Opinion ID: 158338
Heading Depth: 3
Heading Rank: 4

Heading: Cross-Appeal: Loss Level at Sentencing

Text: The government contests the district court’s determination that Brown’s sentence should not be enhanced under USSG § 2F1.1, which increases a fraud defendant’s offense level for offenses involving either an actual or intended loss in excess of $2,000. See USSG § 2F1.1(b) & comment. (n.7). We review the district court's legal interpretation of § 2F1.1 de novo, and review its findings of fact on the issue of loss for clear error, giving due deference to its application of the guidelines to the facts. See United States v. Janusz , 135 F.3d 1319, 1324 (10th Cir. 1998). The government has the burden of proving loss by the preponderance of the evidence. See United States v. Reddeck , 22 F.3d 1504, 1512 (10th Cir. 1994). The district court determined that the government had not met its burden. The government’s primary argument was that loss should be measured by the entire amount of the judgment the FDIC settled ($2.4 million), which would result in a 12-point increase in offense level. The court disagreed and instead analyzed loss in terms of the value of the three concealed assets, both at the time of Brown’s bankruptcy filing and at the time of his settlement agreement with the FDIC. On this analysis, it found that the government had failed to prove any loss because (a) there was no showing that the Anthony Brown Trust was invalid, or that the residence was transferred fraudulently, and in any event, at the time of the -17- bankruptcy there was no equity in the residence; (b) Brown retained no ownership interest in the fitness center; and (c) NMLC did not exist at the time the bankruptcy was filed, and there was “a failure of proof in terms of the value of New Mexico Land Company that can be attributed to Mr. Brown” at the time of the settlement agreement. R. Vol. XIV at 147. On appeal, the government again focuses almost its entire argument on the claim that loss should be measured by the $2.4 million judgment, reasoning that Brown intended such a loss by fraudulently inducing the FDIC to settle its judgment. We note that the $2.4 million judgment against Brown apparently resulted from conduct unrelated to the offense here (the government does not argue otherwise). That is, although at some point Brown did something that ended in his owing the FDIC $2.4 million, that is not this case. The question here is what loss Brown intended to cause the FDIC by concealing and lying about three specific assets that might satisfy the judgment to some extent. We emphasize that the government does not argue that actual loss amounts to $2.4 million; it bases its entire argument here on intended loss. Yet as a matter of law in this circuit, intended loss “cannot exceed the loss a defendant in fact could have occasioned if his or her fraud had been entirely successful.” United States v. Santiago , 977 F.2d 517, 524 (10th Cir. 1992). Thus, “the fair market -18- value of what a defendant has taken or attempted to take defines the upper limit for loss valuation under Guidelines § 2F1.1.” Id. at 525. The government essentially takes the position that the property “taken” by Brown was the $2.4 million judgment, not just the properties he concealed. This attempted distinction misses the point. In circumstances like these, a judgment’s fair market value is bounded by the worth of the assets sought in satisfaction of the judgment. The most the government can claim is that Brown intended to prevent it from realizing the value of the concealed assets. Therefore the only relevant measure of intended loss is the value of those assets. The government argues alternatively that Brown gained $2.4 million by inducing the FDIC to settle its judgment. First of all, for the reasons above, it does not necessarily follow that Brown actually gained that amount. But more to the point, a defendant’s gain may be used only as an “alternative estimate” of actual or intended loss. USSG § 2F1.1 comment. (n.8). The issue posed by the government’s arguments on the question of loss is not difficulty of measurement, but what to measure. For the reasons above, we think the district court was correct to look only at the value of the three assets concealed. Having expended its energy arguing for a loss of $2.4 million, the government makes little effort to argue for any other measure of loss. The government’s only other argument on appeal is that the district court’s findings -19- are clearly erroneous because they impermissibly conflict with the jury’s guilty verdicts. This claim is made in the most summary fashion, with only a cursory discussion of the alleged conflict, and without any citation to authority. The government concedes that “loss is not a required element” of any of the crimes for which Brown was convicted, Appellee’s Br. at 57, and therefore the jury was never asked to determine the issue. For example, as to Count IV, the government argued to the jury as follows: [Brown] wanted to keep the house, an admirable goal, so long as it is not done to conceal assets or to hide and to lie to the people to whom you are required to tell the truth. I might also point out at this point, because it is kind of an issue, nobody knows today what would have happened if Mr. Brown had put every single thing in that bankruptcy petition, if he had written down, Paul Kahn is holding this house. . . . It’s very possible that the bankruptcy court would have said, well, you know, he’s got a family, he needs to stay in that house, we’re not going to force a sale of that house. But that’s not the point. The point is, Mr. Brown had an absolute obligation to tell the bankruptcy court and let the bankruptcy court make that decision. R. Vol. XXVII at 2229. In principle then, there is no inconsistency between the jury’s verdicts and a finding of no loss; any inconsistency would have to be in the specifics. The government thus argues that “it is difficult to see under the facts of this case how there could be no loss to the FDIC.” Appellee’s Br. at 57 (emphasis added). The government does not tell us what these key facts are. It states only that the court’s finding that “it was not persuaded that the transactions -20- were fraudulent . . . encroached on the jury’s findings of fact.” Id. at 58. This is a considerable oversimplification of the issue. For example, following the tenor of the government’s closing argument above, the jury may well have thought that the only crime Brown committed with relation to the house was not telling the bankruptcy court about a perfectly legal transfer. Some of the conflicts between the jury’s verdicts and the court’s sentencing findings are obvious and troubling. The court appears to have found that Brown in fact had no interest in the fitness center. See R. Vol. XIV at 145, 146. The court also determined essentially that Brown had no interest in the residence at the time of the FDIC settlement. See id. at 151. But it is easy to understand how the court arrived at these conclusions given the dearth of proof offered by the government at sentencing regarding precisely what property interests could be attributed to Brown. Although the government provided evidence regarding the total value of each of the assets, it never attempted to show what portion of that value was properly attributable to Brown. This problem is most apparent with regard to the fitness center. The court acknowledged that “the jury verdict does stand for the proposition that there was a finding by the jury implicitly that the defendant had some interest in the fitness center.” Id. at 145. Yet it had no way to evaluate that interest, because despite strong evidence that Joyce Brown had at least some property interest in the fitness center (it had increased in value in part -21- due to her personal efforts), the government never attempted to provide even an estimate of the portion of the property which could properly be attributed to Brown himself. It likewise makes no such arguments on appeal, with regard to this or either of the other assets. The government has set high hurdles for itself with its “all-or-nothing” stance at sentencing and on appeal. On the record before us, we conclude t he court’s findings do not necessarily undermine the convictions. Its reasoning is repeatedly stated in terms of a “failure of proof.” Given the narrow theories of liability argued at trial and the complicated nature of the property interests involved, the government was not entitled at sentencing merely to rest on the jury’s verdicts coupled with evidence regarding overall asset values. The court was empowered and indeed required to make its own findings on the facts relating to loss, and after a full hearing, it held that the government had not met its burden. See Fed. R. Crim. P. 32(c)(1); United States v. Garcia , 78 F.3d 1457, 1463 n.6 (10th Cir. 1996) (“The judge remains ultimately responsible for determining the facts [at sentencing] . . . .”); cf. United States v. Tavano , 12 F.3d 301 (1st Cir. 1993) (finding error in sentencing court’s refusal to consider evidence favorable to defendant and inconsistent with evidence presented at trial). Although we have misgivings about some aspects of the district court’s findings, on this record, we have no basis for disturbing its decision. -22- AFFIRMED. ENTERED FOR THE COURT Stephen H. Anderson