Opinion ID: 711056
Heading Depth: 2
Heading Rank: 8

Heading: Upward Departure for Jeopardizing the Safety and Soundness of Western.

Text: 151 The district court assessed a two-level upward departure for jeopardizing the safety and soundness of a federally insured financial entity. In imposing this adjustment, the district court looked to a post-1988 revision of the Guidelines that mandates a four-level adjustment for similar conduct. See, e.g., U.S.S.G. Sec. 2F1.1(b)(6)(A) (1994). The Defendants jointly contest the validity of this departure. We review under the test set out in United States v. Lira-Barraza, 941 F.2d 745 (9th Cir.1991). We reverse. 152 The Government does not dispute that the loan obtained by the Defendants represents only a tiny fraction of the hundreds of millions of dollars of red ink in which Western wallowed. The district court nonetheless found that the losses attributable to the Defendants substantially increased the risk and magnitude of [the] insolvency. Gov't Knapp/Sarno Appendix (Case Nos. 93-50859 & 93-50860), Vol. I, at 17. We cannot agree and therefore conclude that under these circumstances the upward departure was unreasonable and unjustified. While we do not deny that the Defendants' actions contributed to Western's financial difficulties, the record indicates that Western suffered from losses of roughly $500 million--$200 million of which could be attributed to a single loan. The $11 million lost to the Defendants thus represents only two percent of Western's bad debt--a fraction that we do not think can be characterized as substantial. 21 An upward departure is not warranted simply because a victim suffered from a multitude of ills, but it must instead be based upon harm that can reasonably be linked to the Defendants. Such is not the case here; the district court therefore erred in imposing this upward adjustment. 22 153
154 Mr. Knapp argues that his sentence exceeds the statutory maximum. He is incorrect. His arguments to the contrary are wholly frivolous. See U.S.S.G. Sec. 5G1.2(d) (June 1988); United States v. Brady, 928 F.2d 844, 849-50 (9th Cir.1991). J. Denial of an Evidentiary Hearing 155 Mr. Sarno has failed to demonstrate that the district court abused its discretion in rejecting the request for an evidentiary hearing. A district court may permissibly deny a hearing where a defendant is allowed to rebut the recommendations and allegations of the presentence report either orally or through the submission of written affidavits or briefs. United States v. Baker, 894 F.2d 1083, 1084-85 (9th Cir.1990). In this case, Defendants Sarno and Knapp both submitted written briefs and were allowed to make a final oral presentation to the court. Mr. Sarno's contention is therefore fatally flawed. 156 K. Denial of an Evidentiary Hearing on Matters Relating to Restitution 157 Mr. Sarno complains that the amount of restitution was fixed without benefit of an evidentiary hearing. His argument lacks any credible foundation in law. There is no right to an evidentiary hearing so long as the facts that prove dispositive at sentencing find support in the record. United States v. Kimball, 975 F.2d 563, 568 (9th Cir.1992), cert. denied, 507 U.S. 918, 113 S.Ct. 1276, 122 L.Ed.2d 671 (1993). 158 L. Calculation of Mr. Nash's Criminal History 159 Mr. Nash claims that his two convictions are related and that his sentence should be adjusted to reflect this linkage. He offers absolutely no substantiation for this claim. Although both crimes utilized his knowledge of accounting, the subject matter of the two acts was unconnected and his earlier criminal activities predated this scheme by several months. His argument therefore lacks any basis in fact and is properly rejected. 160 His contention that convictions currently on appeal should not factor into the calculation of criminal history was explicitly rejected by this court in United States v. Mackbee, 894 F.2d 1057, 1058 (9th Cir.), cert. denied, 495 U.S. 962, 110 S.Ct. 2574, 109 L.Ed.2d 755 (1990). M. Restitution by Mr. Nash 161 Mr. Nash appeals the restitution order issued by the district court. We review orders of restitution for an abuse of discretion and the factual findings underpinning such orders for clear error. See United States v. Smith, 944 F.2d 618, 623 (9th Cir.1991), cert. denied, 503 U.S. 951, 112 S.Ct. 1515, 117 L.Ed.2d 651 (1992). The district court did not here abuse that discretion. Mr. Nash's protestations to the contrary, the present insolvency of a defendant does not bar restitution where the district court finds that a defendant will have a future ability to make restitution. Id. at 623. The district court expressly found that Mr. Nash's business acumen and education were such as to justify the restitution imposed irrespective of future licensing difficulties. See Gov't Nash Appendix Vol. I, at 104. Mr. Nash points to no evidence that would lead us to conclude that this finding of fact is clearly erroneous. The restitution order therefore lies within the district court's discretion.
