 offense does not require the materiality of a statement, the jury’s failure to be instructed on it or to decide it was not error. Hence, the basis on which Pappert asserts error under Gaudinhas been negated. See United States v. Copus , 95-6034, slip op. at 9 (10th Cir. Apr. 23, 1997).
III The district court denied Pappert’s motions for jud gment of acquittal on grounds of insufficient evidence. Pappert challeng es this determination on a number of grounds. In reviewing the district court ’s determination, “the relevant question is whether, after viewing the evidence in the light most favorable to the prosecution, anyrational trier of fact could have found the essent ial elements of the crime beyond a reasonable doubt.” Jackson v. V irginia , 443 U.S. 307, 319 (1979) (emphasis in original); U.S. v. Harrod , 981 F.2d 1171, 1174 (10th Cir. 1992). In answering this question, “we may neitherweigh conflicting evidence nor consider the credibility of witnesses.” Harrod , 981 F.2d at 1175 (quoting U.S. v. Darrell , 828 F.2d 644, 647 (10th Cir. 1987)). Applying th is standard, we affirm the denial of defendant’s motions.-9- A Pappert challenges the sufficiency of the evidence underlying his fraud convictions on two grounds. First, he claims that the prosecution failed to prove intent, because it was evident that he made his com munications in good faith. He contends that his payment of installments on some o f the leases that he took over, promising to “pay off,” evinces this good faith. A dditionally, Pappert contends that his “willingness and repeated attempts to workwith his financing sources to correct the financial messes he had created” also s uggests good faith. In the previous part, we affirmed the district court’s decision not to give a good faith jury instruction, because we found no re asonable factual predicate for a good faith finding. For the same reason, we rejectPappert’s challenge to the sufficiency of evidence regarding his fraudulent in tent. We find that the evidence regarding Pappert’s misrepresentations supports the jury’s finding on this matter.
B With respect to his mail fraud convictions, Pappertclaims that the evidence failed to show the United States mails were used. For each of the three counts of mail fraud, witnesses testified that they received Pappert’s letters via the United States mail. In addition, the jury saw the documen ts in question, which were folded in thirds as if sent in a standard envelope, and heard testimony on Pappert’s normal course of business with respect to transmitting letters. Although-10-

the defendant suggests the evidence is conflicting and incredible, such assessments lie within the province of the jury. V iewing the evidence most favorably to the prosecution, we find it sufficientto convince a rational jury beyond a reasonable doubt that the letters were sen t via United States mail.
IV Pappert claims that the district court erred in enh ancing his sentence under various sentencing guidelines. Pappert was sentenc ed to 60 months for his conviction on the first count of the indictment, an d to 97 months on each of the eight other counts of which he was convicted. The sentences for the counts were to run concurrently. We review the district court’ s interpretation and application of the sentencing guidelines de novo. United State s v. McAlpine , 32 F.3d 484, 487-88 (10th Cir.), cert. denied , 115 S. Ct. 610 (1994). We review the court’s underlying findings of fact for clear error. Id. at 488. We will accept these factual findings unless the record does not supportthem or, after reviewing the record, “we are left with the definite and firm con viction that a mistake has been made.” Id. (quoting United States v. Easterling , 921 F.2d 1073, 1077 (10th Cir. 1990).
A The court found that Pappert’s criminal activity ca used a total loss of $5,528,413.31. Based on this amount of loss, it ad ded 14 to his base offense level-11-

pursuant to USSG § 2F1.1(b)(1)(O). Calculation of loss is determined for sentencing with reference to USSG § 1B1.3, and may include all relevant conduct by the defendant creating loss. United States v. S app , 53 F.3d 1100, 1104 (10th Cir. 1995), cert. denied , 116 S. Ct. 796 (1996). Pappert challenges the amount of loss calculation. First, he argues that the figure does not properly represent the loss caused by his conduct. The guidelines suggest that any assets pledged to secure the loan should be deducted from the total amount of loss. USSG § 2F1.1, comment. (n.7( b)). In several instances, victims of Pappert’s activity retained the copier m achines that were the subject of the leases, and the court apparently did not deductthe value of the machines from its total loss calculation. In response, the gover nment raises factual questions about whether the victims were left with collateral of any real value. Specifically, the government points out that evidence was offered indicating: (1) sometimes, used machines were represented to be new; (2) some machines were pledged as collateral on multiple leases; and (3) in at least one case, by the time the financing source considered repossession, the machi nery had depreciated to the point where repossessing it would have cost more th an the machine was worth. Regarding valuation of loss, § 2F1.1 refers sentenc ing courts to § 2B1.1, which instructs that “loss need not be determined w ith precision. The court need only make a reasonable estimate of the loss, given the available information.”-12-

