Source: https://law.justia.com/cases/federal/appellate-courts/F2/954/928/128110/
Timestamp: 2020-05-29 16:45:03
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Matched Legal Cases: ['§ 3', '§ 2', '§ 2', '§ 1006', '§ 2', '§ 2', '§ 2', '§ 3', '§ 3', '§ 3', '§ 3', '§ 215', '§ 2', '§ 2', '§ 2', '§ 2', '§ 2', '§ 1344', '§ 2', '§ 1', '§ 2', '§ 3663', '§ 5', '§ 3664', '§ 3663', '§ 5', '§ 3', '§ 2', '§ 2', '§ 3553', '§ 3', '§ 2', '§ 5']

United States of America v. Ernest J. Badaracco, Jr., Appellant, 954 F.2d 928 (3d Cir. 1992) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1992 › United States of America v. Ernest J. Badaracco, Jr., Appellant
United States of America v. Ernest J. Badaracco, Jr., Appellant, 954 F.2d 928 (3d Cir. 1992)
US Court of Appeals for the Third Circuit - 954 F.2d 928 (3d Cir. 1992) Argued Oct. 15, 1991. Decided Jan. 24, 1992. As Amended Feb. 5, Feb. 24, and March 3, 1992. Rehearing and Rehearing En Banc Denied Feb. 19, 1992
We are asked to review the district court's application of the United States Sentencing Guidelines (U.S.S.G.) in (1) concluding that Badaracco was an "organizer" or "leader" for purposes of upward adjustment under U.S.S.G. § 3B1.1(c), (2) calculating Badaracco's base offense level under U.S.S.G. § 2F1.1(b), and (3) adjusting Badaracco's sentence upward under U.S.S.G. § 2F1.1(b) (2) based on the conclusion that the offense involved more than minimal planning. We are also asked to determine whether the government violated its promise under the plea agreement to stipulate that Badaracco's offense did not involve more than minimal planning, and whether the district court erred in ordering Badaracco to make restitution to the Elysian Savings Bank in the amount of $293,000.00. Finally, we consider Badaracco's claim that the district court threatened to retaliate against him at resentencing for taking an appeal to this court. Because Badaracco is currently serving his sentence we expedited the appeal to avoid mootness of any of the issues raised.
The Presentence Report prepared by the United States Probation Office under the Sentencing Guidelines calculated the base offense level for violations of 18 U.S.C. §§ 1006 and 2 at six, U.S.S.G. § 2F1.1(a); increased the offense level by eight, on the theory that the total loss attributable to Badaracco's actions was $293,000, U.S.S.G. § 2F1.1(b) (1) (I); increased the offense level by two because it involved more than minimal planning, U.S.S.G. § 2F1.1(b) (2); increased the offense level by two based on a finding that the defendant was an organizer or leader of the crime charged, U.S.S.G. § 3B1.1(c); and increased the offense level by two because of Badaracco's abuse of a position of trust, U.S.S.G. § 3B1.3. Badaracco also received a two-level reduction for his acceptance of responsibility. The probation office determined Badaracco's final offense level to be eighteen. Because Badaracco had no criminal history he was in Criminal History Category I, and faced a sentence of imprisonment in the range of 27 to 33 months.
When reviewing adjustments under the Sentencing Guidelines, we "exercise plenary review over legal questions about the meaning of the sentencing guidelines, but apply the deferential clearly erroneous standard to factual determinations underlying their application." United States v. Inigo, 925 F.2d 641, 658 (3d Cir. 1991). " [W]hether a defendant receives a reduced or increased offense level based on his role in the offense" is a factual determination reviewable under the clearly erroneous standard. United States v. Salmon, 944 F.2d 1106, 1126 (3d Cir. 1991).