162 Mr. Nash contends that the district court denied him his right of allocution. See United States v. Carper, 24 F.3d 1157, 1158, 1162 (9th Cir.1994); United States v. Medrano, 5 F.3d 1214, 1219 (9th Cir.1993). We agree. 163 In the initial phase of the sentencing hearing, the district court curtly silenced Mr. Nash, stating, I don't want you speaking to the Court unless the Court asks you a question. Nash Appendix Vol. IV, at 958. Our review of the record suggests that the timidity thereby instilled in Mr. Nash significantly hindered his later efforts at allocution. The relevant exchange between the district court and Mr. Nash went as follows: 164 The Court: ... And I will hear from defendant Nash, if he wishes, as to what would be the appropriate sentence within that range. 165 Mr. Nash: Of course, Your Honor, I would respectfully argue for the bottom of the Guidelines. 166 Is that the only issue that the Court wants to hear from me on? 167 The Court: Yes. 168 Nash Appendix Vol. IV, at 960-61. While Mr. Nash was nominally given an opportunity to speak, it is apparent from the record that he had taken the district court's admonition to heart and was consequently deterred from speaking freely. We refuse to countenance such court-inspired reticence and therefore hold that the district court denied Mr. Nash his right of allocution. The denial was not harmless because the district court had the discretion to sentence Mr. Nash to a shorter sentence. See Carper, 24 F.3d at 1162. We therefore reverse Mr. Nash's sentence and remand this matter for further proceedings consistent with this opinion.
169 The record confirms that the Government sought and received a separation order that prevented Mr. Nash from seeing his brother, who was his partner at the time of the Trafalgar audit and who was also incarcerated at the time of trial. Mr. Nash credibly alleges that this separation order was lifted only at the price of a stipulation exacted from Mr. Nash. This stipulation stated that the brother had no knowledge of any documents relating to Trafalgar Capital. Mr. Nash contends that the Government's reliance upon this form of coercion--in effect, not allowing him access to his brother unless he agreed not to call the brother at trial--constituted prosecutorial misconduct because it limited his access to a possibly exculpable witness. 170 We note that the Government does not deny that the stipulation was, in fact, extracted from Mr. Nash. The Government, moreover, offers no explanation as to why Mr. Nash was prevented from seeing his brother. The Government's argument that Mr. Nash failed to object to the stipulation at trial and is therefore bound to it, see United States v. Ferreboeuf, 632 F.2d 832, 836 (9th Cir.1980), cert. denied, 450 U.S. 934, 101 S.Ct. 1398, 67 L.Ed.2d 368 (1981), misses the point. The central thrust of Mr. Nash's claim is that the Government took affirmative steps to prevent him from communicating with a potential witness. However, once the Defendant executed the stipulation, the separation order was lifted. Thus, he could have talked with his potential witness. That would have left him in a position to communicate with the potential witness. We are not told whether he in fact took advantage of that opportunity. If he did and discovered any relevant testimony, he should have raised that with the trial court and made a motion to relieve him of the stipulation. While he complained of the coerced stipulation, he made no motion or suggestion that his brother had relevant testimony to give. In light of the generalized way in which the issue was raised in the trial court, it is understandable that the trial court did not address the matter--it had no motion to rule on. For these reasons, while not indicating any approval of the Government's conduct in obtaining the stipulation, we find no reversible error. 171
A. Brady claims 23 172 The law governing the disclosure by the prosecution of evidence beneficial to a defendant is well-settled. The suppression by the government of material favorable evidence violates due process and requires that the tainted conviction be vacated. Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963); United States v. Bagley, 473 U.S. 667, 105 S.Ct. 3375, 87 L.Ed.2d 481 (1985); see also Kyles v. Whitley, --- U.S. ----, ---- - ----, 115 S.Ct. 1555, 1565-67, 131 L.Ed.2d 490 (1995). The rule of Brady and its progeny operates even in the absence of a defense request for favorable evidence and extends to both exculpatory and impeachment evidence. See Kyles, --- U.S. at ----, 115 S.Ct. at 1565; United States v. Bagley, 473 U.S. 667, 682, 105 S.Ct. 3375, 3383, 87 L.Ed.2d 481 (1985) (plurality opinion). Suppressed evidence is held to be material  'if there is a reasonable probability that, had the evidence been disclosed to the defense, the result of the proceeding would have been different.'  Kyles, --- U.S. at ----, 115 S.Ct. at 1565 (quoting Bagley, 473 U.S. at 682, 105 S.Ct. at 3383 (plurality opinion)). A 'reasonable probability' of a different result is ... shown when the Government's evidentiary suppression 'undermines confidence in the outcome of the trial.'  