Opinion ID: 627395
Heading Depth: 2
Heading Rank: 1

Heading: Amount of Fraud.

Text: 18 On August 30, 1988 Chevalier had borrowed $100,000 to finance the purchases of three pieces of construction equipment. That equipment was sold on September 30, 1988. In the next six months, Chevalier had paid off approximately $35,000 of principal. Thus, on February 27, 1989 he renewed the note for $65,000, again pledging the previously sold equipment as collateral. This note was renewed for the same amount in May, August and November of 1989. In March, 1990, the bank consolidated a number (but not all) of Chevalier's loans, including the $65,000 note that formed the basis of the bank fraud count. After the loan consolidation no separate records were kept on the $65,000 note. The consolidated loan amount totalled $1,065,966, principal and interest, and Chevalier had made payments of at least $297,900. He argues that the method of calculating the amount of loss attributed to the bank fraud count directly affects any increase in his base offense level. On appeal he asserts that the percent paid on the consolidated loan should be prorated against the $65,000, which would leave only $46,930 outstanding. 19 As the district court found under the Guidelines in effect at the time of sentencing, if Chevalier cheated the bank out of more than $50,000 (but less than $100,000), his Guideline range would be increased five levels, thereby resulting in an eight to fourteen month sentence. Less than $50,000 would result in a sentence of six to twelve months and allow the possibility of intermittent local confinement on work release. Thus Chevalier obviously wants the ceiling kept below $50,000. To show how the $65,000 loan should be lowered for sentencing purposes, Chevalier relies on payments he made to the bank, both prior to the indictment and sentencing dates. 3 20 We review the district court's determination of the amount of loss for clear error as a finding of fact. However, the meaning of 'loss' in Sec. 2F1.1(b)(1) is a 'legal question on which our review is plenary.'  United States v. Strozier, 981 F.2d 281, 283 (7th Cir.1992) (citing United States v. Mount, 966 F.2d 262, 265 (7th Cir.1992)). 21 In pertinent part, the district court made the following findings regarding the payments Chevalier had paid on the consolidated loan in calculating the amount of loss in this case: 22 Without some specific designation as to what payments if any were made on the $65,000 obligation, I find it difficult to apply the percentage that has been suggested here by defense counsel of 27.8 percent of payments made. It does appear to the court that when no designation is made[,] the bank then, being the recipient of those payments, can apply those obligations on the revolving credit, and in doing so it would appear that the indebtedness represented by the revolving credit has to some extent been reduced. p Under those circumstances the court feels that the amount for consideration here on this charge should be $65,000, and the additional increase in the level of five would be appropriate as shown in the presentence report. [Emphasis added.] 23 Thus, the court found that the consolidated loan amount was reduced; however, the court did not make any findings regarding how the specific loan which was a part of that consolidation was somehow affected. 24 For determining the pertinent offense level, the parties do not dispute that U.S.S.G. Sec. 2F1.1 applies to this case. See United States v. Rothberg, 954 F.2d 217, 218-19 (4th Cir.1992); United States v. Johnson, 908 F.2d 396, 398 (8th Cir.1990). In calculating the amount of fraud, the district court was required to find 25 the amount of money the victim has actually lost (estimated at the time of sentencing), not the potential loss as measured at the time of the crime. However, the loss should be revised upward to the loss that the defendant intended to inflict, if that amount is higher than the actual loss. 26 United States v. Kopp, 951 F.2d 521, 536 (3d Cir.1991), citing with approval United States v. Schneider, 930 F.2d 555, 558-59 (7th Cir.1991). The record does not show from what date the district court was measuring the amount of loss. When the crime was discovered? at indictment? at sentencing? If measured prior to sentencing, perhaps Chevalier received too harsh a sentence. This is not to say that the court must search for mathematical certainty, United States v. Haddon, 927 F.2d 942, 951 (7th Cir.1991), or devise special accounting rules in cases involving consolidated loans. See U.S.S.G. Sec. 2F1.1, comment. (n. 8) (The amount of loss need not be precise.... The court need only make a reasonable estimate of the range of loss, given the available information.). 27 Nevertheless, proper findings are particularly necessary in this case. The government indicted Chevalier for bank fraud involving a $65,000 loan. Yet he had loans with the bank totalling over one million dollars. Prior to indictment, the bank consolidated most of the outstanding loans, including the $65,000, and stopped maintaining separate records. Eventually the bank wrote off the entire $65,000 as a loss. Also, the parties do not dispute that Chevalier at some time paid a considerable amount off on the consolidated loan. The government wants to give him no credit at all, considering that the bank lost much more than $65,000 on the consolidated amount. But the government, in turn, has made no showing that Chevalier defrauded the bank on anything other than the $65,000. To the contrary, throughout this case the government has stipulated that the bank lost no more than $65,000 due to fraud. This implies that the other loans were legitimate, although in hindsight not prudent. In any event, in order to increase Chevalier's sentence, the government must prove the actual loss involved in this case. United States v. Smith, 951 F.2d 1164, 1167 & n. 5 (10th Cir.1991). 28 Chevalier, in turn, argued initially to the district court that after consolidation, the $65,000 note was paid off in full. He later softened his stance and argued that the $297,000 he paid on the total amount owed of $1,065,966 (a 27.8 percent payment) should be prorated against the $65,000 note, resulting in a loss to the bank of $46,930. For the first time on appeal, Chevalier asserts that he also turned over to the bank $223,900 worth of equipment (for a total of $521,800). 29 Neither approach gives us sufficient facts for review. See United States v. Whitehead, 912 F.2d 448, 451-52 (10th Cir.1990) (the court applied a de novo review and held that in determining the amount of loss, the value of an option to purchase a home does not equate with the value of the home). Without a more precise calculation of the amount of loss and the designation of a specific time when the loss was measured, we are not able to determine whether the government has met its burden. United States v. Jackson, 983 F.2d 757, 771 (7th Cir.1993). 30 For example, suppose Chevalier had defrauded the bank on a $100,000 loan and also obtained a legitimate loan for $500,000. The former was secured by inventory that Chevalier had previously sold (thus, the fraud as in this case); the latter was secured by inventory at the store. As the business crumbles, if Chevalier turned over to the bank his inventory securing the $500,000 loan, surely he cannot be heard to argue that any portion of that amount should be prorated against the amount the bank lost on the fraudulent, unsecured loan. In contrast, if Chevalier paid the bank from profits received on unsecured inventory, such profits could be applied to the amount the bank lost as a result of fraud. The calculation becomes difficult where the loans are consolidated and the security agreements do not specify which inventory secures which notes. To accommodate judicial review, the district court will need to set out precise calculations in order to enhance Chevalier's sentence. 31 We remand for just such a hearing. The district court should entertain evidence on the nature of Chevalier's relationship with the bank, in particular the timing and terms of the consolidated loan agreement, the usual accounting practices the bank uses in reducing consolidated loans (e.g., how would the bank have applied Chevalier's payments to the $65,000 note if it was not the result of fraud?), and include in its calculations all payments made by Chevalier by the time of sentencing. The court may also add such losses as Chevalier intended to inflict, if that amount is higher than the actual loss. See Strozier, 981 F.2d at 284. 32