Court Opinion

ID: 6330365
Source: CourtListenerOpinion
Date Created: 2022-04-13 00:00:57.951401+00
Date Added: 2024-06-11T09:23:00.246382
License: Public Domain

Case: 20-51054     Document: 00516272312        Page: 1   Date Filed: 04/07/2022

           United States Court of Appeals
                for the Fifth Circuit                            United States Court of Appeals
                                                                          Fifth Circuit

                                                                        FILED
                                                                     April 7, 2022
                                 No. 20-51054
                                                                   Lyle W. Cayce
                                                                        Clerk
   United States of America,

                                                          Plaintiff—Appellee,

                                     versus

   Brian Alfaro,

                                                       Defendant—Appellant.

                  Appeal from the United States District Court
                       for the Western District of Texas
                           USDC No. 5:18-CR-879-1

   Before Jolly, Smith, and Engelhardt, Circuit Judges.
   E. Grady Jolly, Circuit Judge:
         Following an eight-day trial, a jury convicted Brian Alfaro on seven
   counts of mail fraud under 18 U.S.C. § 1341. The district court sentenced
   Alfaro to 121 months of imprisonment with three years of supervised release
   and ordered restitution in the amount of $9,922,428.63. This sentence was
   within the Guidelines range. Alfaro appeals his sentence and the district
   court’s restitution order. For the reasons specified below, we VACATE and
   REMAND the sentence and restitution order based solely on the district
   court’s erroneous assessment of total loss amount. In all other respects we
   AFFIRM.
Case: 20-51054      Document: 00516272312          Page: 2   Date Filed: 04/07/2022

                                    No. 20-51054

                                          I
          From 2012 through mid-2015, Alfaro, through his company, Primera
   Energy (Primera), offered investors the opportunity to own shares—sold as
   units of “working interest”—in various oil and gas prospects, including the
   Screaming Eagle 4H Prospect (4H), Screaming Eagle 6H Prospect (6H), and
   the Black Hawk Horizontal Buda #1 Prospect. Primera created a Confidential
   Private Placement Memorandum (PPM), which memorialized each
   investor’s contract. According to the indictment, Alfaro or his employees
   made material, false representations to investors in order to induce them into
   buying units and then fraudulently misused the investors’ funds.
          In the presentence report (PSR), the probation officer determined
   that based on a total amount of investment ($13,781,150.87) minus the
   calculated tax benefits that the investors could have claimed on their tax
   returns ($3,858,722.24), the total amount of loss was $9,922,428.63. The
   PSR noted that Alfaro had a criminal history category of I and calculated that
   the total offense level was 39. The resulting Guidelines range of
   imprisonment was 262 to 327 months, but the probation officer noted that a
   sentence in this range could only be achieved if consecutive sentences were
   imposed because the statutory maximum term of imprisonment was 240
   months. The PSR also determined the victims were owed $9,922,428.63 in
   restitution.
          At sentencing, the Government conceded that the PSR’s total loss
   amount should be reduced by the $325,540.35 that Primera paid to 4H
   investors in royalties and the $167,288.55 distributed to investors through
   Primera’s bankruptcy proceedings, resulting in a total loss amount of
   $9,429,599.73. The Government correctly noted that, after that reduction in
   loss, the applicable specific offense characteristic was an 18-level adjustment