USSG § 2F1.1, comment. (n.7); § 2B1.1 comment. (n.3 ). Although loss should be reduced by the amount the victim has recovered or e xpects to recover, USSG § 2F1.1, comment. (n.7(a)), the government raised leg itimate questions concerning the value of any such offset in this case. The dis trict court’s loss calculation represents a reasonable resolution of these thorny factual issues, and we therefore affirm. Next, Pappert asserts that the district court erred in failing to subtract from the loss figure approximately one million dollars, which he paid back to two financing sources, Central National Bank (“CNB”) an d Master Lease. Pappert argues that the debts were overdue as a result of g enuine financial difficulties, unconnected to the course of conduct for which he w as convicted, and almost entirely paid off before his arrest. We disagree that Pappert’s overdue debts with CNB and Master Lease are not “relevant conduct” for sentencing purposes. Th e guidelines state that the offense level may be determined on the basis of con duct that is “part of the same course of conduct or common scheme or plan as the o ffense of conviction.” USSG § 1B1.3(a)(2). The “same course of conduct” m eans that the defendant repeated the same type of activity over time. The focus is on “whether defendant has engaged in an identifiable behavior pattern of specified criminal activity.” United States v. Roederer , 11 F.3d 973, 979 (10th Cir. 1993) (quotations omi tted).-13-

Pappert appears to have perpetrated the same fraudu lent acts against CNB and Master Lease as against other financing sources . His actions fit a clearly identifiable pattern: he went from one financing so urce to the next after using up his credit with each. This behavior was part of a single course of conduct. See id. We also reject the appellant’s claim that the money he repaid CNB and Master Lease under settlement agreements should hav e been deducted from the amount of loss. “Loss” is defined by the guideline s as “the value of the property taken, damaged, or destroyed.” USSG § 2B1.1, comme nt. (n.2). We have taken this to mean the “net value, not the gross value, o f what was taken.” United
States v. Gennuso , 967 F.2d 1460, 1462 (10th Cir. 1992) (quoting Uni ted States v. Smith , 951 F.2d 1164, 1167 (10th Cir. 1991)). The cases in which we have noted this distinction have calculated net loss by subtra cting the value of what was given to the victim(s) during the course of the tra nsactionfrom the value of what was fraudulently taken. See, e.g. , Smith , 951 F.2d at 1167 (subtracting security interest given in exchange for fraudulently attaine d loans); Gennuso , 967 F.2d at 1462 (subtracting value received from amount victim paid in a fraudulent marketing scheme); United States v. Reddeck , 22 F.3d 1504, 1513 (10th Cir. 1994) (remanding to district court to subtract valu e, if any, of education from tuition paid, where students were fraudulently info rmed about accreditation of2 Pappert relies on United States v. Gallegos , 975 F.2d. 710 (10th Cir. 1992)

for his assertion that the amounts repaid to his cr editors should be subtracted from the loss total. Gallegos does not support this position because the bank inthat case recovered some of its loss from third parties, not the defendant. Id. at 712. Moreover, we remanded only so that the district cou rt could clarify whether it was utilizing an actual or intended loss standard. Id. at 713; see also USSG § 2F1.1, comment. (n.7(b)) (courts must use intended loss wh en it is greater than actual loss). We did not hold that the guidelines require deduction of monies actually returned to the victims. -14- university). We have not required sentencing court s to deduct money subsequently returned to victims when calculating a mount of loss. United States
v. Kunzman , 54 F.3d 1522, 1532 (10th Cir. 1995). Here, the court found that Pappert repaid money he owed his creditors only “after [he] was caught in his criminal conduct.” P resentence Report at ¶ 71. Were we to hold that it was erroneous for the courtto sentence him based on reimbursed losses, we would enable defendants to buy a sentence reduction after being caught. The guidelines do not authorize such a principle, and we reject it. We do not allow defendants to barter prison time in exchange for restitution. 2
B Pappert also claims that the district court erred i n enhancing his sentence based on his abuse of a position of public or private trust under USSG § 3B1.3. He asserts that his dealings were arms-length comme rcial transactions that did not place him in a position of trust; and that even if he were considered to be in such a position, it did not make detection of his crimin al activity more difficult.-15-

