# United States Court of Appeals **For the Eighth Circuit**

___________________________ No. 11-3547

___________________________ United States of America

lllllllllllllllllllll Plaintiff - Appellant

v. Alexander Martinez, also known as Lex Martinez

lllllllllllllllllllll Defendant - Appellee

____________ Appeal from United States District Court for the Eastern District of Arkansas - Little Rock

____________ Submitted: June 13, 2012

Filed: August 31, 2012

____________ Before LOKEN and GRUENDER, Circuit Judges, and PERRY, 1 District Judge.

____________ GRUENDER, Circuit Judge.
A jury found Alexander Martinez guilty of conspiring to commit bank fraud in violation of 18 U.S.C. § 1349, committing bank fraud in violation of 18 U.S.C. § 1344, and making a false statement to a financial institution in violation of 18 U.S.C.

1 The Honorable Catherine D. Perry, Chief Judge, United States District Court for the Eastern District of Missouri, sitting by designation.§ 1014. The district court 2sentenced Martinez to twelve months and one day of imprisonment and did not order restitution. The Government now appeals the district court’s decisions to use Martinez’s gain, instead of the actual or intended loss, for purposes of calculating the advisory sent encing guidelines range and to not order Martinez to pay restitution. For the reasons that follow, we affirm.

I. BACKGROUND

Martinez was the chief financial o fficer and manager of the accounting department at Affiliated Foods Southwest, Inc. (“Affiliated”), a food distribution company. Affiliated had a multi-milli on dollar line of credit with U.S. Bank collateralized by Affiliated’s accounts receivable and inventory. U.S. Bank determined the amount that Affiliated c ould borrow based on the amount of eligible collateral Affiliated possessed. In 2008, Affiliated began struggling with cash-flow issues. In order for Affiliated to obtai n additional funds from U.S. Bank on the line of credit, Martinez used various nefarious methods to enhance th e apparent financial status of Affiliated. One such method was to instruct employees at subsidiaries of Affiliated to write checks to Affiliated even though the money paid to Affiliated by the subsidiaries would ultimately be provided by Affiliated. The Government characterizes this method of fraud as a check-kiting scheme.

At the time U.S. Bank discovered the fraud in February 2009, Affiliated owed U.S. Bank in excess of $55 million. U.S. Bank froze the line of credit temporarily to determine the actual status of the collateral. U.S. Bank then ente red into a forbearance agreement with Affiliated Foods under wh ich U.S. Bank continued to lend money but required Affiliated F oods to hire a “turnaround cons ultant.” During this period, Affiliated Foods continued to operate.

2 The Honorable Brian S. M iller, Chief Judge, United St ates District Court for the Eastern District of Arkansas.
-2-Affiliated eventually filed for bankrupt cy in May 2009, at which time it owed U.S. Bank a little over $28 million. Between that time and Martinez’s sentencing, U.S. Bank was able to recover from collate ral all but approximately $2.8 million of the principal it was owed by Affiliated. For sentencing purposes, the Presentence Investigation Report used the $2.8 million of unrecovered principal as the amount of loss for which Martinez was responsible. The Government argued, however, that Affiliated obtained approximately $11.6 million in extra loans from U.S. Bank as a result of Martinez’s fraudulent activity and th at this amount was the intended loss for which Martinez was responsible. In contrast, Martinez argued that U.S. Bank’s loss was not caused by his fraud and that, in any event, U.S. Bank had additional collateral available that he claimed was sufficien t to cover the $2.8 million in unrecovered principal. The district court concluded th at it did not have a r easonable basis on which to determine the actual or in tended loss. Therefore, for purposes of determining the advisory sentencing guidelines range, the district court used as an alternative loss measurement the gain to Martinez from his fraudulent activities—that is, the $48,000 in salary payments he received during the period of the scheme.

At sentencing, the Government also sought an order of restitution for the approximately $2.8 million of unrecovere d principal plus about $2.3 million in interest. Martinez argued that, because out standing collateral was sufficient to satisfy the amount Affiliated owed U.S. Bank, re stitution should not be awarded. The Government countered that U.S. Bank’s prior efforts to collect on various collateralized accounts receivable of Affiliate d had resulted in a recovery of only a portion of the amounts owed and that it ha d been unable to obtain any sizeable amount of funds from the remaining accounts in recent months. The district court, due to the complexity of determining the loss to U.S . Bank properly attributable to Martinez’s fraudulent behavior, declined to order any restitution.

On appeal, the Government argues th at $11.6 million is the proper loss amount for purposes of the sentencing guidelines or that, in the alternative, the court should

-3-use the outstanding $2.8 million of principa l as the loss amount. In addition, the Government contends that restitu tion should be awarded to U.S. Bank.