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   under § 2B1.1(b)(1)(J). Thus, the total offense level would be 37, which
   would result in a Guidelines range of imprisonment of 210 to 262 months.
          Without specifically ruling on the Government’s concession, the
   district court held that the PSR’s loss calculations were correct and adopted
   the PSR’s proposed loss finding of $9,922,428.63 by finding the specific
   offense characteristics merited a 20-level adjustment. The district court also
   found that Alfaro’s offense resulted in substantial financial hardship to five
   or more victims, the offense involved sophisticated means, and Alfaro abused
   a position of public or private trust or used a special skill in a manner that
   significantly facilitated the commission or concealment of the offense. The
   district court, however, sustained Alfaro’s objection to the organizer-or-
   leader enhancement and granted Alfaro a three-level reduction for
   acceptance of responsibility because Alfaro agreed to not appeal the jury’s
   verdict. Thus, Alfaro had a criminal history category of I and a total offense
   level of 32. The district court then concluded that the correct Guidelines
   range was 121 months to 151 months, imposed a sentence of 121 months’
   incarceration, and ordered restitution in the amount of $9,922,428.63.
          On appeal, Alfaro argues that the district court erred in: (1) its loss
   calculation; (2) its application of the § 2B1.1(b)(2)(B) adjustment for an
   offense causing substantial financial hardship to five or more persons; (3) its
   application of the § 2B1.1(b)(10)(C) adjustment for an offense and conduct
   involving sophisticated means; and (4) its calculation of the restitution
   award. We first address Alfaro’s loss calculation arguments.
                                          II
                                          A
          Alfaro argues that the district court’s loss calculation was incorrect
   because: (1) it should have determined his sentence based on gain, rather than
   on actual loss, which he asserts was not reasonably quantifiable; (2) it did not

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   account for the fair market value of the investors’ ownership interests in the
   wells and the fair market value of the services rendered in the completion of
   most of the wells; (3) the loss amount should not have been based on 425
   investors; (4) there is no evidence that Alfaro “knew” or could “reasonably
   foresee” a loss of investment; (5) the district court erred by failing to consider
   “other factors” relevant to whether Alfaro intended to cause loss; and (6)
   the district court erred by failing to accept the Government’s concession that
   the total loss amount was $9,429,599.73.
          We review the district court’s loss calculations for clear error, but the
   district court’s method of determining loss, as well as its interpretations of
   the Guidelines, are reviewed de novo. United States v. Harris, 821 F.3d 589,
   601 (5th Cir. 2016). “There is no clear error if the district court’s finding is
   plausible in light of the record as a whole.” United States v. Cisneros-
   Gutierrez, 517 F.3d 751, 764 (5th Cir. 2008) (internal quotation marks and
   citation omitted). And facts relevant to sentencing must be proven by a
   preponderance of the evidence. United States v. Duhon, 541 F.3d 391, 395 (5th
   Cir. 2008). A PSR generally “bears sufficient indicia of reliability to be
   considered . . . by the sentencing judge in making factual determinations.”
   United States v. Zuniga, 720 F.3d 587, 591 (5th Cir. 2013) (internal quotation
   marks and citation omitted). “The district court receives wide latitude to
   determine the amount of loss and should make a reasonable estimate based
   on available information.” United States v. Jones, 475 F.3d 701, 705 (5th Cir.
   2007); see also U.S.S.G. § 2B1.1 cmt. n.3(C) (“The sentencing judge is in a
   unique position to assess the evidence and estimate the loss based upon that
   evidence.”). As discussed more infra, all of Alfaro’s loss calculation
   arguments lack merit except his sixth and final one: that the district court
   erred by not accepting the Government’s concession as to the total loss
   amount.

