Opinion ID: 743011
Heading Depth: 2
Heading Rank: 2

Heading: For Sentencing Purposes

Text: 56 Jacobs also objects to the use of the face value of the certified drafts in assessing intended loss under the Sentencing Guidelines § 2F1.1. 9 This issue is related to the risk of loss question discussed above, but presents somewhat different considerations. In addressing the sentencing problem, one must remain aware of what were the actual and intended objects of the fraud. The obvious, direct (and actual) victims were, and were intended to be, the debtors who bought the worthless drafts at about 15% of their face value. The losses suffered by these victims accrued directly to the pecuniary benefit of the conspirators. The subsequent phase of the fraud consisted of the debtors presenting the drafts to their banks in payment of their loans (in accordance with the instructions of the conspirators). As we have indicated in our discussion of statutory risk of loss, the underlying debts would not generally have been discharged upon receipt by the banks of the certified drafts but would have been discharged only if and when the drafts were paid. Since the drafts were never paid, no debts were ever discharged. If the debts had been discharged, any loss to the banks would have accrued to the pecuniary benefit of the debtors, not to the benefit of the conspirators. The task before us is to fit these and other facts into the provisions of the Guidelines measuring loss. 57 Jacobs argues that he consistently maintained his innocence and asserted his belief that the drafts would be honored. Therefore, he argues, he never intended any loss to the banks. This argument was rejected by the jury when it convicted him, and there is sufficient evidence to support this conclusion. The question then turns on whether the loss should be based on the actual loss suffered by Jacobs' customers (the individuals who purchased the drafts and attempted to use them in payment for their debts) or based on a possible and intended loss to the banks (as represented by the face value of the drafts). Jacobs further argues that the indictment did not charge him with seeking a face value loss to the banks, and that for sentencing purposes the loss must be limited to the value of lost interest (by the banks) and the money lost by the purchasers of the drafts. See Indictment, June 11, 1993. 58 We review legal interpretations of the Sentencing Guidelines construing the term loss de novo. United States v. Mucciante, 21 F.3d 1228, 1237 (2d Cir.1994). Factual findings supporting the district court's offense level calculation are reviewed under a clearly erroneous standard. Id. It is well established that loss need not be determined with precision. The court need only make a reasonable estimate of the loss, given the available information. U.S.S.G. § 2F1.1 comment. n.8; United States v. Stanley, 54 F.3d 103, 106 (2d Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 238, 133 L.Ed.2d 166 (1995). It is also accepted that loss may consist of probable or intended loss. U.S.S.G. § 2F1.1 comment. n.7; United States v. Gomez, 31 F.3d 28, 31 (2d Cir.1993). 59 The question what is the loss for sentencing purposes is highly fact-intensive, and the case law must be applied with caution. For example, [i]n applying this flexible, fact-driven concept of loss, we have thus held that in situations where value passes in only one direction ... the perpetrator's gain will normally reflect the victim's loss. United States v. Dickler, 64 F.3d 818, 825 (3d Cir.1995). We start with the fundamental dichotomy between actual and intended loss, and the prescription to take the higher of the two. See, e.g., United States v. Resurreccion, 978 F.2d 759, 762 (1st Cir.1992) (holding intended loss should be used in sentencing, even if imprecise, when larger figure than actual loss). In the present case, actual loss is, as noted, the total amount paid by the debtors for the worthless certified drafts plus all losses suffered by the banks in the temporary loss of use of their funds. This actual loss is limited from the outset and is also the limit of Jacobs' gain. Intended loss is a much more elusive concept. The relevant guideline, U.S.S.G. § 2F1.1, formerly referred to probable or intended loss, but the dropping of probable from the formula is presumably not significant. See United States v. Wimbish, 980 F.2d 312, 314-15 (5th Cir.1992). Probable seems still to be an appropriate standard because one is presumed to intend the natural and probable consequences of one's acts. See, e.g., Rankin v. Farmers Elevator Mutual Ins. Co., 393 F.2d 718, 720 (10th Cir.1968) (Persons are presumed to intend the natural and probable consequences of their acts.). In fact, this idea seems to be imbedded in the analysis, for example, of the loss caused by forged instruments. Here, intended loss seems presumptively to refer to losses that might naturally and probably flow from the fraud. 60 In any event, the concept underlying the distinction between actual and intended loss is that a defendant may have the goal of depriving the victim or victims of more than the constraints of the situation actually permit. The significance of the defendant's acts should be measured by his intentions. 