Adjustment under U.S.S.G. §§ 3B1.1 and 3B1.2 is permissible only where there is more than one "participant" in the offense. See U.S.S.G., Ch. 3, Part B, Introductory Commentary (1990); United States v. Bierley, 922 F.2d 1061, 1064-66 (3d Cir. 1990). "Participant" is specifically defined in the Commentary to the Guidelines as "a person who is criminally responsible for the commission of the offense, but need not have been convicted." U.S.S.G. § 3B1.1 Commentary, Application Note 1.5
In Bierley, we were obliged to construe the meaning of the term "participant" in the context of section 3B1.2, which authorizes a downward adjustment for a defendant who played a mitigating role in the offense because s/he was either a "minimal participant" or a "minor participant." The only person with whom Bierley had dealt was an undercover government agent. Because the agent was obviously not "criminally responsible," we held that he was not a "participant," and that section 3B1.2 was accordingly inapplicable. Other courts have reached the same conclusion with respect to section 3B1.1(c), the provision at issue in this case. See, e.g., United States v. DeCicco, 899 F.2d 1531, 1535-36 (7th Cir. 1990); United States v. Carroll, 893 F.2d 1502, 1509 (6th Cir. 1990).
Badaracco argues that the sentencing court should not have increased his offense level under section 3B1.1(c) because he acted alone. The government initially shared this view, and stated in its letter responding to the Presentence Report that " [a]ll evidence in this case indicates that the defendant acted alone in the commission of his crimes. To charge defendant as an organizer, leader, manager, or supervisor would constitute a legal impossibility." App. at 28. The government changed its position at the sentencing hearing, when it argued that the developers, although not criminally responsible, were participants for purposes of section 3B1.1(c). The government now concedes that any alleged participants must be criminally responsible before the upward adjustment may be applied, and accordingly argues for the first time that the developers were criminally responsible.
The government must prove by a preponderance of the evidence that the developers were criminally responsible participants if the upward adjustment is to stand. See United States v. McDowell, 888 F.2d 285, 291 (3d Cir. 1989). Under the Guidelines, "the burden of ultimate persuasion should rest upon the party attempting to adjust the sentence. Thus, when the Government attempts to upwardly adjust the sentence, it must bear the burden of persuasion. This prevents the criminal defendant from having to 'prove the negative' in order to avoid a stiffer sentence." Id.
On the basis of the record before us, we conclude that the government has failed to carry its burden of showing that the developers were culpable. There is no evidence in the Presentence Report to suggest either that the developers knew that Badaracco had a personal interest in any of the three Badaracco companies, or that they knew he was concealing that interest from Elysian. Only by proving the existence of such knowledge could the government demonstrate that the developers had the "criminal state of mind" necessary to a conviction for aiding and abetting Badaracco's bank fraud. See United States v. Grasso, 356 F. Supp. 814, 819 (E.D. Pa.), aff'd mem., 485 F.2d 682 (3d Cir. 1973).
is guilty of bribery. 18 U.S.C.A. § 215 (West Supp.1991). The developers would be criminally responsible under section 215(a) (1) only if they were aware of Badaracco's interest in the three Badaracco companies. Otherwise, the developers could not have the intent required under section 215 to influence or reward Badaracco.
Under the Sentencing Guidelines, the base offense level for fraud is six, U.S.S.G. § 2F1.1(a) (1990), which must be increased according to the size of the loss attributed to the fraud. U.S.S.G. § 2F1.1(b). The district court set the loss attributable to Badaracco's fraud at $293,000, and accordingly added eight levels to the base offense level of six. See U.S.S.G. § 2F1.1(b) (1) (I). Badaracco argues that the court erred in using the $293,000 figure. Because Badaracco is challenging the district court's interpretation of the "loss" concept in section 2F1.1(b), our review is plenary. See Bierley, 922 F.2d at 1064.
The district court calculated the "loss" caused by Badaracco's fraud by adding together the amounts of the three electrical contracts awarded to the Badaracco family companies by the three developers: the Crystal Condos contract ($78,300);6 the Adams Street Contract ($175,000); and the Fourteenth Street contract ($40,000). Thus, the $293,000 was based on Badaracco's gain rather than on Elysian's loss. The district court apparently relied on the guideline commentary which states: " [t]he offender's gross gain from committing the fraud is an alternative estimate that ordinarily will understate the loss." U.S.S.G. § 2F1.1 Commentary, Application Note 8 (1990).
Badaracco did not challenge the use of a gain measure to calculate loss. Instead, citing United States v. Schneider, 930 F.2d 555 (7th Cir. 1991),7 he argued that the loss attributed to his actions should be based on the "value of the benefit received,"8 i.e., the net profit earned by the companies on the three contracts. Under Badaracco's net gain theory, the loss attributable to his fraud would be some fraction ($10,320, according to Badaracco) of $293,000. Accordingly, the proper increase under section 2F1.1(b) would be three, rather than eight, levels. The district court declined to follow Schneider and rejected the net profit calculation as a "false standard." App. at 68.
