Opinion ID: 4315140
Heading Depth: 2
Heading Rank: 2

Heading: Subtracting Collateral Value from Loss

Text: When we review a sentence, we must ensure that it is procedurally sound and substantively reasonable. United States v. Dávila-González, 595 F.3d 42, 47 (1st Cir. 2010). Procedural 14Finding waiver in this case is also warranted because the issue usually must be highly convincing. Sindi, 896 F.3d at 28. Here, because Mayendía failed to marshal any specific countervailing facts, before the district court or this court, to undercut the PSR's reliance on the indictment, the argument he asks us to consider is not even remotely convincing. See United States v. Cox, 851 F.3d 113, 121-24 (1st Cir. 2017) (affirming finding that uncharged conduct was part of a common course of conduct, scheme, or plan in light of the defendant's generalized objections at sentencing and failure to marshal any specific evidence that would create a genuine issue of fact). - 13 - reasonableness includes under its umbrella failing to calculate (or improperly calculating) the Guidelines range, treating the Guidelines as mandatory, failing to consider the 18 U.S.C. § 3553(a) factors, selecting a sentence based on clearly erroneous facts, or failing to adequately explain the chosen sentence.” United States v. Stone, 575 F.3d 83, 89 (1st Cir. 2009). Though Mayendía's argument here invokes a broader question of legal interpretation of the guidelines, fundamentally, his argument concerning the district court's failure to subtract the value of collateral from the loss amount sounds in procedural reasonableness because it is fundamentally an allegation of incorrect guidelines calculation. Normally, prototypical question[s] of legal interpretation, such as the district court's loss-calculation methodology, are reviewed de novo. Cox, 851 F.3d at 124-25 (defining loss-calculation methodology as a prototypical question of legal interpretation); see United States v. Foley, 783 F.3d 7, 23 (1st Cir. 2015) (distinguishing the district court's calculation methodology from its mathematical application of this methodology to conclude same); United States v. Walker, 234 F.3d 780, 783 (1st Cir. 2000) (same). However, unlike the effort he made below to convince the district court to reject Counts One and Three as relevant conduct, Mayendía was as - 14 - silent as a neat's tongue dried15 with respect to either the PSR or the district court's failure to subtract the value of the properties from the loss. Because Mayendía fail[ed] to make a timely assertion of a right we find that he forfeited this argument.16 Rodriguez, 311 F.3d at 437. Accordingly, we review the district court's failure to subtract collateral property value from the loss for plain error. Under plain error review, Mayendía must show (1) that an error occurred (2) which was clear or obvious and which not only (3) affected the defendant's substantial rights, but also (4) seriously impaired the fairness, integrity, or public reputation of judicial proceedings. United States v. Marchena-Silvestre, 15William Shakespeare, The Merchant of Venice act 1, sc. 1. 16 In addition to forfeiture, the government argues that Mayendía waived this argument by conceding in the plea agreement and at the sentencing hearing that the loss related to Count Two could be as high as $140,000, the loan amount from Count Two, because the PSR clearly used the down payments and, on a per-count basis, its calculation satisfied this condition. Even considering Mayendía's failure to object to the PSR in a favorable light, the PSR put Mayendía on notice that use of the down payments was a possible (and recommended) basis for the loss calculation. At a minimum a defendant is expected to offer any objections, including objections to material information, sentencing guideline ranges, and policy statements contained in or omitted from the [PSR] within 14 days of receiving it. Fed. R. Crim. P. 32(f)(1) (emphasis added). Given the clear failure to object below, we need not determine whether Mayendía waived, rather than merely forfeited, this argument. Furthermore, as we explain, even when we apply the more defendant-friendly standard of plain error and review the merits of Mayendía's argument, he fails to demonstrate any error showing prejudice or harm. - 15 - 802 F.3d 196, 200 (1st Cir. 2015) (quoting United States v. Duarte, 246 F.3d 56, 60 (1st Cir. 2001)). After reviewing the record, we espy no plain error.