II. DISCUSSION

A. Amount of Loss

“We review a district court’s interp retation of the guidelines de novo and its loss calculation for clear error.” United States v. Mancini , 624 F.3d 879, 881 (8th Cir. 2010). “We will affirm the court’s loss de termination ‘unless it is not supported by substantial evidence, was based on an errone ous view of the law, or [we have] a firm conviction that there was a mistake af ter reviewing the entire record.’” Id. (alteration in original) (quoting United States v. Hodge , 588 F.3d 970, 973 (8th Cir. 2009)). “Because the damage wrought by fraud is sometimes difficult to calculate, a district court is charged only with reasonably es timating the loss using a preponderance of evidence standard.” United States v. Alexander , 679 F.3d 721, 731 (8th Cir. 2012) (quoting United States v. McKanry , 628 F.3d 1010, 1019 (8th Cir.), cert. denied , 563 U.S. ---, 131 S. Ct. 1837 (2011)).

The advisory sentencing guidelines provi de for the application of graduated offense levels based on the amount of loss involved in specified crimes. See U.S.S.G. § 2B1.1(b)(1). “Under the guidelines, the gene ral rule is that ‘loss is the greater of actual or intended loss.’” United States v. Mitchell , 608 F.3d 384, 387 (8th Cir. 2010) (quoting U.S.S.G. § 2B1.1 cmt. n.3(A)). A district “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.” U.S.S .G. § 2B1.1 cmt. n.3(B). The Government contends that the actual or intended loss was identifiable and that therefore the district court should not have used the gain to the defendant as an alternate measure of loss.

-4-It appears that the district court’s lo ss analysis focused on actual loss and that the district court concluded that it could not reasonably determine the amount of actual loss primarily because: (1) it was unsure if the loss to U.S. Bank resulted from Martinez’s actions and, altern atively, (2) it could not r easonably determine the value of the outstanding co llateral. We affirm based on the district court’s second alternative, as it applies to both actual and intended loss. See United States v. Staples , 410 F.3d 484, 491 (8th Cir. 2005) (“[S]entenci ng courts should subtract the value of the collateral from the intended loss am ount when the facts warrant it.”).

We first consider whether the value of the collateral pledged to U.S. Bank prior to the detection of the fraud is a proper consideration in determining actual or intended loss. The Government analogizes Martin ez’s conduct to a check-kiting scheme and argues, relying on United States v. Whitehead , 176 F.3d 1030 (8th Cir. 1999), that the amount of actual loss must be determined ba sed on the amount in float “at the time the check kiting scheme is disc overed, not at the time of sentencing,” rendering the existence of any collateral i rrelevant. 176 F.3d at 1042. Whitehead , however, does not stand for the proposition that collateral cannever be considered in determining the amount of loss in a check-kiting case; it i nvolved a voluntary promise of payment by the defendant after the scheme was discovered, rather than the presence of collateral that had been pledged prior to the sc heme’s discovery. Moreover, we believe Martinez’s fraud here is more akin to a sche me to inflate assets or income in a loan application to obtain a loan in an amount greater than that justified by the actual financial condition, rather than a traditional check-kiting scheme. See Alexander , 679 F.3d at 729-30 (“In mortgage fraud cases, we have previously approved loss amount determinations based on the difference be tween the unpaid principal balance of a mortgaged property and the subsequent sa le price of the property.”). Thus, we conclude that the district court did not err by taking into account the collateral available to U.S. Bank in deciding whethe r it reasonably could determine the amount of loss. See U.S.S.G. § 2B1.1 cmt. n.3(E)(ii) (stating that “[i]n a case involving collateral pledged or otherw ise provided by the defendant,” the amount of loss shall

-5-be reduced 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, the fair market value of the collateral at the time of sentencing ” (emphasis added)); United States v. Parish , 565 F.3d 528 (8th Cir. 2009) (“Pursuant to U.S.S.G. § 2B1.1, the equation used to calculate actual lo ss to the lenders is the amount of the fraudulently obtained mortgage loans minus any payments made on the loan principal and the value of the collateral at the time of sentencing.”); United States v. Oligmueller , 198 F.3d 669, 671 (8th Cir. 1999) (concluding, in a case in which the defendant secured a loan by misrepresenting the number of cattle heowned, that “in determining the amount of actual loss, a se ntencing court is not permitted to consider payments made to the bank after the fraud is discovered unless the payments are the result of the sale of pledged assets”).