After we heard argument in this case, another panel of this court decided United States v. Kopp, 951 F.2d 521 (3d Cir. 1991), which also analyzes the loss calculation under U.S.S.G. § 2F1.1(b) (1990). In Kopp, defendant, a real estate developer, pleaded guilty to procuring a $13.75 million bank loan by fraudulent misrepresentation in violation of 18 U.S.C. § 1344 (1988) (subsequently amended). The bank calculated its actual loss to be $3.4 million. The district court, however, decided that for purposes of section 2F1.1(b) the amount of loss was the full $13.75 million face value of the loan regardless of the actual loss sustained by the bank.
This court recognized that there was a division in relevant case authority regarding the proper loss calculation under section 2F1.1(b), decided that the logic of Schneider, 930 F.2d at 555, and United States v. Hughes, 775 F. Supp. 348 (E.D. Cal. July 10, 1991), was "compelling," and thus adopted the general principle "that fraud 'loss' is, in the first instance, the amount of money the victim has actually lost (estimated at the time of sentencing)." Kopp, 951 F.2d at 536. This figure should be revised upward to the "intended or probable loss if either amount [is] higher and determinable." Kopp, 951 F.2d at 523.
We conclude that the district court's use of the $293,000 value of the electrical contracts as the gross gain to measure loss was both reasonable and in keeping with the applicable provisions of the Sentencing Guidelines. Accordingly, we affirm that portion of the district court's judgment increasing Badaracco's base offense level by eight under section 2F1.1(b) (1) (I).
The district court increased Badaracco's base offense level by two on the basis of a probation department finding that Badaracco's offense involved "more than minimal planning." U.S.S.G. § 2F1.1(b) (2). Badaracco argues that this two-level upward adjustment should be reversed because the government violated that portion of the plea agreement stipulating that "the defendant's conduct did not involve more than minimal planning," App. at 26. He points to the following oral statement made by the attorney for the government at Badaracco's sentencing hearing:
"Whether the government's conduct violates the terms of the plea agreement is a question of law and our review is plenary." United States v. Moscahlaidis, 868 F.2d 1357, 1360 (3d Cir. 1989). The principles governing the government's obligation to honor the terms of a plea agreement are well-settled.
The Supreme Court, in Santobello [v. New York], 404 U.S. 257 [92 S. Ct. 495, 30 L. Ed. 2d 427] [ (1971) ], held that when a prosecutor makes a promise in a plea agreement, he must keep that promise. The Court stated that there must be "fairness in securing agreement between an accused and a prosector." Santobello, 404 U.S. at 261 [92 S. Ct. at 498]. In this circuit, "the government must adhere strictly to the terms of the bargain [s] it strikes with defendants." United States v. Miller, 565 F.2d 1273, 1274 (3d Cir. 1977) [,cert. denied, 436 U.S. 959, 98 S. Ct. 3076, 57 L. Ed. 2d 1125 (1978) ]....
Although a plea agreement occurs in a criminal context, it remains contractual in nature and is to be analyzed under contract-law standards.... Courts should consider not only contract principles but also ensure that the plea bargaining process is "attended by safeguards to insure the defendant [receives] what is reasonably due in the circumstances." Santobello, 404 U.S. at 262 [92 S. Ct. at 499]. ... Thus, the government cannot resort to a rigidly literal approach in the construction of language. United States v. Crusco, 536 F.2d 21 (3d Cir. 1976)....
Id. at 1361 (citations and footnote omitted). "In determining whether the terms of a plea agreement have been violated, [the] court must determine whether the government's conduct is inconsistent with what was reasonably understood by the defendant when entering the plea of guilty." United States v. Nelson, 837 F.2d 1519, 1521-22 (11th Cir.), cert. denied, 488 U.S. 829, 109 S. Ct. 82, 102 L. Ed. 2d 58 (1988). "However, cases of disappointed but unfounded expectations must be carefully distinguished from those in which the defendant's expectations as to his sentence are predicated upon promises by the Government or statements from the court." Crusco, 536 F.2d at 24.