Before we begin our analysis, a loss calculation soliloquy should help us approach this issue trippingly on the tongue.17 Guidelines calculations for crimes including false statements on a mortgage loan application are ratcheted up according to, among other factors not relevant in Mayendía's case, the monetary loss attributable to the defendant's crime. U.S.S.G. § 2B1.1(b)(1). Loss can take one of two forms: actual loss or intended loss, and must be the larger of the two in each case. U.S.S.G. § 2B1.1 app. n.3(A).18 Actual loss, our relevant category here, is the reasonably foreseeable pecuniary harm that resulted from the offense. U.S.S.G. § 2B1.1 app. n.3(A)(i). Reasonably foreseeable pecuniary harm includes pecuniary harm that the defendant knew, or, under the circumstances, reasonably should have known, was a potential result of the offense. U.S.S.G. § 2B1.1 app. n.3(A)(iv). 17See William Shakespeare, Hamlet act 2, sc. 2. 18 Though not relevant in Mayendía's case, we note that in addition if either of these two loss pathways are too difficult to traverse, the district court can determine the gain that resulted from the offense as an alternatie measure of loss. U.S.S.G. § 2B1.1 app. n.3(B). - 16 - The guidelines provide the district court with broad discretion to determine this number. The district court need only make a reasonable estimate of the loss. U.S.S.G. § 2B1.1 app. n.3(C). Furthermore, the guidelines note that [t]he sentencing judge is in a unique position to assess the evidence and estimate the loss based on that evidence and thus is entitled to appropriate deference. Id. And when making that estimate, it need only be based on available information, taking into account, as appropriate and practicable under the circumstances, numerous specific and general factors, including the fair market value of the relevant property. Id. Fundamentally, loss calculations must reflect the seriousness of the crime and the relative culpability of the offender. United States v. Alphas, 785 F.3d 775, 783 (1st Cir. 2015). But, in seeming tension with section 2B1.1's general objective of achieving a reasonable estimate under the particular circumstances of the case, the district court's approach is cabined by a number of specific exceptions and inclusions it should consider when constructing its calculation methodology. One of those considerations, central to Mayendía's appeal, is application note 3(E), which says that [l]oss shall be reduced by, U.S.S.G. § 2B1.1 app. n.3(E) (emphasis added), among other things: [in] the case of a fraud involving a mortgage loan, if the collateral has not been disposed of by the time of sentencing, us[ing] the fair - 17 - market value of the collateral as of the date on which the guilt of the defendant has been established, whether by guilty plea, trial, or plea of nolo contendere. In such a case, there shall be a rebuttable presumption that the most recent tax assessment value of the collateral is a reasonable estimate of the fair market value. U.S.S.G. § 2B1.1 app. n.3(E)(iii) (application note 3(E)(iii)). Mayendía is not the first defendant in our circuit to require a district court to do the math of mortgages. In a prior case affirming a district court's methodology to calculate loss from a crime subject to U.S.S.G. § 2B1.1 involving a mortgage loan and a serial mortgage fraudster who used straw purchasers to flip properties, we held that actual loss usually can be calculated by subtracting the value of the collateral -— or, if the lender has foreclosed on and sold the collateral, the amount of the sales price -— from the amount of the outstanding balance on the loan. United States v. Appolon, 695 F.3d 44, 67 (1st Cir. 2012). After Appolon, we affirmed the application of this formula by other district courts. See Cox, 851 F.3d at 124-25; Foley, 783 F.3d at 23-24 (affirming use of mortgage principal as baseline for actual loss where omissions about down payments implie[d] Foley's awareness that the lenders would not have advanced the funds to borrowers with no skin in the proverbial game who presented a greater risk of default). - 18 - The preference for this loan amount minus fair market value of collateral methodology makes a great deal of sense. When a bank is the victim of a false statement or fraud related to a mortgage loan, the bank has been induced to issue a loan it would not otherwise have issued, and thus has lost the value of the loan minus whatever it can recoup from the sale of the collateral, or has already recovered through reduction of the loan principal. See, e.g., Foley, 783 F.3d at 23-25 (discussing how, under the Appolon approach, defendant could reduce actual loss by introducing actual figures for fair market value of collateral and principal repayments). By contrast, down payments will often fail to accurately capture the victim-bank's loss. As a conceptual matter, because a down payment is never sent to the bank, but rather to the seller, its only value to the bank is as criteria to help in determining whether to issue a mortgage loan. See United States v. Brandon, 17 F.3d 409, 427 n.15 (1st Cir. 1994) (explaining that bank