Opinion ID: 2978318
Heading Depth: 2
Heading Rank: 4

Heading: st. paul’s losses

Text: As noted above, an appellate court reviews whether restitution is permitted under the applicable statute de novo, and reviews the amount of restitution awarded for abuse of discretion. Boring, 557 F.3d at 713.
Under the MVRA, a victim is any person harmed “as a result of the commission of an offense . . . including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern.” 18 U.S.C. § 3663A(a)(2). Having previously determined that the district court properly ordered Elson to pay restitution to the victims of the broader conspiracy to defraud, rather than only to persons who suffered harm as a result of the conspiracy to obstruct justice, we conclude that St. Paul qualifies as a victim for purposes of the MVRA. In addition, contrary to Elson’s argument that St. Paul’s losses on the sale of its judgment resulted from business reasons, St. Paul’s losses were caused by the overt acts underlying the conspiracy. As Mazza detailed at the restitution hearing, St. Paul retained a law firm to assist it in defending itself against Schultz in California state court litigation. After Schultz as the plaintiff was unsuccessful, in 1995, the court awarded the law firm attorney fees and costs. The law firm then assigned its interest in the judgment for attorney fees to St. Paul. To assist in collecting the attorney-fee judgment against No. 07-3778 United States v. Elson Page 22 Schultz, valued at approximately $2 million, St. Paul hired Elson, then working for the law firm Ulmer & Berne. Mazza testified that, based on his discussions with the St. Paul agents responsible for entering into the 1995 settlement with McPeak, St. Paul would not have sold its judgment “if they had known they were selling it to a nominee of Richard Schultz.” (J.A. 357-58.) Further, Mazza testified that St. Paul relied solely on the advice of Elson in selling the judgment at such a substantial discount. Elson nonetheless maintains that there is no direct evidence that “but for” his advice, St. Paul would not have sold the judgment, emphasizing the inherent risk of pursuing a judgment and the possibility that Schultz would become insolvent as factors that prompted St. Paul to settle. In addition, Elson contends that the letters between Massari, on behalf of McPeak, and Elson, on behalf of St. Paul, regarding the details of the sale of St. Paul’s judgment demonstrate that St. Paul was aware that McPeak was a nominee of Schultz. The district court, in making findings of fact in its restitution order, rejected Elson’s assertions: [T]he Court specifically found credible evidence that the actions of the Defendants, as part of the Schultz conspiracy, directly caused the losses to St. Paul . . . . Specifically, the Government presented reliable evidence that proved, by a preponderance of the evidence, that: (1) Elson failed to disclose to St. Paul all material facts in connection with its decision to sell its judgment to McPeak; [and] (2) Elson did not disclose that McPeak essentially worked for Schultz. . . . The actions of Elson and his co-conspirators lead [sic] St. Paul to sell its judgment at a loss. Their fraud negates any potential business reason St. Paul may have had for selling its judgment at this dramatic of a discount. (J.A. 177-78.) These findings are not clearly erroneous. Mazza, based on conversations with the relevant decision-makers at St. Paul, testified that had St. Paul known that McPeak was a nominee for Schultz, it would not have entered into the agreement to sell its judgment against Schultz for less than one-fourth of its value. Cf. United States v. Gallant, 537 F.3d 1202, 1249 (10th Cir. 2008) (concluding that a victim’s expenses in marketing a credit portfolio were recoverable because the expenses “were incurred because of [the defendants’] misrepresentations”—had the victim “known that the No. 07-3778 United States v. Elson Page 23 portfolio was only worth about thirty per cent of its $200 million face value, he would have known that it was unlikely he would be able to find a buyer, and likely would not have incurred the expenses to market the account”). While cross-examination by the defendants raised the possibility that business reasons—such as the uncertainty of recovery and the expectation that settlements sometimes involve discounted value—might have influenced St. Paul’s decision, neither Elson nor any of his codefendants offered any evidence that Mazza’s testimony was false, misleading, or otherwise unreliable. See United States v. Brika, 487 F.3d 450, 457 (6th Cir. 2007) (noting that to challenge the district court’s reliance on hearsay evidence at sentencing, a defendant “must establish that the challenged evidence is materially false or unreliable”). Further, as the district court found, the letters sent by Massari on behalf of McPeak to Elson as a representative of St. Paul do not reveal the true relationship between Schultz and McPeak. While the letters contemplate that Schultz would agree to release $450,000 from his IRA account in the event that McPeak failed to pay that same amount as the purchase price for the judgment, the letter does not discuss any relationship between McPeak and Schultz, or reveal that Schultz was supplying McPeak with Schultz’s own funds to buy the judgment from St. Paul. Beyond asserting that St. Paul received “full disclosure of all material facts,” Elson does not point to any evidence that would have put St. Paul on notice that Schultz rather than McPeak was purchasing the judgment. Consequently, the district court properly determined that St. Paul was a victim for purposes of the MVRA. No. 07-3778 United States v. Elson Page 24 C. Reliability of Mazza’s Testimony in Proving St. Paul’s Loss Elson also challenges the district court’s reliance on Mazza’s testimony to determine St. Paul’s losses, arguing that because Mazza’s testimony was unreliable hearsay,5 it was inadmissible and, because the government produced no other evidence of St. Paul’s losses, the government failed to meet its burden of proving St. Paul’s loss by a preponderance of the evidence. See 18 U.S.C. § 3664(e). Elson contends that the district court erred in relying on Mazza’s testimony because “there was no indicia of reliability.” (Def.’s Br. 17.) In United States v. Silverman, 976 F.2d 1502 (6th Cir. 1992) (en banc), this Court reiterated its previous position that a “district court may consider hearsay evidence in determining sentence, but the accused must be given an opportunity to refute it, and the evidence must bear some minimal indicia of reliability in respect of defendant’s right to due process.” Id. at 1512 (emphasis removed). Accordingly, Mazza’s testimony must “bear[] some indicia of reliability” to serve as a basis for determining the restitution portion of Elson’s sentence. See id. At the restitution hearing, Mazza testified that St. Paul calculated its loss resulting from the Schultz conspiracy’s fraud by subtracting the amount it received in settlement—$450,000—from the value of the judgment, including interest, at the time the settlement was made. The value of the judgment was based on a previously issued California court order granting attorney fees to St. Paul’s predecessor in interest. The California court order also provided for interest to accrue on the amount of the judgment as of 1990. Thus, Mazza’s testimony as to the amount of loss was based on documentary evidence submitted by St. Paul, and by a court order establishing a basis for calculating the value of the judgment at the time of settlement. Mazza’s testimony as to the amount of loss was more than a “mere allegation,” and thus bore some indicia of reliability. See United States v. Lowenstein, 108 F.3d 80, 83-84 (6th Cir. 1997) (finding that, for purposes of sentencing, a probation officer’s petition which “merely asserts, without 5 In his opening brief, Elson challenged the admissibility of Mazza’s testimony on the grounds that it was hearsay. However, in his reply brief, he acknowledged that hearsay testimony is admissible at sentencing. See Fed. R. Evid. 1101(d)(3); Davis, 170 F.3d at 622. No. 07-3778 United States v. Elson Page 25 further detail or explanation, that defendant left the judicial district without permission . . . . , standing alone, lacks the indicia of reliability” necessary under Silverman). Consequently, the district court’s reliance on Mazza’s testimony did not violate Elson’s rights. See United States v. Hadley, 431 F.3d 484, 511 (6th Cir. 2005) (describing the “indicia of reliability” requirement as a “modest standard”). The district court therefore properly found that the government established St. Paul’s loss by a preponderance of the evidence.