Kyles, --- U.S. at ----, 115 S.Ct. at 1566 (quoting Bagley, 473 U.S. at 678, 105 S.Ct. at 3381). We determine the existence of a reasonable probability based upon the cumulative impact of all the evidence suppressed in violation of Brady. See Kyles, --- U.S. at ---- - ----, 115 S.Ct. at 1567-69. 173 The Defendants jointly identify as Brady material the declarations and statements of eight witnesses who, it is claimed, revealed exculpatory evidence to the Government that was never disclosed to the defense. We address each in turn and conclude by assessing their cumulative probative weight. 174 Mr. Don Reynolds, the Chief Financial Officer of Trafalgar, testified before the grand jury that in his opinion the Trafalgar financial statements were accurate. Although this testimony was apparently not revealed to the Defendants, Mr. Reynolds' opinion was inadmissible because he admitted to a limited knowledge of accounting. See Fed.R.Evid. 701. Non-disclosure therefore did not give rise to a Brady violation. United States v. Kennedy, 890 F.2d 1056, 1058-59 (9th Cir.1989), cert. denied, 494 U.S. 1008, 110 S.Ct. 1308, 108 L.Ed.2d 484 (1990). Its worth in any event was negligible given the latent taint of bias and self-interest. It seems highly unlikely that a CFO would admit to a belief that the company's financial statements were inaccurate. 175 Mr. Von Hofmann, the owner of Geothermal, opined in interviews with the Government that the Geothermal stock swap had closed as of June 28, 1988. This testimony would admittedly have been of some moment in refuting the Government's contentions as to that particular transaction. Mr. Von Hofmann's opinion, however, is belied by the Defendant's own actions following the funding of the loan. In any event, this statement does not address, much less call into question, the other misrepresentations contained in the June 28 submission. 176 Third, Mr. Rene Morentin, a Trafalgar employee, indicates in two declarations provided to the Defendants after trial that he informed the Government that in his opinion the financial submissions lacked the capacity to influence Western; that he had learned that Western did not rely upon the submissions in approving the loan; that he had heard that the full details of the Circle C transaction were conveyed to Western; and that he had participated in conversations in which Messrs. Schumann and O'Brien had told Mr. Knapp that the financial documents had been prepared in accordance with GAAP. The first and third statements were, respectively, an inadmissible lay opinion and hearsay and do not therefore qualify as Brady violations. See Kennedy, 890 F.2d at 1058-59. The second statement lacks any evidentiary foundation and is, moreover, irrelevant to a conviction under Sec. 1014. The fourth statement was substantially disclosed to the defense and does not in any event contradict the trial testimony of Mr. O'Brien, in which he admitted that he had once allowed himself to believe that the financial documents were accurate. Cumulative evidence does not give rise to a Brady violation. See Kennedy at 1061. 177 Fourth, the Defendants point to statements made by Mr. Gary Bradley, one of the sellers of the Circle C, in a letter written to the sentencing judge on behalf of Mr. Knapp. Mr. Bradley indicated that he had told the Government that he considered Mr. Bill Morgan to be a liar and a cheat who was out to get Mr. Knapp. The defense asserts that this information was not relayed to it by the prosecution. We note that the disclosure of Mr. Bradley's grand jury testimony to the defense communicated the essence of his opinion of Mr. Morgan. The defense, moreover, knew that Mr. Morgan disliked Mr. Knapp and desired to see him in prison, and cross-examined him extensively on these points. The defense, lastly, knew that Mr. Bradley was willing and in fact eager to testify at Mr. Knapp's trial. A choice was made not to call Mr. Bradley to the stand. 24 The Defendants cannot now stake a claim upon that choice. 178 Fifth, Mr. Allin Karls, an insurance businessman who had dealings with Messrs. Knapp and Sarno, indicates in a declaration provided to the Defendants after trial that he had informed the Government that stock swaps could be legitimate transactions with real economic substance. This evidence is cumulative of testimony obtained by the Defendants upon cross-examination of Mr. Schumann, one of the Government's financial witnesses. It therefore does not rise to the level of a Brady violation. We are, in any event, unable to discern how this information exculpates the Defendants. Although the Government did question the authenticity of the stock swaps documented in Trafalgar's financial submissions, the main thrust of the Government's case in this regard was that these stock swaps were phantom transactions. Thus, the possible validity under standard accounting practices of a hypothetical stock swap simply does not appreciably aid the defense. 