Opinion ID: 2996273
Heading Depth: 3
Heading Rank: 1

Heading: Actual Loses

Text: We have not had an opportunity in this circuit to examine the law for determining actual loss in loan fraud schemes where the victim has obtained restitution from a third party. However this scenario was addressed in United States v. Wilson, 980 F.2d 259 (4th Cir. 1992). The Fourth Circuit held in Wilson that amounts paid by thirdparty guarantors are not to be deducted from the loss calculation. Id. at 261-62. In that case, Everett Wilson obtained a loan from a bank to open a furniture business. Id. at 260. In making the loan, the lender required a thirdparty guarantee and a security interest in the assets of the furniture business. Id. Subsequently, Wilson submitted false financial statements to the lender. Id. at 260-61. When the fraud was eventually discovered, the third-party guarantor paid a portion of the outstanding debt as part of a settlement agreement. Id. The court analogized such payments pursuant to a guarantee to postdiscovery restitution, which is not deducted from the loss calculation. Id. This reasoning is sound under both the language of the guidelines and our previous case law. Primarily, the sentencing guidelines do not contemplate the attribution of third-party guarantees to the actual loss 6 The district court found that the actual and intended losses to both Loyola and ANB totaled $1,264,000. We find that the district court correctly determined the actual loss to the primary victim ANB, and also find that, under the intended loss guideline, Lane would receive the same sentence. Therefore we need not address the district court’s analysis as to Lane’s conduct which caused Loyola’s loss in the transaction. No. 01-4084 29 calculation. The Sentencing Guidelines stipulate that in fraud cases, “[a]s in theft cases, loss is the value of the money, property or services unlawfully taken . . . .” U.S.S.G. § 2F1.1 application note 8 (emphasis added). See also United States v. Januzs, 135 F.3d 1319, 1324 (10th Cir. 1998) (“[T]he purpose of the loss calculation under the Sentencing Guidelines is to measure the magnitude of the crime at the time it was committed.”) In this case, when Lane fraudulently obtained the funds through the refinancing, which were, in large part, immediately transferred to another bank where he was in default, the crime was committed. His fraud was not discovered until his failure to obtain an anchor tenant caused his default on the loan. In calculating the actual loss for the crime, courts are required to take the amount of the loan not repaid at the time the offense is discovered and deduct the amount that the institution has recovered from assets pledged to secure the loan. The theory that must therefore support the holding in Wilson, which we adopt here, is that when calculating actual loss, a third-party guarantee unsupported by additional collateral is not an “asset pledged to secure the loan.” The loan in this case was made to Continental Partners and the only asset that secured the loan was a mortgage on the Continental Plaza properties. It was also guaranteed by both Lane and Loyola, but neither of those guarantees was secured by any additional collateral. As shown in detail above, Lane’s guarantee was practically worthless and, appropriately, Lane does not argue that his own personal guarantee should have been considered as an asset pledged to secure the loan. Loyola’s promise to honor the loan in case of default through the put agreement was not itself secured by any property or other security. The only difference between the two guarantees was that Loyola had the financial wherewithal to honor its 30 No. 01-4084 guarantee, while Lane did not. That Loyola chose to honor its guarantee and pay off Lane’s obligations after his default, does not decrease the magnitude of his crime. The commentary to the Sentencing Guidelines also supports the use of this methodology. We must consider the language used in § 2F1.1 in light of its placement within the Sentencing Guidelines, as “the meaning of statutory language, plain or not, depends on context.” King v. St. Vincent’s Hosp., 502 U.S. 215, 221 (1991); see also Shell Oil Co. v. Iowa Dept. of Revenue, 488 U.S. 19, 26 (1988). In Comment 8(b) to Section 2F1.1, the guidelines state that the loss actually caused or intended to be caused by the defendant may be understated when he repays that loan. In the case where the defendant himself repays the loan, the guidelines state that a downward departure may be warranted. The guidelines do not call for this additional analysis when the loan is repaid through other agency. We can logically deduce that the Sentencing Commission omitted this scenario because if pay-offs by third-party guarantors were deducted from actual loss, then a fraudulent loan applicant could lie with impunity on a loan application as long as he had a co-signer willing to step up in case of a default. Instead, the guidelines instruct that when the losses calculated under the guidelines seriously overstate or understate the losses actually caused by the defendant’s conduct, a departure may be warranted. In this case, the district court considered the ultimate losses to the individual lending institutions and reduced Lane’s sentence accordingly. This was proper. Once the amount of loss is calculated under the guidelines, the court has the discretion to modify the amount of loss to more accurately reflect the economic realities of the crime and the time to take economic realities into account “is [at] a district court’s downward departure decision.” Downs, No. 01-4084 31 123 F.3d at 644; see also United States v. Stockheimer, 157 F.3d 1082, 1089 (7th Cir. 1998); United States v. Bonanno, 146 F.3d 502, 509-10 (7th Cir. 1998); United States v. Coffman, 94 F.3d 330, 336-37 (7th Cir. 1996); United States v. Studevent, 116 F.3d 1559, 1562-63 (D.C. Cir. 1997). Additionally, the Wilson decision’s comparison of payments by third-party guarantors of post-discovery restitution recognizes that the calculation of loss for the purposes of restitution differs from actual loss for the purposes of sentencing. Restitution tracks “the recovery to which [the victim] would have been entitled in a civil suit against the criminal.” United States v. Martin, 195 F.3d 961, 968 (7th Cir. 1999). See also United States v. Campbell, 106 F.3d 64, 69 (5th Cir. 1997) (noting in a bank fraud case that 18 U.S.C. § 3663 (b)1(B)(ii) provides that in determining the appropriate amount of restitution, “the loss attributed to the illegal act may be offset by the value of any part of the property that is returned”). Because ANB has recovered completely from Loyola due to Lane’s default, they could not now recover again from Lane in the form of restitution. However, the absence of the possibility of restitution has not precluded this court from finding an actual or intended loss in fraudulent loan cases. Saunders, 129 F.3d at 931 (holding that actual loss to the victims was the amount of loss attributed to investors at the time of the detection of the fraud despite full restitution prior to trial); Downs, 123 F.3d at 643-44 (rejecting the argument that loss calculation should be reduced by post-discovery restitution). Other circuits have also followed this approach. See, e.g., Janusz, 135 F.3d at 1324 (holding that amounts recovered by fraud victims may count towards restitution, but are not subtracted from the loss calculation); United States v. Mummert, 34 F.3d 201, 204-5 (3d Cir. 1994) (refusing to reduce amount of loss caused by fraud notwithstanding fact that co-participant in crime offered 32 No. 01-4084 to make gratuitous transfer of property which was basis of loan transaction). Thus, in calculating actual loss for sentencing purposes under the fraudulent loan context, the district court cannot reduce the amount of actual loss because the defendant, or any other party, makes restitution after the scheme has been exposed. Also analogous is United States v. Wolfe, 71 F.3d 611, 616 (6th Cir. 1995), where the defendant ran a Ponzi or pyramid scheme in which he caused investors to lose approximately $4.2 million. Id. at 613. On appeal, the defendant in Wolfe argued that the actual loss was significantly less than $4.2 million because a substantial portion of the losses suffered by first-time investors could be recovered from beneficiaries of the scheme through the bankruptcy estate. The Sixth Circuit rejected the defendant’s argument. Citing Wilson, the court held that “the agency of another cannot be used to reduce the amount of loss” and that therefore, Wolfe was not entitled to “reduce the magnitude of his own crime by relying on the actions of the bankruptcy trustee.” Id. at 617 (citing Wilson, 980 F.2d at 262). In this case, Lane cannot similarly benefit from the decision by Loyola to honor its separate guaran- 7 tee, unsupported by collateral. 7 Wolfe is distinguishable from the “net loss” approach argued by Lane and to some extent followed in a Ponzi scheme scenario in United States v. Holiusa, 13 F.3d 1043 (7th Cir. 1994). In Holiusa, we reduced the actual loss calculation by amounts given by the defendant himself to his defrauded investors, not by a third party. In Wolfe, the third party was forced to disgorge those assets absent any intent to repay by the defrauder. Therefore, Wolfe is much more analogous than Holiusa to our present scenario because Lane’s stated desire to prevent ANB from losing money had nothing to do with whether or not Loyola (continued...) No. 01-4084 33 Lane argues that United States v. Schneider, 930 F.2d 555 (7th Cir. 1991), holds that at sentencing we must examine the economic reality of the situation when determining actual or intended loss. In Schneider we distinguished between outright theft, an act complete when the good is taken, and the situation in that case where a contractor intends to perform a valuable service, but fraudulently obtains the right to perform. However, Lane’s situation differs from Schneider in that Lane’s scheme failed because he couldn’t obtain an anchor tenant, whereas it was perfectly possible for the deceptive contractors in Schneider to have ultimately performed the contract to the government’s satisfaction. Because Lane was not able to obtain an anchor tenant, Continental Plaza could not have been a successful business entity. When the loan was finally paid off it was not through anything Lane did, but instead through the independent actions of a third party. Furthermore, in Schneider we made clear that “in the case of fraud, the loss need not be actual; it is enough if it is probable or intended.” 930 F.3d at 556. See also Strozier, 981 F.2d at 284. Because the viability of Continental Plaza was contingent on the existence of an anchor tenant, Lane’s inability to obtain an anchor tenant made default highly probable. Thus, the district court properly concluded that Lane caused ANB an actual loss of $1.264 million because Lane was not entitled under the Sentencing Guidelines to benefit from Loyola’s third-party guarantee. 7 (...continued) honored its Put Agreement. His initial proposal did not include the Put Agreement and that agreement was only obtained due to ANB’s caution over the project. Lane cannot receive beneficial treatment by the courts simply because he chose to defraud a bank with cautious lending policies. 34 No. 01-4084