Whether a defendant occupied a position of trust is a factual question that we review for clear error. United States v. Queen , 4 F.3d 925, 928 (10th Cir. 1993), cert. denied , 114 S. Ct. 1230 (1994). The guidelines provide the following commentary: “Public or private trust” refers to a position . . . characterized by professional or managerial discretion (i.e. , substantial discretionary judgment that is ordinarily given considerable defe rence). . . . For this enhancement to apply, the position of trust mu st have contributed in some significant way to facilitating the commission or concealment of the offense (e.g. , by making the detection of the offense or the defendant’s responsibility for the o ffense more difficult). Id. , comment. (n.1). As detailed in United States v. Koehn , 74 F.3d 199 (10th Cir. 1996), we have applied § 3B1.3 in two categories of cases: (1 ) where employees abuse their position within their own organization to take adva ntage of the employer, and (2) where someone uses a “fiduciary or personal trust r elationship” to perpetrate the charged offense against the beneficiary of the trus t. Id. at 201 (quoting United
States v. Brunson , 54 F.3d 673, 677 (10th Cir.), cert. denied , 116 S. Ct. 397 (1995)). With respect to the latter category, ther e is not a bright line between formal or informal fiduciary relationships, and run -of-the-mill commercial relationships. “[W]e must carefully distinguish be tween those arms-length commercial relationships where trust is created by the defendant’s personality or-16-

the victim’s credulity, and relationships in which the victim’s trust is based on defendant’s position in the transaction.” Id. This case does not involve a formal fiduciary relat ionship--Pappert was neither an attorney, an accountant or any other for mal trustee--but rather presents a situation in which the defendant created sufficie nt indicia of a position of trust that he should be treated as if he did occupy such a position. Queen , 4 F.3d at 929 n.3. In isolation, each one of his lease agree ments might appear to be a standard commercial transaction, executed at arm’s length. However, when Pappert’s acts are considered in the aggregate, it appears that he created a position of trust. Each time he offered to replace a customer’s equipment, he signed them to a new lease and convinced them that he would “pay off” their obligation on the prior lease(s). He often left cu stomers liable on several leases simultaneously. Meanwhile, he made enough payments to keep the financing sources from catching on--a realization which would not have satisfied at least some of the banks, because school districts (and no t copier salesmen) were considered good credit risks. Because the banks re mained ignorant, they did not notify the customers of their multiple liability. In this manner, by virtue of his role as the middleman between customer and financin g source, he gained a3 Defendant rightly points out that the sentencing co urt’s finding that Pappert

used his “special skills” to perpetrate the fraud i n this case is incorrect. Section 3B1.3 also provides for enhancement if the defendan t used a “special skill” requiring “substantial education, training or licen sing,” USSG § 3B1.3, but the “position of trust” is an entirely distinct ground for adjusting the sentence. The court found that Pappert created a position of trus t in the course of his dealings with his clients, which enabled him to commit diffi cult to detect wrongs, and on these grounds we affirm. -17- position of trust with respect to the customers that enabled him to conceal his fraud for long periods of time. 3
C Pappert also received an enhancement of his sentenc e based on § 2F1.1(b)(6), which increases the offense level by f our if the offense: (A) substantially jeopardized the safety and sound ness of a financial institution; or (B) affected a financial institution and the defend ant derived more than $1,000,000 in gross receipts from the offense. USSG § 2F1.1(b)(6). The district court found that Pappert’s conduct satisfied both (A) and (B). Pappert claims that the record does not contain suf ficient evidence to support a finding that his conduct satisfied (b)(6) (A). “Relevant conduct” for the purposes of sentencing includes conduct for which the defendant was not convicted, as long as such conduct is proven by a p reponderance of the evidence. Sapp , 53 F.3d at 1104. The guidelines explain that USS G § 2F1.1(b)(6)(A) is4 The parties also dispute whether (b)(6)(B) was sati sfied. Section 2F1.1 is

disjunctive; because (b)(6)(A) is satisfied we neednot address (b)(6)(B). -18- satisfied when, “as a consequence of the offense, t he institution became insolvent . . . or was placed in substantial jeopardy” of bec oming insolvent. USSG § 2F1.1, comment. (n.15). Here, defendant sold two forged l eases, through a broker, to Superior National Bank (“SNB”). The supposed lesse es, knowing nothing about the leases, refused payment. In addition, Pappert submitted ten other leases, several of which also went unpaid by the lessees. Regarding these, Pappert led the customers to think that he was assuming their d ebt; because he did not inform the bank that he was taking over payments, the bankwas unaware that he did so. A preponderance of the evidence supports finding th at as a consequence of the forged leases and the leases Pappert had secret ly taken over from his customers, the bank lost $578,556.23. The vice-pre sident of SNB testified that the bank’s closing was an “effect” of the losses, a nd that the losses were a “contributing factor” of the closing. Based on the amount of loss, Pappert’s role in the loss, the bank’s closing, and the bank offic ial’s testimony that the losses contributed to the closing, we conclude that the di strict court correctly enhanced Pappert’s sentence under (b)(6)(A). 4-19- D-20-

Finally, Pappert challenges the district court’s re stitution order. He claims that because the district court’s calculations of l oss were incorrect, and because the restitution order was based on these calculatio ns, the restitution total was also incorrect. Because we approve of both the districtcourt’s loss calculations, and the court’s determination of restitution based on t he loss totals listed in Government Exhibit 138, we conclude Pappert’s argum ent is meritless.
V The district court’s judgment is AFFIRMED.