fraud statute was satisfied because defendants' down payment scheme victimized [the bank] because it devalued the mortgages that the bank was providing, and had the bank known that no down payments had been made, the bank would have refused to provide those mortgages). And as a practical matter, at least in cases analogous to Appolon or its progeny where application note 3(E)(iii) is applicable, because the down payment is a static number, and fails - 19 - to accurately capture the particular market and fact-based circumstances that might mitigate or aggravate a bank's losses, such as a fluctuation in housing prices or loan principal repayments, the district court's decision to adopt one approach over the other can have material effects on the guideline range.19 For these reasons, absent some rationale by the district court supported by factual or evidentiary circumstances in a particular case involving a mortgage loan, using down payments as the lodestar 19 We explain by way of an example and, apologizing in advance, some judicial arithmetic. Take Count Two, the count of conviction. As we described before, Mayendía admitted in pleading guilty to Count Two that his father received a mortgage for $140,000, having stated to the bank that he had made a $46,481.60 down payment on that property. According to data from the Federal Housing Finance Agency, we can estimate that from the time Mayendía's father executed the mortgage related to Count Two (4Q 2008) and when he pled guilty (3Q 2016), housing prices in Puerto Rico fell by approximately 13.47%. See Federal Housing Finance Agency, AllTransactions House Price Index for P.R., available at www.fhfa.gov/DataTools/Downloads/Documents/HPI/HPI_AT_pr.xls. Based on an approximate total cost for the property of $175,000 when it was purchased in 2008, we estimate that the value of the property when Mayendía pled guilty in 2016 was about $151,427. Other sources have estimated a 44.5% drop in Puerto Rico housing prices since 2010. See Zillow, Puerto Rico Home Prices & Values January 2010-April 2018, available at www.zillow.com/pr/homevalues/. This sharper downturn in prices would result in an approximate value of $97,125. Thus, depending on the bank's actual posture given market fluctuations, a loan-amount-based approach that considers value of the collateral would result in an offenselevel increase of between zero and six levels, adjusting depending on how much value the bank can recoup from foreclosure sale, see U.S.S.G. § 2B1.1(b)(1)(A), (D); while on the other hand, the downpayment-based approach results in a static six-level increase, even if the bank has lost no money, or has even turned a profit from the foreclosure. See U.S.S.G. § 2B1.1(b)(1)(D). - 20 - for the calculation of actual loss runs the risk of failing to reasonably estimate the loss. Marry, this is the short and the long of it.20 We now turn to the particulars of Mayendía's appeal.
Mayendía argues that the district court committed plain error by not applying application note 3(E)(iii) to subtract the fair market value of the properties related to Counts One, Two, and Three from the actual loss. Mayendía's argument begins and ends with the word shall in application note 3(E)(iii). To hear Mayendía's side, application note 3(E)(iii) mandates that loss from a crime involving a mortgage loan must be reduced by the value of the undisposed collateral--no ifs, ands, or buts. Taking to heart the maxim that [t]he simplest way to decide a case is often the best, Stor/Gard, Inc. v. Strathmore Ins. Co., 717 F.3d 242, 248 (1st Cir. 2013) (quoting Chambers v. Bowersox, 157 F.3d 560, 564 n.4 (8th Cir. 1998)), we assume for the purposes of this case that, given the plain meaning of the text and the problems with a down-payment-based approach as explained above, the district court committed a clear or obvious error by failing to heed application note 3(E)(iii), especially in the absence of a persuasive reason in the record for finding that the down payments were an 20 William Shakespeare, The Merry Wives of Windsor act 2, sc. 2. - 21 - alternative reasonable estimate of the loss, and jump to the question of Mayendía's substantial rights, i.e., whether the error prejudiced him. Setting the attractions of his appeal's good parts aside, Mayendía has not carried his burden on this issue.21 As we mentioned before, the clear or obvious error must have affected the defendant's substantial rights to satisfy plain error review. An error affects the defendant's substantial rights when in the ordinary case [] he or she [can] 'show a reasonable probability that, but for the error,' the outcome of the proceeding would have been different. Molina-Martinez v. United States, 136 S. Ct. 1338, 1343 (2016) (quoting United States v. Dominguez Benitez, 542 U.S. 74, 76, 82 (2004)). In Molina-Martinez, the Supreme Court held that a defendant can satisfy this burden by pointing to the application of an incorrect, higher Guidelines range and the sentence he received thereunder. Molina-Martinez, 136 S. Ct. at 1347. Since Molina-Martinez, the Supreme Court has made clear the importance of the particularity of