Court Opinion

ID: 4223795
Source: CourtListenerOpinion
Date Created: 2017-11-28 00:00:25.277759+00
Date Added: 2024-06-11T14:42:01.169262
License: Public Domain

NOT PRECEDENTIAL
                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  _____________

                                       No. 17-1251
                                      _____________

                            UNITED STATES OF AMERICA

                                              v.

                                    MICHAEL J. FREE,
                                              Appellant
                                    _______________

                     On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                              (D.C. No. 2-14-cr-00019-001)
                         District Judge: Hon. Mark R. Hornak
                                   _______________

                       Submitted Under Third Circuit LAR 34.1(a)
                                   October 12, 2017

           Before: CHAGARES, JORDAN, and FUENTES, Circuit Judges.

                                (Filed: November 7, 2017)
                                    _______________

                                        OPINION *
                                     _______________

JORDAN, Circuit Judge.

       Michael Free appeals his resentencing in this bankruptcy fraud case, based on the

District Court’s determination of a “loss amount” to his creditors. Free contends that the

       *
        This disposition is not an opinion of the full court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
loss amount should be zero, while the government argues that the District Court correctly

calculated the loss amount as being more than $400,000. In an earlier appeal of this case,

we remanded “to allow the District Court to determine what, if any, loss to creditors Free

intended, or the gain he sought by committing the crime.” United States v. Free, 839
F.3d 308, 324 (3d Cir. 2016). Because the District Court’s factual findings as to Free’s

intended loss to creditors are not clearly erroneous, we will affirm.

I.     BACKGROUND

       This appeal continues from the point that our earlier opinion in the case left off.

Id. The underlying facts are described in detail there. Id. at 310-18. We will repeat only

those facts pertinent to this appeal.

       Free initially filed for Chapter 13 bankruptcy, which permits a debtor to

reorganize debts. Id. at 310. He disclosed an accounting of his assets and debts on

several forms. Id. The Bankruptcy Court later converted the proceeding into a Chapter 7

action, which liquidates and distributes a debtor’s assets to creditors. Id. at 310-11.

When Free initially filed for bankruptcy, he disclosed assets that exceeded his debts by

several hundred thousand dollars. Id. at 310.

       During a creditors’ meeting, Free “indicated that he was ‘trying to’ sell weapons

he owned by ‘put[ting] them on the Internet.’” Id. at 311 (alteration in original) (citation

omitted). The trustee, assigned to administer the case and liquidate the debtor’s

nonexempt assets, immediately told Free to stop that effort. Id. Over the course of the

bankruptcy, Free “became increasingly uncooperative with [the trustee] and progressively

more disrespectful towards the Bankruptcy Court.” Id. Investigations by local sheriff’s

                                              2
deputies and the FBI uncovered evidence that, during the pendency of the Chapter 7

bankruptcy, Free had sold firearms outside the bankruptcy proceedings and was

concealing assets from the bankruptcy estate, including numerous firearms. Id. at 312-

13.

       Federal prosecutors initiated a criminal case against Free for committing

bankruptcy fraud. Id. at 313. The charges related to false statements and concealment of

assets. Id. at 313-14. “After a five-day trial, a jury convicted Free on all counts.” Id. at

314.

       The U.S. Sentencing Guidelines (“guidelines”) required the District Court to

determine the loss caused by Free’s crimes. Id. at 314; see also U.S. Sentencing

Guidelines Manual (“U.S.S.G.”) § 2B1.1(b). At Free’s first sentencing hearing, the

government argued that the loss amount should be based on the value of the firearms that

Free concealed during the bankruptcy. Free, 839 F.3d at 314-15. But Free countered

that, because his assets exceeded liabilities and all creditors were paid in full, the loss

amount should be zero. Id. at 315. The District Court agreed with the government,

calculating a loss amount of more than $1,000,000 and adding 14 additional levels to the

total offense level. 1 Id. at 317; see also U.S.S.G. § 2B1.1(a)-(b). Ultimately, the District

       1
        In Free, we addressed two issues in that sentencing calculation. Free, 839 F.3d
at 317. First, the District Court applied the 2014 guidelines. Id. at 314 n.39. Under those
guidelines, for a loss amount of “more than $400,000 ... add 14 [levels]” and for “more
than $1,000,000 ... add 16 [levels].” U.S.S.G. § 2B1.1(b)(1)(H)-(I) (U.S. Sentencing
Comm’n 2014). Second, the District Court found that the loss amount was least
$1,000,000, which would warrant a 16-level increase according to § 2B1.1(b)(1)(I) of the
2014 guidelines, but the Court only added a 14-level enhancement. Free, 839 F.3d at
317. Those actions of the District Court are not at issue now.
                                               3
Court sentenced Free to 24 months of incarceration and 3 years of supervised release. Id.