In Moscahlaidis, the defendant was convicted of crimes arising out of a conspiracy to import contaminated cheese into the United States. The government agreed not to "take a position relative to whether or not a custodial sentence shall be imposed on John Moscahlaidis." 868 F.2d at 1358. In the sentencing memorandum submitted to the court, the government referred to "Moscahlaidis' greed and moral bankruptcy," and opined that "Moscahlaidis cannot maintain even the air of irreproachable virtue with any degree of legitimacy," that he "is not just a white-collar criminal," and that " [t]his demonic pursuit demonstrates Moscahlaidis' utter contempt for the welfare of his fellow man." Id. at 1359. This court concluded that the government's statements were " 'a transparent effort to influence the severity' of Moscahlaidis' sentence," and thus constituted a breach of the plea agreement. Id. at 1362 (quoting Crusco, 536 F.2d at 26); see also Crusco, 536 F.2d at 26 (government's characterization of defendant as "a major figure in organized crime who would endanger the community if he were on the streets" violated government's promise to take no position on sentencing).
The government contends that " [t]he instant agreement simply obligated [it] to recommend that no adjustment be made for more than minimal planning" and that it honored that agreement, Appellee's Brief at 26; that it did not characterize Badaracco's concealment of his scheme from Elysian as a "significant affirmative step" and therefore did not suggest to the district court that Badaracco had engaged in more than minimal planning, see U.S.S.G. § 1B1.1 Commentary, Application Note 1(f) ("more than minimal planning" exists when "significant affirmative steps [are] taken to conceal the offense" (emphasis added)); that the challenged statement was permissible because the government had expressly reserved its right to inform the sentencing judge of the "nature and extent" of Badaracco's activities and relevant conduct with respect to this case; and that it "could not ignore direct evidence demonstrating that its stipulation was not appropriate. Thus, the prosecutor properly addressed this issue head-on by recognizing it and then attempting to diminishing [sic] its significance." Appellee's Brief at 27.
For this reason, the government's final argument, that it was "attempting to diminish [ ] the significance" of Badaracco's concealment, must also fail. However, there are more serious problems with this final argument. The government contends that it "could not ignore direct evidence demonstrating that its stipulation was not appropriate." The government errs. The government freely entered into the plea agreement with Badaracco and expressly agreed to the challenged stipulation. Badaracco relied on the government's promise to adhere to this stipulation in deciding to enter a plea of guilty and thus to forego his constitutional right to a trial by jury. The government was aware of Badaracco's concealment of his interests from Elysian when it entered into the plea agreement. Although the plea agreement authorized deviation based on after-acquired evidence, this was not such a situation. As is the case with any contract, the government is not free to breach its agreement with a defendant because it decides after the fact that it has made a bad bargain.
The government need not endorse the terms of its plea agreements "enthusiastically." United States v. Benchimol, 471 U.S. 453, 455, 105 S. Ct. 2103, 2105, 85 L. Ed. 2d 462 (1985). However, if the stipulation bargained for by Badaracco--and for which he "surrender [ed] ... certain constitutional rights including a meaningful restriction of his liberty"--is to mean anything, it must preclude remarks like the government made here. See United States v. Hayes, 946 F.2d 230, 233 (3d Cir. 1991). We cannot countenance such a blithe repudiation of the terms of a negotiated plea. "Santobello and its progeny proscribe not only explicit repudiation of the government's assurances, but must in the interests of fairness be read to forbid end-runs around them." United States v. Voccola, 600 F. Supp. 1534, 1537 (D.R.I. 1985).
We will therefore remand to the district court so that it can transfer this matter to another judge who will determine whether Badaracco's offense involved more than minimal planning within the meaning of U.S.S.G. § 2F1.1(b) (2) and will resentence Badaracco in accordance with that determination.
Generally, " [o]ur review of whether the district court incorrectly imposed an order of restitution is bifurcated: we exercise plenary review over whether the award is permitted under law but we review the particular award for abuse of discretion." United States v. Furst, 918 F.2d 400, 408 (3d Cir. 1990).
