Opinion ID: 1422861
Heading Depth: 3
Heading Rank: 2

Heading: Procedural reasonableness as it relates to Guidelines calculations

Text: As this court has explained, the first step of a review for procedural reasonableness requires us to determine if the district court properly calculated the applicable advisory Guidelines range. United States v. Bolds, 511 F.3d 568, 581 (6th Cir.2007). In order to understand Erpenbeck's argument that the district court miscalculated the Guidelines range, we must first review how loss is calculated under the Guidelines. Financial loss for the crime of fraud is calculated under U.S.S.G. § 2B1.1, which occupies four pages in the Sentencing Manual, followed by sixteen pages of application notes. United States v. Ravelo, 370 F.3d 266, 274 (2d Cir.2004) (Raggi, J., concurring in part and concurring in the judgment). A court attempting to apply § 2B1.1 to the crime of fraud begins with a base-offense level of 6. U.S.S.G. § 2B1.1(a). The offense level is then increased based on the amount of loss resulting from the fraud. U.S.S.G. § 2B1.1(b)(1). For example, a loss of more than $7 million results in a 20-level increase, while a loss of more than $20 million results in a 22-level increase. Id. Actual loss is defined as the reasonably foreseeable pecuniary harm that resulted from the offense. U.S.S.G. § 2B1.1, Application Note 2(A). Reasonably foreseeable pecuniary harm means the pecuniary harm that the defendant knew, or under the circumstances, reasonably should have known, was a potential result of the offense. Id. Pecuniary harm is defined as harm that is monetary or that otherwise is readily measurable in money. Id. Once the amount of actual loss is established, that amount is to be reduced by both (1) the amount paid by the defendant to his victims before the fraud was discovered, and (2) the amount of collateral that has been collected at the time of sentencing. U.S.S.G. § 2B1.1, Application Note 2(E). Application Note 2(E) specifically states that loss shall be reduced by any money returned or the fair market value of the property returned ... by the defendant or other persons acting jointly with the defendant ... before the offense was detected, and that [i]n a case involving collateral pledged or otherwise provided by the defendant, [the amount of loss shall be reduced by] the amount the victim has recovered at the time of sentencing from disposition of the collateral, or if the collateral has not been disposed of by that time, the fair market value of the collateral at the time of sentencing. The Guidelines then call for enhanced offense levels depending on the number of victims who suffered any part of the actual loss. U.S.S.G. § 2B1.1(b)(2), Application Note 3(A)(ii). No enhancement applies if the number of victims is under 10. U.S.S.G. § 2B1.1(b)(2)(A). If the number of victims is between 10 and 50, a 2-level enhancement applies, and 4 levels are added if the number of victims is 50 or higher. U.S.S.G. § 2B1.1(b)(2)(A) & (B). After the Booker remand, Judge Beckwith disagreed with Judge Spiegel's Guidelines calculations and found that the amount of actual loss totaled $7.9 million. This calculation resulted in a base-offense-level increase of 20 for the amount of loss as opposed to an increase of 22 levels under Judge Spiegel's calculations. See U.S.S.G. § 2B1.1(b)(1). The key reason for the difference of view was Judge Beckwith's determination that only the eight construction lenders were the victims of Erpenbeck's crime under § 2B 1.1(b)(2)(A), Application Note 3(A)(ii) (i.e., only the construction lenders suffered any actual loss because the construction liens on individual homes were eventually cleared). In reaching the $7.9 million of actual loss, Judge Beckwith accepted the government's assertion that the lenders holding construction loans were owed approximately $33 million. But she then subtracted from that amount (1) approximately $7 million that Erpenbeck paid on his loans before the fraud was discovered, and (2) approximately $18 million that the construction lenders received through both the sale of collateral and the Mitchell settlement. This left a total of $7.9 million in actual loss. Judge Beckwith declined to impose an enhancement based on the number of victims because she determined that, given her conclusion that only the lenders suffered an actual loss, the Guidelines prohibited her from finding that the homeowners were victims. As a result, she concluded that the number of victims was fewer than 10 (i.e., only the 8 construction lenders). See U.S.S.G. § 2B1.1(b)(2). Erpenbeck's final offense level thus fell from 42 at his first sentencing to 36 at resentencing. Finally, Judge Beckwith rejected the government's arguments that (1) the Mitchell settlement should be counted against Erpenbeck as part of the actual loss incurred by PBNK or, at the very least, should not be credited to Erpenbeck to reduce the amount of actual loss incurred by other lenders who received funds from the Mitchell settlement, and (2) the amount of intended loss was higher than the court's calculation for actual loss, so the court should have used the intended loss to determine the final amount of loss under U.S.S.G. § 2B1.1(b)(1). Addressing the Mitchell settlement, Judge Beckwith commented as follows: While the net amount paid to settle Mitchell, and amounts paid to participating banks when PKNB was sold may be relevant to calculating restitution, the Court finds that these amounts are not properly included in the actual loss calculation for Guidelines purposes. PBNK's chief officers, Finnan and Menne, were willing and active participants in Defendant's larger fraudulent scheme.... [T]he court is unable to conclude, based on a preponderance of the evidence in the record, that the Mitchell settlement should be included as an actual loss for the purpose of calculating this Defendant's advisory Guidelines range. She did not address the government's alternative argument that the money paid to the construction lenders out of the Mitchell settlement should at the very least not be used to reduce the amount of loss. As for intended loss, Judge Beckwith determined that, because there was significant collateral on all of the loans to the eight construction lenders, and because Erpenbeck was attempting to temporarily resolve his cash-flow problem rather than permanently defraud the homeowners, Erpenbeck did not subjectively intend to cause significant pecuniary harm to either the construction lenders or the individual homeowners. On that basis, she reasoned that Erpenbeck's subjective intent to defraud was not sufficiently weighty to support a conclusion that the intended loss was significantly more than the actual loss that was sustained.