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          First, Alfaro’s argument that the district court should have calculated
   his sentence under § 2B1.1 based on gain lacks merit because the actual loss
   amount could be reasonably determined. See U.S.S.G. § 2B1.1 cmt. n.3(A)-
   (C). Accordingly, Alfaro has failed to show that the district court erred by
   using the actual loss standard for purposes of calculating his sentence under
   § 2B1.1. See Harris, 821 F.3d at 601.
          Second, Alfaro argues that the actual loss standard was inappropriate
   in this case because it cannot account for the fair market value of the
   investors’ ownership interests in the wells and the fair market value of the
   services rendered in the completion of most of the wells. But, because the
   investors did not receive any value or benefit from Primera’s legitimate
   business expenditures, there is no reason to credit those amounts against the
   actual loss amount. See United States v. Spalding, 894 F.3d 173, 191-92 (5th
   Cir. 2018).
          Third, Alfaro contends that the district court erred by calculating the
   loss amount based on 425 investors because the prosecution failed to prove
   that all those investors were victims of his offense and that all the 420 non-
   testifying investors considered the “no transaction-based compensation”
   clause in the PPMs to be material to their decision to invest. Because
   materiality of falsehood is an element of a mail fraud offense under § 1341,
   the jury necessarily found that Alfaro used false material representations,
   pretenses, or promises in his scheme to defraud. See Neder v. United States,
   527 U.S. 1, 25 (1999). For purposes of calculating financial loss under § 2B1.1,
   a “victim” is defined as “any person who sustained any part of the actual loss
   determined under subsection (b)(1).” U.S.S.G. § 2B1.1 cmt. n.1. The record
   indicates that all the investors in Primera’s wells—and specifically those who
   invested in the 4H and 6H wells—lost their initial investments and
   ownership interests, although there is some variation among investors as to
   how much they recouped in dividends and bankruptcy payouts. Alfaro has

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   not shown that the district court erred by failing to make a materiality finding
   as to each specific investor before including that investor as a victim for
   purposes of the loss calculation. Furthermore, to the extent that Alfaro
   challenges the district court’s use of an extrapolation methodology in the loss
   calculation, we have affirmed that method to calculate loss amounts in other
   fraud cases. See, e.g., United States v. Fairley, 880 F.3d 198, 215-16 (5th Cir.
   2018); United States v. Johnson, 841 F.3d 299, 303-05 (5th Cir. 2016).
          Fourth, Alfaro’s challenge to the district court’s use of the actual loss
   standard is based, in part, on whether it was reasonably foreseeable that the
   investors would lose their investments and ownership interests as a result of
   his offense. To the extent that his arguments are based on the implication
   that he lacked the requisite specific intent, the jury necessarily rejected that
   argument by finding him guilty because specific intent to defraud is an
   element of his offense. See United States v. Strong, 371 F.3d 225, 227 (5th Cir.
   2004). Alfaro’s allegations that other factors contributed to Primera’s
   eventual downfall do not obviate his legal liability deriving from his offense.
   See United States v. Bazemore, 839 F.3d 379, 390-91 (5th Cir. 2016); United
   States v. Olis, 429 F.3d 540, 545 (5th Cir. 2005). Based on the evidence at
   trial, the district court did not commit clear error in finding that the actual
   losses to the investors were reasonably foreseeable pecuniary harm that
   resulted from Alfaro’s offense.
          Fifth, Alfaro argues that a variety of general factors indicate that he
   did not intend to cause any loss. Specifically, he argues that (1) the
   prosecution and the investor witnesses erroneously stated that Primera’s use
   of the investors’ funds for its own expenses was limited to the Management
   Fee; (2) he reasonably relied on various financial estimates that the well
   projects would be profitable; and (3) investors owed as overages the unpaid
   vendor obligations. But, as discussed supra, the jury’s verdict necessarily
   showed that Alfaro had the intent to defraud, and the district court found that