Orders of restitution are authorized by the Victim and Witness Protection Act of 1982 (VWPA), 18 U.S.C. § 3663(a) (1988); see also U.S.S.G. § 5E1.1 (1990). "Difficulties of measurement do not preclude the court from ordering a defendant to compensate the victim through some restitution." United States v. Hand, 863 F.2d 1100, 1104 (3d Cir. 1988). In this circuit, we require the district courts " 'to make specific findings as to the factual issues that are relevant to the application of the restitution provisions of the VWPA.' " Furst, 918 F.2d at 410 (quoting United States v. Palma, 760 F.2d 475, 480 (3d Cir. 1985)).
The United States Supreme Court has recently held that the VWPA "authorize [s] an award of restitution only for the loss caused by the specific conduct that is the basis of the offense of conviction." Hughey v. United States, 495 U.S. 411, 413, 110 S. Ct. 1979, 1981, 109 L. Ed. 2d 408 (1990). Thus, where, as here, a defendant is charged in a multi-count indictment, any award of restitution must be based on losses to the victim that were caused by the counts of which the defendant was convicted or to which he pled guilty.15
As an initial matter, we note that the district court did not, as required by Furst and Palma, "explain [ ] how the amount of ... restitution imposed was related to any loss caused by the conduct underlying the ... offenses" to which Badaracco pleaded guilty. Furst, 918 F.2d at 410. This alone would require a remand to require the district court to set forth specific findings showing the causal connection between any amount of restitution imposed and the crimes to which Badaracco pleaded guilty.
The statute provides that " [a]ny dispute as to the proper amount or type of restitution shall be resolved by the court by the preponderance of the evidence. The burden of demonstrating the amount of the loss sustained by a victim as a result of the offense shall be on the attorney for the Government." 18 U.S.C. § 3664(d) (1988).17
We note that the Presentence Report states that some or all of the loans at issue in this case are in the process of foreclosure. Three developers have filed suit against Badaracco, Elysian, and its board of directors to prevent foreclosure of their construction loans. Presentence Report p 106. The statute precludes restitution for losses "for which the victim has received or is to receive compensation." See 18 U.S.C. § 3663(e) (1) (1988); Palma, 760 F.2d at 480.
Finally, we address briefly Badaracco's claim that the district court threatened to retaliate against him at resentencing for taking an appeal to this court. The statement to which Badaracco alludes was made in the context of Badaracco's request for bail, and referred to the court's grant of a six-month downward departure pursuant to U.S.S.G. § 5K1.1 for cooperating with the government. It is plainly premature for us to consider action that the district court has not yet taken. It appears to us that Badaracco is asking us to issue an advisory opinion, "a practice greatly disfavored by us." Callwood v. Questel, 883 F.2d 272, 275 (3d Cir. 1989) (per curiam); accord United States v. Berkery, 889 F.2d 1281, 1283 n. 2 (3d Cir. 1989). We are confident that the district court would not intentionally take any action that would violate the holding of North Carolina v. Pearce, 395 U.S. 711, 89 S. Ct. 2072, 23 L. Ed. 2d 656 (1969), upon which Badaracco relies. By so stating we do not suggest that denial of the downward departure upon remand would necessarily implicate Pearce. We simply do not reach Badaracco's vindictiveness claim.
As set forth above, we hold that the district court erred in concluding that U.S.S.G. § 3B1.1(c) provides a basis for a two level upward adjustment based on Badaracco's role in the offense. We affirm the district court's judgment increasing Badaracco's base offense level by eight under U.S.S.G. § 2F1.1(b). Because we hold that the government breached its plea agreement with Badaracco, we will remand so that a different district judge can resentence Badaracco after making the determination whether Badaracco's offense "involved more than minimal planning" pursuant to U.S.S.G. § 2F1.1(b) (2). Depending on the court's resolution of the minimal planning issue, Badaracco's total offense level will be either fourteen or sixteen. Because his Criminal History Category is I, the guideline sentencing range will be either between 15 and 21 months or between 21 and 27 months, subject to the possibility of a six-month downward departure for cooperation with the government.18 Finally, we will vacate the district court's order of restitution and remand to the district court for recalculation of restitution in line with this opinion. The mandate shall issue forthwith.
An analogous situation was described in United States v. Schneider, 930 F.2d 555 (7th Cir. 1991), where the issue was the loss to the victim caused by fraudulent procurement of a contract. The Court rejected the government's contention that the loss was the full amount of the contract in circumstances where the defendant had intended to perform the construction. The Court found the proposition "irrational" in that it would result in the same penalty as one assessed against a "con artist" who had intended to take the full amount set out in the contract, but never perform it. Id. at 558.
