Court Opinion

ID: 2998050
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:40:36.22624+00
Date Added: 2024-06-11T11:45:35.295132
License: Public Domain

In the
    United States Court of Appeals
               For the Seventh Circuit
                         ____________

No. 04-3440
UNITED STATES OF AMERICA,
                                              Plaintiff-Appellee,

                               v.

KENT G. BERHEIDE,
                                          Defendant-Appellant.

                         ____________
           Appeal from the United States District Court
              for the Western District of Wisconsin.
             No. 04 CR 22—John C. Shabaz, Judge.
                         ____________
     ARGUED MAY 13, 2005—DECIDED AUGUST 30, 2005
                     ____________

 Before CUDAHY, EASTERBROOK, and KANNE, Circuit
Judges.
  KANNE, Circuit Judge. Pursuant to a plea agreement,
Kent G. Berheide pled guilty to one count of making a false
statement and overvaluing security to influence Peoples
State Bank to defer action on the replevin of collateral for
a loan in violation of 18 U.S.C. § 1014.1

1
  Kent Berheide and his wife Lisa Berheide were originally
charged in an indictment alleging various fraudulent acts. Kent
                                                  (continued...)
2                                                   No. 04-3440

  Prior to sentencing, the district court and the parties
became aware of this court’s decision in United States v.
Booker, 375 F.3d 508 (7th Cir. 2004). To address the
potential constitutional problems with the sentencing
guidelines, the government and Berheide entered into an
addendum to the plea agreement in which they agreed that
“the United States Sentencing Guidelines are applicable in
their entirety to this case, with the following exception.
Namely, the defendant consents to judicial fact finding of
all sentencing adjustments, but reserves the right to
contend at sentencing that the Court should make its
findings of fact beyond a reasonable doubt.” The district
court accepted the supplemented plea agreement. Then,
using a “beyond a reasonable doubt” standard, the court
made factual findings regarding guidelines calculations and
sentenced Berheide to 37 months’ imprisonment.
  On appeal, Berheide argues that the intended loss figure
used to compute his sentence was incorrect, and that the
guidelines range was improperly calculated. We agree. We
order the sentence vacated, and the case will be remanded
to the district court for resentencing.

                       I. Background
  Kent and Lisa Berheide owned and operated KB Supply,
Inc., a small business in West Salem, Wisconsin. In March
1998, Kent Berheide contacted Peoples State Bank (“the
bank”) in Wausau, Wisconsin, and requested a loan that
would be used to purchase B and R Home Center, located in
Wausau and Antigo, Wisconsin. A loan was secured from

1
  (...continued)
Berheide was charged with nine counts and his wife with seven.
Lisa Berheide pled guilty to concealing $8685 in state and federal
income tax refunds from the bankruptcy court, the trustee, and
their creditors. She was sentenced to four months’ imprisonment.
No. 04-3440                                                   3

the bank and on May 13, 1998, Kent and Lisa Berheide
signed a promissory note for a $550,000 revolving line of
credit. They also signed a personal guarantee and a general
business security agreement. The bank disbursed the full
amount of the $550,000 loan to the Berheides.2 On the same
day, Kent Berheide purchased B and R Home Center.
  Approximately ten months later, in March 1999, the bank
performed a field audit on KB Supply, Inc., because it was
having difficulty obtaining loan payments. The audit
disclosed that the inventory levels and accounts receivables
were lower than Berheide had represented.
  In late May 1999, the KB Supply store in Wausau
(apparently the former B and R Home Center) closed.
Shortly thereafter, the bank began a replevin action against
KB Supply, Inc., to liquidate collateral for the loan. Kent
Berheide and his lawyer asked the bank to postpone the
replevin action so that the business could be sold as a going
concern.
  On July 16, 1999, the bank entered into a forbearance
agreement with KB Supply, Inc., whereby the bank gave
KB Supply until August 15 to produce documentation of a
sale. In return, KB Supply gave the bank a security interest
in various vehicles, and Kent Berheide gave the bank a
security interest in KB Properties, a partnership that
owned real estate located in Antigo and West Salem,
Wisconsin.
  The bank then filed mortgages on the real estate holdings
of KB Properties. The bank soon learned, however, that the
day before providing the security interest in the real estate,
Berheide had transferred ownership in the West Salem
property to someone else—real estate the bank believed to