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   the investors’ loss of their investments, minus certain credits, was reasonably
   foreseeable. Even if it were true that investors owed the unpaid vendor
   obligations as overage charges, those amounts did not ultimately confer any
   value to the investors and are therefore not proper offsets. See Spalding, 894
   F.3d at 191-92. Therefore, these general factors do not support a conclusion
   that the district court’s loss calculation was clear error.
          Sixth, Alfaro contends that the district court erred by failing to accept
   the Government’s concession as to the total actual loss amount. We agree;
   the district court’s failure to accept the Government’s concession was error.
   Specific evidence supported the Government’s concession that the total loss
   amount was $9,429,599.73 after accounting for proper offsets to the total loss
   amount, and as such, the district court should have accepted it. See U.S.S.G.
   § 2B1.1 cmt. n.3(E)(i); Harris, 821 F.3d at 605-07; United States v. Klein, 543
   F.3d 206, 213-15 (5th Cir. 2008). The district court’s failure to accept the
   Government’s concession resulted in an erroneous Guidelines range
   calculation. If the district court had accepted the Government’s concession,
   Alfaro’s Guidelines range would have been 97 months to 121 months, not the
   121-month to 151-month range adopted by the district court. U.S.S.G. §5A.
          The district court’s procedural error in calculating the Guidelines
   range requires a remand unless the Government can establish that the error
   was harmless. See Harris, 821 F.3d at 607. Establishing harmless error is a
   “heavy burden” that requires proving that the “sentence the district court
   imposed was not influenced in any way by the erroneous Guidelines
   calculation.” United States v. Ibarra-Luna, 628 F.3d 712, 717, 719 (5th Cir.
   2010). The Government can establish harmless error if the wrong Guidelines
   range is employed in two ways. First, the Government can “show that the
   district court considered both ranges (the one now found incorrect and the
   one now deemed correct) and explained that it would give the same sentence
   either way.” United States v. Guzman-Rendon, 864 F.3d 409, 411 (5th Cir.

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   2017). Second, where the district court did not consider the correct
   Guidelines range, the Government must “convincingly demonstrate[] both
   (1) that the district court would have imposed the same sentence had it not
   made the error, and (2) that it would have done so for the same reasons it
   gave at the prior sentencing.” United States v. Redmond, 965 F.3d 416, 420
   (5th Cir. 2020) (internal quotation marks omitted) (quoting Ibarra-Luna, 628
   F.3d at 714), cert. denied, 141 S. Ct. 1411 (2021). The Government has not met
   its heavy burden to establish harmless error in this case.
          The record is clear that the district court did not consider both the
   incorrect Guidelines range and the range now deemed correct. Instead, the
   district court considered the positions of both the Government and Alfaro on
   the Sentencing Guidelines but rejected both parties’ calculations in favor of
   what it deemed to be the correct Guidelines range. The court rejected
   Alfaro’s proposed Guidelines calculations of 37 months to 46 months and
   stated that if Alfaro’s proposed Guidelines calculations were correct, the
   court would nonetheless find that an upward adjustment would be required.
   The district court also rejected the Government’s Guidelines calculation,
   which was more than the 240-month statutory maximum, and stated that if
   the Government’s calculation were correct, it would find that “a downward
   adjustment/variance would be in order.” The district court concluded that
   the correct Guidelines range was 121 to 151 months and sentenced Alfaro to
   121 months’ incarceration.
          Contrary to the Government’s argument, the district court’s rejection
   of both parties’ proposed Guidelines ranges does not show that it had a
   particular sentence in mind and would have imposed it notwithstanding the
   calculation error. Rather, the district court’s reasoning shows that it believed
   that a now erroneous Guideline sentence of 121 months was appropriate,
   which supports the inference that the Guidelines calculation influenced the
   sentence. See Ibarra-Luna, 628 F.3d at 719. Moreover, in sentencing him to

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   121 months’ incarceration, the district court sentenced Alfaro to the bottom
   of the incorrect Guideline range, which we have previously concluded
   “indicates that the improper guideline calculation influenced the sentence.”
   United States v. Martinez-Romero, 817 F.3d 917, 925-26 (5th Cir. 2016) (per
   curiam); see also id. (“We . . . conclude that the district court’s selection of
   the bottom of the incorrect guideline range indicates that the improper
   guideline calculation influenced the sentence.”); United States v. Cardenas,
   598 F. App’x 264, 269 (5th Cir. 2015) (unpublished) (holding that an error
   was not harmless when the district court chose the lowest end of the
   improper sentencing range after stating that “even if the Court isn’t correct,
   the Court believes it is necessary to sentence at this very high range”). The
   district court’s selection of the bottom of the incorrect Guidelines range is
   not a mere “coincidence.” Id. Accordingly, the record does not convincingly
   demonstrate that the sentence the district court imposed was not influenced
   in any way by the erroneous Guidelines calculation. A remand for
   resentencing is therefore appropriate.
           As the district court also used the actual loss amount calculation to
   determine the restitution amount under § 2B1.1(b)(1), the district court’s
   restitution award is vacated and remanded. 1 See United States v. Beydoun, 469
   F.3d 102, 107-08 (5th Cir. 2006). Thus, we do not consider Alfaro’s
   restitution arguments.