Although Schneider discussed loss to the victim and the issue here is benefit to the wrongdoer, the two situations are but different sides of the same coin. I would adopt the rationale of Schneider which we recently approved in United States v. Kopp, 951 F.2d 521 (3d Cir. 1991); see also United States v. Smith, 951 F.2d 1164, 1167 (10th Cir. 1991) (" [I]t is a net value that must be used to measure loss. Any other approach ignores reality.").
I agree with the majority that the matter of restitution must be reconsidered by the district court. This is in the nature of a civil remedy to make the victim whole for the loss actually incurred or expected to be incurred as a result of the wrongful conduct. Consequently, there must be a nexus established between the criminal act and the loss. The victim is entitled to reimbursement, but not a windfall. To compensate the bank here for losses caused by the deteriorated real estate market on the fortuity that the defendant's illegal acts occurred at approximately the same time could not be justified as restitution. See, e.g., United States v. Tyler, 767 F.2d 1350, 1351 (9th Cir. 1985) (" [R]estitution is proper only for losses directly resulting from the defendant's offense.") (emphasis in original).
The government acknowledged that the bank was aware that the Badaracco companies were the beneficiaries of work related to the construction loans. The defendant's crime was that he had assured the bank that he did not have an interest in any of these companies. Nothing in the record indicates that the loans would not have been approved had the defendant disclosed his ties to the family business. See generally Hughey v. United States, 495 U.S. 411, 110 S. Ct. 1979, 109 L. Ed. 2d 408 (1990).
Badaracco was sentenced on June 11, 1991. As required by the statute, 18 U.S.C. § 3553(a) (4)-(5) (1988), the district court applied the guidelines in effect at the time of sentencing, not the time of the crime. Unless otherwise indicated, all references to the Sentencing Guidelines in this opinion will be to those in effect at the time of sentencing
In the 1991 amendments to the Sentencing Guidelines, the following sentence was added to the end of Application Note 1: "A person who is not criminally responsible for the commission of the offense (e.g., an undercover law enforcement officer) is not a participant." U.S.S.G. § 3B1.1 Commentary, Application Note 1 (1991). The Commission explains that: "This amendment clarifies the operation of this guideline in accord with the holding in United States v. Carroll, 893 F.2d 1502 (6th Cir. 1990)." U.S.S.G. appendix c at 240 p 414 (1991). "While not critical to our outcome, we point out that [the] proposed amendment ... supports our result.... Inasmuch as the amendment to the guideline is intended to clarify the existing guideline, we may give it substantial weight in determining the meaning of the existing guideline." United States v. Ofchinick, 877 F.2d 251, 257 n. 9 (3d Cir. 1989) (citation omitted)
In Schneider, where the court distinguished between fraud and theft, the court suggested that when a fraud is committed "in order to obtain a contract that the defendant might otherwise not obtain, but he means to perform the contract," the appropriate loss calculation under section 2F1.1(b) is the defendant's net profit, i.e., the contract price minus costs. 930 F.2d at 558. Badaracco argued that he (like the defendants in Schneider) was guilty of this type of fraud only, as distinguished from the fraud perpetrated by a "con artist" who "means to pocket the entire contract price without rendering any service in return." Id
Because we reverse the two-level enhancement under U.S.S.G. § 2F1.1(b) (2) on the basis of the government's violation of the plea agreement, we need not consider the propriety of the adjustment as a substantive matter
We reject Badaracco's argument that because " [i]t is not an element of [bank fraud] that the defendant caused a loss to the banking institution," appellant's brief at 22, there can be no restitution to the victim. Badaracco offers no support for his argument that restitution is not appropriate if the "gravamen" of a particular offense is the defendant's gain rather than the victim's loss. It is plain to us that restitution can be awarded whenever the offense of conviction causes a loss to the victim as a matter of fact irrespective of the theoretical "gravamen" of the offense of conviction
In order to determine the appropriateness and amount of a restitution award, " [t]he sentencing judge may base findings on the presentence report or other testimony or evidence." U.S.S.G. § 5E1.1, Commentary, Background p 4 (1990)