10 See generally, U.S.S.G. § 2F1.1 comment. & background. For example, a perpetrator forged a check for $40,000, but was only able to get $20,000 from the victim who bought it. See U.S.S.G. § 2F1.1 comment. n.7. The actual loss is $20,000, but the intended loss is $40,000, and this determines the sentence. Perhaps the present case is that simple, but there are additional facts to be considered. In United States v. Agwu, 5 F.3d 614 (2d Cir.1993), the defendant forged Travelers Express money orders with imprinted values totaling $47,330, which he sold for $2,500. This circuit found that the imprinted (face) values were the proper measure of loss. Id. at 615. In Mucciante, 21 F.3d 1228, the defendant forged Australian government bonds, which he furnished to the victim in exchange for funds placed under the defendant's control. The district court calculated the loss on the basis of the funds placed under the defendant's control. An alternative calculation was based on the face value of the bonds, but, strictly speaking, this was unnecessary to support the sentence imposed. Id. at 1237. In neither Agwu nor Mucciante was there any apparent reason to believe that the instruments would not be negotiated or paid for at their face value, causing loss to someone in the amount of the face value. On the other hand, in the present case, the bank's position is initially established by a loan agreement with the debtor. It is unlikely that a bank would surrender its rights against the debtors until assured of the value of the certified draft. This sort of apparent restraint on loss did not exist in the same way in either Agwu or Mucciante. 61 In United States v. Joetzki, 952 F.2d 1090 (9th Cir.1991) (not a bank fraud case), the defendant wrote a number of checks against a brokerage cash management account that held no funds. One of these checks was for $5 million. The check made its way through banking channels but was not honored by the drawee brokerage house. The Ninth Circuit recognized the face value of the check as the proper measure of loss. Again there was nothing to show that the defendants did not intend that the check be honored at its face value. The court held that the government had the burden of showing that the defendant attempted to inflict the loss. Id. at 1096. Presumably the same showing would be required of the government in the present case. 62 As noted, any loss to be realized by the bank would not accrue directly to the benefit of the defendant; it would accrue to the benefit of the debtors. Any major loss to be suffered by the bank would have to be occasioned by its own act in prematurely discharging a debtor. If intent is the test, did Jacobs intend that the bank discharge the debtors' indebtedness? Was such discharge the natural and probable consequence of the fraud? 63 As part of the larger scheme, the conspirators clearly intended that the drafts be presented to the banks. In fact, the conspirators instructed the debtors to present the certified drafts to the bank and to seek discharge of the debt. What the conspirators intended thereafter is the heart of the problem. The indictment describes the purposes of the conspiracy, in part, as follows: 64 It was a further object of the conspiracy to submit and cause the submission of such certified drafts to federally insured financial institutions, using the United States mails. It was further the object of the conspiracy to delay detection of the fraudulent and worthless nature of the certified drafts, using various tactics which were also calculated to deprive the federally insured financial institutions of the immediate use of their funds and credits. 65 Indictment, June 11, 1993, at 3-4. The reference to immediate use presumably excludes an intent to have the banks release their security or otherwise incur the full loss of the loans. On the other hand, the government argues that the defendant's scheme was aimed at the heart of the American banking system, seeking to 'eliminate' real debt with worthless drafts. Characterizing banks and bankers as the enemy, describing participation in the program as a 'battle' or 'war,' and referring to the Federal Reserve as a 'rotten bunch,' the stated purpose of the DEP was to 'return the favor.'  Gov't Br. at 46. If this contention is well-founded it would provide an independent basis for considering the loss to be the face value of the drafts. 66 United States v. Wimbish, supra, cites United States v. Kopp, 951 F.2d 521 (3d Cir.1991), as rejecting possible loss as a standard. Wimbish, 980 F.2d at 315. In Wimbish, the defendant stole personalized checks, forged them and had them deposited; he requested cash back from the depositor. The issue was whether loss should be measured by the face value of the checks or by the actual amount withdrawn. Wimbish put the victims at risk for the full loss, despite the subsequent recovery of the amount Wimbish did not receive. Id. at 315. This case thus suggests a put at risk standard. Such a standard would support a face value measure in the present case since the creditors' positions were put at risk. Wimbish, id. at 316, also cites United States v. Hooten, 933 F.2d 293 (5th Cir.1991), in which a credit union employee stole a customer's note for $1.5 million and offered to sell it back to the customer for $150,000. The face value of the note was held to be the correct measure of loss because it represented the potential loss to the credit union. Thus, these cases seem rather perplexingly to approve potential loss, Hooten, 933 F.2d at 298, while disapproving possible loss, Kopp, 951 F.2d at 533. 