179 Sixth, the Defendants refer to statements allegedly made to the Government by Mr. Robert Reade, an outside director of Western who approved the Trafalgar loan. These comments are memorialized in a declaration made by a private investigator in the Defendants' employment. This declaration purportedly recounts a post-trial interview between Mr. Reade and the private investigator. Mr. Reade, however, disputes the contents of this declaration and has elaborated upon the many inaccuracies reflected therein. See Gov't Knapp/Sarno Appendix (Case Nos. 95-50270 & 95-50271) Vol. I, at 7-9. These clarifications dispel any possibility that whatever information may have been withheld was material. We note, in any event, that Mr. Reade testified at trial and that the alleged Brady information in no way contradicts or substantially supplements that testimony. 180 Seventh, the Defendants assert that the Government suppressed evidence that Exhibit 142 represented Mr. O'Boyle's best memory of the relevant events of June and July, 1988. We are in grave doubt as to whether this information was kept from the Defendants. Our review of the trial transcript suggests that it was plain that Exhibit 142 represented Mr. O'Boyle's best recollection of the Trafalgar loan. Notwithstanding the strong possibility that disclosure was made or was unnecessary, we are unable to discern how disclosure could have aided the Defendant's cause. The excluded portions of Exhibit 142 were kept out because the evidence contained therein was irrelevant. Mr. O'Boyle's state of mind would have had no impact upon this decision. The Defendants' arguments to the contrary are quite simply incomprehensible. 181 Lastly, the defense points to comments allegedly made by Mr. Neely to a private investigator hired by the Defendants. 25 Mr. Neely indicated that he had told the FBI that the fact that audit documents were not obtained did not mean 'a fraud was going on.'  Sarno Appendix (Case No. 95-50270), Tab 326, ex. H. 26 While this observation is certainly true, we cannot see how it exculpates any of the Defendants. Mr. Neely, far from attacking the ample evidence of the audit's misrepresentations, does not even state that a fraud was not perpetrated. The statement is, at best, equivocal. 182 Weighed as a whole, the evidence characterized as Brady material by the Defendants--all of which is marginal, ambiguous, cumulative, inadmissible, unreliable, inculpatory, irrelevant, or of negligible probative worth--falls far short of undermining our confidence in the verdicts. The Defendants--or their counsels--seem unable after years of legal battles to grasp the essence of the Government's case against them. This trial did not revolve around the arcane subtleties of modern finance; rather, the Government alleged, and proved, that the Defendants knowingly submitted documents to Western that contained blatant misrepresentations and falsehoods. The Brady evidence--if such it were--tugs at loose threads hanging from the margins of the Government's case, but in no way challenges the bulk of the evidence upon which the convictions rest. We therefore hold that the cumulative impact of the alleged Brady violations does not suffice to support a finding of materiality within the meaning of Bagley and Kyles. 27 B. Newly Discovered Evidence 183 We review for abuse of discretion the denial of a motion for new trial based upon newly discovered evidence. See United States v. Sitton, 968 F.2d 947, 958-59 (9th Cir.1992), cert. denied, 507 U.S. 929, 113 S.Ct. 1306, 122 L.Ed.2d 695 (1993). To obtain a new trial, the Defendants must show that 184 (1) the evidence is newly discovered; (2) the failure to discover the evidence sooner was not the result of lack of diligence; (3) the evidence is material to the issues at trial; (4) the evidence is neither cumulative nor impeaching; and (5) the evidence indicates that a new trial would probably result in acquittal. 185 Id. at 959-60. We affirm the decision of the district court. 186 The Defendants point to four pieces of evidence that they assert would have changed the outcome of the trial: a disclosure made by the Government in an unrelated case that accuses Mr. Driggs of various forms of fiscal wrongdoing; a series of letters written in July 1988 that arguably indicate that certain of the stock swaps had not been rejected as of that time; a declaration made by Mr. Allin Karls that allegedly impeaches two of the Government's minor witnesses; and, inexplicably, a portion of the Government's brief on appeal. Even assuming that all four of these items somehow qualified as noncumulative, non-impeaching newly discovered evidence, we are unconvinced that their introduction at trial would have had any effect upon the outcome. We note, moreover, that the Defendants have made no credible showing of diligence. Lastly, and most significantly, the Defendants on appeal have adduced no evidence that could possibly lead us to conclude that the district court's decision constituted an abuse of discretion. C. Witness Intimidation 187 The Defendants contend that the Government intimidated two witnesses, Mr. Rene Morentin and Mr. Thomas Neely, who could have potentially aided the defense. The Defendants' assertions are meritless. While it might be said that the prosecutors were somewhat aggressive in the interviews held with these gentlemen, they did not approach the line of misconduct. Cf. United States v. Kojayan, 8 F.3d 1315 (9th Cir.1993). It is, moreover, far from clear that the testimony of Mr. Morentin or of Mr. Neely would have benefitted the Defendants.