Free appealed the sentence. Id. at 318.

       On appeal, we determined that the District Court had not made essential factual

findings as to whether Free intended to harm his creditors. Id. at 323. Thus, we

remanded “to allow the District Court to determine what, if any, loss to creditors Free

intended, or the gain he sought by committing the crime.” Id. at 324.

       On remand, the Court accepted supplemental briefing from both Free and the

government. Upon considering the record and our directive, the District Court issued

Tentative Findings and Conclusions. The Court calculated the intended loss as being

more than $400,000 and again concluded that the intended loss warranted a 14-level

adjustment. It rejected Free’s contention that the loss amount should be zero. In the

alternative, the Court noted that, if the loss amount were zero, it would either depart or

vary upward from the guidelines’ recommendation to arrive at the same additional 14-

level adjustment.

       On January 26, the District Court held a second sentencing hearing for Free, and,

the next day, entered an Amended Judgment based on its Tentative Findings and

Conclusions. 2 The Court again sentenced Free to 24 months of imprisonment and 3 years

        In sum, the District Court calculated a base offense level of 6, loss enhancement of
14, and bankruptcy fraud enhancement of 2. Id. Free’s total offense level was 22,
resulting in a guidelines range of 41 to 51 months’ imprisonment. Id. The District Court
varied downward, concluding that a total offense level of 16 was “more appropriate.” Id.
       2
         The District Court adopted its Tentative Findings and Conclusions “as
corrected.” (Doc. 142-1 at ¶1.) The corrections were: “The loss amounts set forth at
page 3, line 9, and page 6, line 15, of that document are corrected to be ‘in an amount of
                                              4
of supervised release, but added a fine of $35,000. It imposed an additional fine at

resentencing after concluding that the fine would not pose a risk to the estate, the

creditors, or the administrative expenses. Free now appeals, once again, the District

Court’s findings and conclusions as to the loss amount calculation.

II.    DISCUSSION 3

       A.     Standard of Review

       In our earlier opinion, we described the standard we apply when reviewing a

district court’s calculation of a loss amount for the purposes of sentencing:

       In a fraud case, the government bears the burden of establishing the amount
       of loss for purposes of sentencing by a preponderance of the evidence. When
       calculating the loss amount, a district court need only make a reasonable
       estimate of the loss incurred. We review a district court’s factual findings at
       sentencing for clear error, including factual findings supporting the loss
       calculations ... under Guidelines § 2B1.1. Alternatively, when the
       calculation of the correct Guidelines range turns on an interpretation of what
       constitutes loss under the Guidelines, we exercise plenary review.

Free, 839 F.3d at 319 (footnotes, citations, quotation markes, and brackets omitted). “A

District Court’s finding of intended loss is one of fact, and will not be disturbed unless

clearly erroneous.” United States v. Himler, 355 F.3d 735, 740 (3d Cir. 2004).

at least more than $400,000.’ Further, to the extent the 2016 Manual applies, all
references to ‘at least $550,000,’ are corrected to ‘more than $550,000.’ Such corrections
are fully consistent with the findings and conclusions otherwise set forth.” (Doc. 142-1 at
¶1.)
       3
        The District Court had jurisdiction under 28 U.S.C. § 3231. We have jurisdiction
pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).
                                              5
       Here, the District Court calculated the loss amount based on Free’s concealment of

assets during the bankruptcy. The Court determined that the intended loss was more than

$400,000. This is a factual finding, so we review it for clear error.

       B.     Loss Calculation

       Free argues that the District Court erred in calculating the loss amount because

there was no actual loss or intended loss to any creditor of the bankruptcy estate, nor

evidence that he intended to gain by his unlawful actions or omissions at the expense of

his creditors. He reasons that, because his assets exceeded his liabilities and all creditors

were paid in full, he could not have caused an actual or intended loss to any creditor. He

submits that his motive for concealing assets was personal, not borne of any intent to

cause harm to his creditors. Thus, he argues, the loss amount should be zero. We

disagree.

       The guidelines state that “loss [under subsection (b)(1)] is the greater of actual loss

or intended loss.” 4 U.S.S.G. § 2B1.1 cmt. n.3. In our earlier opinion in this case, we

interpreted “loss” under the guidelines as “pecuniary harm suffered by or intended to be

suffered by victims.” Free, 839 F.3d at 323. Even if no actual loss could possibly have

occurred, a district court can sentence a defendant based on the defendant’s intended loss

       4
          “‘Actual loss’ means the reasonably foreseeable pecuniary harm that resulted
from the offense.” U.S.S.G. § 2B1.1 cmt. n.3(A)(i) (emphasis omitted). “‘Intended loss’
(I) means the pecuniary harm that the defendant purposely sought to inflict; and (II)
includes intended pecuniary harm that would have been impossible or unlikely to occur
(e.g., as in a government sting operation, or an insurance fraud in which the claim
exceeded the insured value).” Id. cmt. n.3(A)(ii).