Having concluded that the value of the collateral pledged to U.S. Bank prior to the detection of the fraud properly would beincluded in calculating actual or intended loss, we next consider whether the distri ct court could reasonably determine the fair market value of the outstanding collateral at the time of sentencing. The district court heard testimony relating to U.S. Bank’s effo rts to collect on Affiliated’s collateralized accounts receivable and the likelihood that U.S. Bank would be able to reduce or eliminate its loss through future collection e fforts. The Government failed, however, to provide a satisfactory basis for estimati ng the fair market value of the outstanding collateral. Although a U.S. Bank employee tes tified that recent collection efforts had become less fruitful, she provided no estimate of, or reasoned basis to determine, the amount of outstanding collateral that might be collected. We cannot say that the district court clearly erred in holding that it could not reasonabl y determine the fair market value of the out standing collateral. See United States v. Huber , 462 F.3d 945, 951 (8th Cir. 2006) (stating that “the distri ct court’s decision about whether the total amount of loss in the case was practicable to determine [for purposes of U.S.S.G. § 2S1.1(a)(1)] was a factual issue for the di strict court”). Because the district court was required to reduce the amount of actual or intended loss by the fair market value

-6-of the outstanding collateral, it could not reasonably de termine the loss under either of those methods. See U.S.S.G. § 2B1.1 cmt. n.3(B). Wetherefore affirm the district court’s decision to use Martinez’s gain for purposes of determining the advisory guidelines range. See id. 3

B. Restitution Award

We review a “district court’s decision to order restitution for abuse of discretion and its underlying fact determin ations for clear error.” United States v. Gregoire , 638 F.3d 962, 973 (8th Cir. 2011). “To the exte nt the district court interpreted the Mandatory Victims Restitution Act (MVRA) to determine its obligations in awarding restitution, we review thos e interpretations de novo.” United States v. Frazier , 651 F.3d 899, 903 (8th Cir. 2011). When applicable, the MVRA provides that “a sentencing court ‘shall order . . . the defendant [to] make restitution to the victim of the offense.’” Frazier , 651 F.3d at 903 (omission and alteration in original) (quoting 18 U.S.C. § 3663A(a)(1)). “While the amount of loss calculation looks to the greater of actual or intended loss, the amount of restitution under the MVRA ‘cannot exceed the actual, provable loss rea lized by the victims.’” Alexander , 679 F.3d at 731 (quoting Frazier , 651 F.3d at 905). “The governmentbears the burden of proving the amount of restitution based on a pr eponderance of the evidence.” Frazier , 651 F.3d at 903.

In declining to order restitution, the district court relied on a provision of the MVRA stating that mandatory restitution is not required for property offenses where the district court finds that “determining comp lex issues of fact related to the cause or amount of the victim’s losses would comp licate or prolong the sentencing process to

3 We also reject the Government’s additi onal arguments that, even if collateral is properly considered, Martinez’s scheme did not create any collateral and that Martinez should get no credit for th e collateral supplied by Affiliated.
-7-a degree that the need to provide restituti on to any victim is outweighed by the burden on the sentencing process.” 18 U.S.C. § 3663A (c)(3)(B). The district court invoked this exception due to the complexity of determining the amount of loss properly attributable to Martinez. The Government argues that the district court improperly relied on § 3663A(c)(3)(B).

We have stated in appl ying § 3663A(c)(3)(B) that “a burdensome, complicated, or speculative calculation provides a good r eason for the district court to decline to exercise its discretion.” See United States v. Oslund , 453 F.3d 1048, 1063 (8th Cir. 2006). The Second Circuit has explained that § 3663A(c)(3)(B) “reflects Congress’s intent that ‘sentencing courts not become embroiled in intricate issues of proof,’ and that the ‘process of determining an appropriate order of restitution be streamlined.’” United States v. Marino , 654 F.3d 310, 317 (2d Cir. 2011) (quoting United States v. Reifler , 446 F.3d 65, 136 (2d Cir. 2006)). Here, th e district court found that Affiliated was going out of business regardless of Martinez’s fraud and that U.S. Bank would have had the same difficulty recovering f unds lent to Affiliated absent the fraud. Indeed, the district court stated that, abse nt the fraud, “I’m not sure that [U.S. Bank] could have come out any better than they came out. It’s like [M artinez] almost kept the business going” with his scheme. The district court stated that it would be necessary to subpoena numerous additional witnesses in order to determine what amount of the unrecovered loan proceeds were attributable to the fraud. Given the district court’s concerns about the comple xity of determining the extent of loss properly attributable to Martinez’s scheme , we cannot say that the district court abused its discretion by declining to order restitution.

III. CONCLUSION

For the foregoing reasons, we affirm.

______________________________

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