188 We reverse the two-level upward departure imposed on the Defendants for jeopardizing the safety and security of a financial institution, and remand to the district court for resentencing in accordance with this opinion. We reverse Mr. Nash's sentence, and remand for further proceedings consistent with this opinion. We affirm the district court with respect to all other issues raised by the Defendants. 189 AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.  The panel finds this case appropriate for submission without oral argument pursuant to 9th Cir.R. 34-4 and Fed.R.App.P. 34(a)  The panel finds these cases appropriate for submission without oral argument pursuant to 9th Cir.R. 34-4 and Fed.R.App.P. 34(a)  The Honorable Monroe G. McKay, Senior United States Circuit Judge for the Tenth Circuit, sitting by designation 1 This opinion consolidates and disposes of five cases now pending: Mr. Knapp's appeal of his conviction and sentence, No. 93-50860; Mr. Knapp's appeal of the district court's denial of his motion for a new trial, No. 95-50271; Mr. Sarno's appeal of his conviction and sentence, No. 93-50859; Mr. Sarno's appeal of the district court's denial of his motion for a new trial, No. 95-50270; and Mr. Nash's appeal of his conviction and sentence, No. 94-50010 2 Western was under pressure from the federal authorities to improve its balance sheet. Mr. Driggs was therefore searching for someone who would, with the proper incentive, purchase certain bad debts from Western. Mr. Knapp fit the bill nicely. One of the Trafalgar companies--which, on paper, looked like a sound credit risk--borrowed $15 million from Western; a substantial percentage of this money was then transferred to another Trafalgar corporation and used to purchase foreclosed properties from Western. The scheme worked until Trafalgar forfeited on the loan 3 One million dollars of the initial loan installment was then used to pay the check given for the Circle C 4 One who is paid with a check, for example, typically assumes that the drafter in fact has funds sufficient to cover the check 5 Undoubtedly, a great many such applications would be rejected by the recipient financial institutions. There would, however, be nothing to deter a would-be robber baron from searching for more gullible prey 6 Mr. Knapp alternatively advocates that we adopt as the test for liability under Sec. 1014 a reasonableness standard that would turn upon the degree to which a pro forma statement comported with GAAP. This we refuse to do. Adherence to GAAP would obviously qualify as weighty exculpatory evidence; it does not, however, necessarily shield one from criminal liability. See United States v. Weiner, 578 F.2d 757, 785-86 (9th Cir.), cert. denied, 439 U.S. 981, 99 S.Ct. 568, 58 L.Ed.2d 651 (1978); cf. Simon, 425 F.2d at 796-97 (rejecting an argument that adherence to GAAP precludes liability under Sec. 1001). The record, in any event, demonstrates that the Defendants' practices were not in accord with GAAP. See infra. Any possible error in this respect would therefore be harmless 7 It is worthy of note that the Defendants' proposed instructions run quite close to the edge of what constitutes a theory of the case or theory of the defense instruction--a doctrine that generally involves the assertion of a legal, as opposed to a factual, defense to the charge. See Escobar de Bright, 742 F.2d at 1198 (indicating that theory of the case doctrine allows defendant to request instruction on legal theories of defense) 8 This circuit has previously recognized the existence of an intra-circuit split upon the proper standard by which to review theory of defense decisions. See United States v. Zuniga, 6 F.3d 569, 570 (9th Cir.1993) (recognizing that both the abuse of discretion standard and the de novo standard have been used in this context); United States v. Frank, 956 F.2d 872, 879 (9th Cir.1991) (same), cert. denied, 506 U.S. 932, 113 S.Ct. 363, 121 L.Ed.2d 276 (1992). This conflict now appears to have been resolved. See Duran, 59 F.3d at 940-41 9 A projection as to a future event is not ordinarily a statement of fact. A projection is simply a forecast or a prediction that a particular event or condition is likely to happen or be true in the future, and no one can reliably predict the future. Such a forecast cannot be false as long as there is a reasonable basis to believe that it may occur