           1
             On appeal, the Government concedes that it “may be necessary to remand” the
   restitution award “to determine the recipients of that value and reduce the amount
   awarded to those victims” because the loss amount calculated by the district court failed to
   account for the royalties from the 4H well and the reimbursements from the bankruptcy
   court.

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                                     No. 20-51054

                                          B
          Alfaro next challenges the district court’s application of the
   § 2B1.1(b)(2)(B) adjustment for causing substantial financial hardship to five
   or more persons because he asserts that there was insufficient proof showing
   that the requisite number of investors who submitted victim impact
   statements were victims and had suffered a substantial financial loss. The
   district court was entitled to rely on the PSR’s findings that there were at
   least five victims who suffered substantial financial hardship, especially given
   the PSR’s inclusion of the 19 victim impact statements upon which those
   findings relied. See United States v. Simpson, 741 F.3d 539, 557 (5th Cir.
   2014); United States v. Tedder, 81 F.3d 549, 551 (5th Cir. 1996). Alfaro did not
   meet his burden of showing that those findings were inaccurate or materially
   untrue. See Simpson, 741 F.3d at 557; Tedder, 81 F.3d at 551. Moreover,
   examination of the victim impact statements shows that well over five of the
   victims met at least one of the enumerated factors set forth in § 2B1.1’s
   commentary for determining if the offense resulted in substantial financial
   hardship to a victim. See U.S.S.G. § 2B1.1 cmt. n.4(F). Accordingly, the
   district court’s application of the § 2B1.1(b)(2)(B) adjustment was not error.
                                          C
          Finally, Alfaro argues that the district court erred by applying the
   § 2B1.1(b)(10)(C) adjustment for an offense and conduct involving
   sophisticated means. He portrays his offense conduct as straightforward and
   asserts that the stated bases for this adjustment lacked a sufficient evidentiary
   basis. Our examination of the record shows that the factual findings
   underlying this adjustment were plausible in light of the record and when
   Alfaro’s scheme is viewed in its entirety. See United States v. Miller, 906 F.3d
   373, 380 (5th Cir. 2018). We have affirmed application of this adjustment
   even if the method used to impede discovery of the offense is “not by itself

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   particularly sophisticated.” Id. Because we are not “left with the definite and
   firm conviction that a mistake has been committed,” the district court did
   not commit clear error in this regard. Id. (internal quotation marks and
   citation omitted).
                                         III
          In this appeal, we have held that the district court erred in calculating
   the total loss amount because that court failed to accept the Government’s
   concession that the total loss amount was $9,429,599.73. We have rejected
   Alfaro’s other loss calculation arguments. Additionally, we have vacated and
   remanded the district court’s restitution award because it was based on the
   district court’s erroneous assessment of the total loss amount. Finally, we
   have concluded that the district court’s application of the § 2B1.1(b)(2)(B)
   adjustment for causing substantial financial hardship to five or more persons
   was not error, and that the district court did not commit clear error in
   applying the § 2B1.1(b)(10)(C) adjustment for an offense and conduct
   involving sophisticated means.
          Accordingly, we VACATE the imposed sentence based solely on the
   district court’s erroneous assessment of total loss amount, and REMAND
   for resentencing in accordance with this decision. In all other respects, the
   judgment of the district court is AFFIRMED.
                         AFFIRMED in part; VACATED; REMANDED.

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