67 In one subset of cases intended loss has been found to be less than the face value of a loan or contract obtained through fraud. United States v. Schneider, 930 F.2d 555, 558 (7th Cir.1991), distinguished between fraud when the offender intends to pocket the full gain and fraud when the offender means to repay the gain (by paying off a loan or completing a contract), but could not have secured the obligation without the fraud. In the first situation the intended loss is the full value secured. In the second situation the intended loss may be zero, [a]t least in a narrow financial sense. Id. 68 In United States v. Haggert, 980 F.2d 8 (1st Cir.1992), Haggert presented fraudulent sight drafts (drawn on a financial institution that was not legitimate and operating) in the amount of $62,508.50 to pay delinquent real estate mortgages. The bank believed the drafts to be cashier's checks and stamped them paid. The bank's actual loss was $20,248.10. The court noted, in assessing loss at face value, that, [a]s the Schneider distinction between two types of fraud illustrates, even under the exception for loan application and contract procurement cases, the intent of the defendant is the measure by which the loss is to be assessed. Id. at 13. Intent to inflict the full amount of the fraud is key. 69 In a different vein, United States v. Smith, 951 F.2d 1164 (10th Cir.1991), represents a conservative approach to loss measurement. Smith involved a defendant who operated a concern that built and marketed single family residences. Smith misrepresented to a bank that various customers of his had made down payments on homes when in fact such payments had not been made. The Tenth Circuit held that the loss was not to be measured by the cumulative value of the loans ($440,896). There was no evidence in the record for finding that Smith attempted to inflict a loss of $440,896; no loans were in default at the time of sentencing. But the district court had found that there was an intended loss of $440,896. 70 Smith did receive the money as seller, but he returned to the lenders security interests in the homes and the promises of the individual buyers to repay the loan. The court held that there was no actual loss and no basis in the record for finding an intended loss. Id. at 1167, 1169. Therefore there was no enhancement. This result follows from § 2F1.1 comment. n.7(b), which dictates that the loss in a loan transaction is the difference between the loaned amount and the amount of the collateral. On appeal in Smith the government never argued that Smith intended to cause loss in the full amount of the loans, only that  'the potential that these six loans may eventually go into default is ever present.'  Id. at 1169. This would seem to be enough under a put at risk, potential loss standard. But Smith testified that each of the six loans was secured by the house on which the loan had been made and that the buyers had been paying down on their loans. The court said that it did not believe the possibility that some loss might occur on one or more of the six loans in the future amounts to the 'probable' loss contemplated by section 2F1.1. Id. The government had simply failed to offer any support for its calculation. The court distinguished United States v. Johnson, 941 F.2d 1102 (10th Cir.1991), on the grounds that in Johnson the defendant intended to take the full value of the homes. Johnson's goal in the fraud was not to meet his obligations under the loan. Johnson, 941 F.2d at 1114. In contrast, Smith never intended that any participant (bank or home buyer) lose any money. Smith, 951 F.2d at 1169. The Smith court also distinguished another Johnson case, United States v. Johnson, 908 F.2d 396 (8th Cir.1990), on the grounds that the focus for sentencing purposes should be on the amount of possible loss which [the defendant] attempted to inflict on the banks. Smith, 951 F.2d at 1169 (quoting Johnson, 908 F.2d at 398). The Smith court's approach is not expansive, and it refrains from delving into potential losses or increases in risk. 71 The evidence in the present case indicates that banks are widely known to process payments other than cash through a system that ensures that the funds are collectible before crediting an account with, for example, the face value of the certified drafts. And the conspirators here may not really have expected that the banks would release collateral temporarily--let alone permanently--upon receipt of the certified drafts; after all, the conspirators knew that the drafts were fraudulent. Nonetheless, release of collateral might be one reaction by the banks in this type of situation, causing them loss. And, after all, the conspirators instructed the debtors to ask for release of collateral and discharge. The government presented evidence that some banks temporarily returned the evidence of debt to the debtor and released collateral. 72 Ultimately, intended loss is dependent on the findings of the trial judge. The district court here specifically found that the object of the scheme was for the bank to return its evidence of debt to the customer, release the collateral that secured the debt, and discharge the customer's debt in exchange for the draft. Based, among other things, on the conspirators' instructions to the debtors, we cannot say that this finding is clearly erroneous. The finding is a sufficient basis for concluding that it was intended or probable that the bank suffer a loss measured by the face value of the drafts. Thus, the district court did not clearly err in calculating the intended loss for sentencing purposes.