the showing a defendant must make under the substantial-rights prong of plain-error review. In the Court's recent decision in Rosales-Mireles v. United States, 138 S. Ct. 1897 (2018), the defendant identified for the first time on appeal that his PSR had mistakenly double- 21 See William Shakespeare, The Merry Wives of Windsor act 2, sc. 2. - 22 - counted a prior conviction, and that the mistake resulted in a change to his criminal history category that increased his guidelines range from 70-87 months to 77-96 months. Id. at 1905. The Court confirmed that showing an error resulting in a higher range than the Guidelines provide usually establishes a reasonable probability that the defendant will serve a harsher sentence, affecting his substantial rights. Id. at 1907. The Court then concluded that, in the case of a defendant who has made that showing of prejudice, [i]n the ordinary case . . . the failure to correct a plain Guidelines error that affects a defendant's substantial rights will seriously affect the fairness, integrity, and public reputation of judicial proceedings. Id. at 1911. In other words, the Supreme Court has said, and reaffirmed recently, that when appealing a guidelines calculation error under plain error review, a defendant-appellant must show that the error he has meritoriously identified, rather than some other issue in the case, satisfies the substantial rights prong. In this case, where the relevant error affecting the guideline range was the failure to subtract the fair market value of the collateral as a part of the loss calculation, Mayendía must point to facts that, had the court considered them below or were the court to consider them on remand, would allow the court to reach a specific lower (and correct) guidelines range. Mayendía has not done that. - 23 - Across all of his briefing, and reinforced at oral argument, Mayendía focuses on the fact that failure to consider the fair market value of the collateral was error, but does not advance any argument that if that error were cured, he would be entitled to a lower applicable guideline range. As application note 3(E)(iii) itself points out, this could be done with as little evidence as the most recent tax assessment value of the collateral, which creates a rebuttable presumption that the tax assessment value is a reasonable estimate of the fair market value. U.S.S.G. § 2B1.1, app. n.3(E)(iii). Though it is his burden to demonstrate plain error here, Mayendía does not proffer the tax assessments of the properties, nor does he point to any other number in the record relevant to the subtraction of the fair market value of collateral, much less an alternative proposed loss quantity, that would allow us to find that his substantial rights were affected. See Foley, 783 F.3d at 25 (rejecting defendant’s argument as no more than mere speculation because he offer[ed] no figure to show that these [loan principal] repayments . . . bring[] him into a lower Guidelines range[]). By not doing so, Mayendía has failed to articulate an argument about any applicable . . . Guidelines range much less an incorrect, higher one. Molina-Martinez, 136 S. Ct. at 1346. The only number Mayendía does identify to support his argument that his substantial rights were affected by the district - 24 - court's error is $140,000--the loan amount from Count Two. In his plea agreement, Mayendía stipulated with the government to a proposed loss of $95,000-$150,000 based on this amount. According to Mayendía, because it would have been within the district court's discretion to adopt the plea agreement's recommendation, and $140,000 is lower than the $409,129.97 loss amount the district court found, his burden is satisfied. Not so. The loss amount of $140,000 that Mayendía and the government jointly proposed in the plea agreement based only on Count Two does not mention the subtraction of collateral, the error Mayendía appeals here. Rather, the $140,000 amount would only be salient if Mayendía had persuasively argued that the district court had erred by considering Counts One and Three as related conduct when calculating the loss. As we explained above, he has waived this issue and thus did not. In other words, to endure the slings and arrows of plain error review,22 Mayendía must, and cannot, identify an applicable, correct, and lower actual loss calculation absent the clear or obvious error in his case.23 See MolinaMartinez, 136 S. Ct. at 1345-46. 22 William Shakespeare, Hamlet act 3 sc. 1. 23 To the extent Mayendía argues in the alternative that the fair market value of the collateral should have been subtracted from the down payments to satisfy application note 3(E)(iii), we take a brief detour here to explain the infirmity of that argument before the final curtain. As we explained in the primer, the district court's top-level objective when calculating loss is to - 25 - Though the better part of valor is discretion, the better part of substantial-rights analysis under plain error review is specificity.24 Falstaff would fail to satisfy plain error review, and so does Mayendía. Thus, even if the court erred, it did not do so plainly.