                                              6
to a victim. United States v. Feldman, 338 F.3d 212, 221 (3d Cir. 2003). A district court

can infer the loss that a defendant intended to inflict on a victim from the defendant’s

conduct, see id. at 223-24 (inferring defendant’s intent from his concealment of large

amount of assets), and the nature of the crime that the defendant sought to commit,

United States v. Greeves, 226 F.3d 186, 192 (3d Cir. 2000). When a defendant has had

many opportunities to come forward and admit his wrongdoing but has never done so, a

court can properly find that the defendant intended to cause a loss. 5 See Himler, 355 F.3d

at 740-41 (finding a defendant, who passed counterfeit checks to purchase a

condominium but claimed no intention of actually possessing the condominium, as

intending to cause a loss).

       The District Court found no actual loss to Free’s creditors: “No matter [Free’s]

intent and duplicity, it appears clear that there will be no actual loss to the creditors or the

administration of the estate, all of the expenses of administration will be paid out of

[Free’s] assets, and there will [be] some leftovers.” (Doc. 142-1 at ¶6.) But, finding no

actual loss did not end the District Court’s inquiry into a loss amount under the

guidelines. Even though it found no actual loss to creditors, the Court rightly understood

that the guidelines still require consideration of the intended loss. Thus, the Court shifted

attention to that issue.

       5
         The court must also look to “the gain that resulted from the offense as an
alternative measure of loss[, but] only if there is a loss ... [that] reasonably cannot be
determined.” U.S.S.G. § 2B1.1 cmt. n.3(B).
                                               7
       It found that Free in fact intended a loss to his creditors. Applying the guidelines

and our opinion in United States v. Feldman, the Court found that Free “purposely

intended and sought to inflict pecuniary harm in an amount of at least [more than]

$400,000 on the bankruptcy estate and ultimately the creditors by his active concealment

of multiple assets of the bankruptcy estate, most specifically his various and numerous

firearms, real estate and vehicles.” 6 (App. at 1250); see Feldman, 338 F.3d at 223.

       The District Court inferred Free’s intentions and purposes – “namely to inflict

pecuniary harm in the amounts noted on the creditors and the bankruptcy estate” – based

on his conduct. (App. at 1251); see also Feldman, 338 F.3d at 223 (concluding that a

district court may infer a defendant’s intentions based on the defendant’s conduct). That

inference of intent was based on the magnitude of the assets concealed, the lengths of the

deceit Free employed to conceal them (despite clear warnings from the trustee and

Bankruptcy Court), and the risk that the disclosed assets might not cover the expenses of

administering the bankruptcy. Like our analysis in Feldman, in which we inferred a

defendant’s intent to cause a loss to creditors from the defendant’s concealment of a large

amount of assets, the District Court here properly inferred Free’s intent to harm creditors

based on his concealment of several hundred thousand dollars of assets. See Feldman,
338 F.3d at 223. Furthermore, like the facts in United States v. Himler, in which a

defendant had many opportunities to come forward to admit wrongdoing but did not do

so, Free had many chances to disclose all of his assets to the Bankruptcy Court but never

       6
        The Court used the words “at least” but clearly meant “more than,” as expressed
in the written judgment. (Doc. 142-1 at ¶1.)
                                             8
did so. See Himler, 355 F.3d at 740. Because Free persisted in concealing his assets, the

District Court did not err in finding that he intended to cause a loss to creditors.

       Although Free argues that he could not have intended a loss because his assets

exceeded his debts, the guidelines instruct otherwise. They specifically state that

intended loss “includes intended pecuniary harm that would have been impossible or

unlikely to occur (e.g., as in a government sting operation, or an insurance fraud in which

the claim exceeded the insured value).” U.S.S.G. § 2B1.1 cmt. n.3(A)(ii). A district

court can sentence a defendant based on the intended loss even if no actual loss could

have occurred. Feldman, 338 F.3d at 221.

       Free sought to avoid distribution of the value of certain assets to creditors by

concealing those assets. Because a finding of intended loss is one of fact, it must be

upheld on appeal absent clear error. Himler, 355 F.3d at 741. The District Court

determined the intended loss amount by summing valuations of converted items as set out

in the Presentence Report, testimony, and Government Sentencing Memorandum. 7

Those valuations amount to more than $400,000. There was thus no error in concluding

that Free intended a loss of more than $400,000 to creditors.

III.   CONCLUSION

       For the foregoing reasons, we will affirm the sentence imposed in the Amended

Judgment.

       7
         Those amounts were $63,760, $37,070, $40,995, $16,500, $205,995, $640,000,
as well as other valuations set out in the record and summarized in the Government
Sentencing Memorandum.
                                              9