2
  KB Supply, Inc., received a $200,000 loan from the bank on May
13 as well.
4                                                   No. 04-3440

be worth $200,000. In early August 1999, bank representa-
tives went to the KB Supply store in West Salem to repos-
sess collateral, but they found only three rolls of carpeting.
  At that time, Kent Berheide owed the bank a loan balance
of $521,231.87.3 This loan balance figure was used in
Berheide’s presentence report to compute the intended loss
that determined the sentencing guidelines range. The
$521,231.87 was added to other losses totaling
$194,073.99.4 The district court then found beyond a
reasonable doubt that “the intended loss of $715,305.86 was
more than 500 but less than the 800 . . . .” (Sent. Tr. at 26.)
Having thus determined that the intended loss fell between
$500,000 and $800,000, the court enhanced Berheide’s
sentence by 10 levels, calculated a guidelines range of 30-37
months, and imposed a 37-month sentence.
  Berheide argues that the $521,231.87 figure was improp-
erly included in the intended loss calculation. It is undis-
puted that he legitimately obtained the $550,000 loan from
the bank in May 1998. He admits that more than a year
later, in July 1999, he gave the bank a mortgage on prop-
erty he no longer owned in order to induce the bank to delay
its replevin action. However, he argues that with regard to
the fraudulently obtained forbearance agreement, the
government did not prove that the bank suffered any real
loss in the three weeks it delayed in pursuing its replevin
action. In order to prove that a $521,231.87 loss occurred,
the government would have had to show that $521,231.87

3
  The ultimate actual loss suffered by the bank, after taking into
account what it received as a creditor in bankruptcy, was
$462,384.12.
4
   This figure includes a loan balance of $140,000 that was owed
to another bank, and funds concealed from the bankruptcy trustee
which included $8685 in income tax refunds, $37,888.99 in
inherited property, and a camper worth more than $7500.
No. 04-3440                                                  5

in assets existed at the time of the July forbearance agree-
ment and then entirely disappeared by early August when
the bank sought to recover its collateral.
  Berheide contends that his conduct in fraudulently
obtaining the forbearance agreement, while criminal,
should not be punished as if he had fraudulently obtained
the $550,000 loan itself. There is no doubt that he breached
the May 1998 loan agreement by not paying off the debt,
but breach of contract is not a crime. What we must
determine here is the amount of loss for which he is
criminally liable, remembering that the wrongful conduct
charged was that he fraudulently secured the July 1999
forbearance agreement.

                        II. Analysis
  “The district court’s assessment of the amount of loss is a
factual finding, which we will not disturb unless it is clearly
erroneous.” United States v. Lane, 323 F.3d 568, 585 (7th
Cir. 2003) (citation omitted). However, the meaning of “loss”
is a legal question that we review de novo. See id.
  Berheide was sentenced according to U.S.S.G.
§ 2F1.1(b)(1)(K), which was in effect at the time of his
offense. That section required an increase of 10 levels for a
loss of more than $500,000 but less than $800,000. The
application notes tell us that the punishment for fraud is
based on either the actual or intended loss, whichever is
greater. See U.S.S.G. § 2F1.1, Application Note 7 (Nov.
1998).
  There is no doubt that the loan balance was an easy figure
to latch onto in computing the intended loss to the bank,
but the real question is whether the government proved
beyond a reasonable doubt that the entire loan balance was
the correct loss figure. The government called one witness
at sentencing who presented documents and testimony
6                                                No. 04-3440

relating only to the amount of money that the bank was
owed in July 1999. This testimony would have been rele-
vant if Berheide had fraudulently obtained the May 1998,
$550,000 loan. He did not. There was simply no evidence
showing that the bank could have collected $521,231.87 in
collateral on the day that the July 1999 forbearance
agreement was signed. The government presented no
evidence that the bank suffered any actual loss by delaying
its collection actions for three weeks following the signing
of the July 16, 1999, forbearance agreement.
  Even though the government did not prove any actual
loss, we must still consider the intended loss. “[T]he
relevant understanding of values for purposes of determin-
ing intended loss under the sentencing guidelines is that of
the criminal, not that of the victim.” United States v.
Fearman, 297 F.3d 660, 661 (7th Cir. 2002). We must
determine how much loss, if any, Berheide intended the
bank to suffer on July 16, 1999, the date of the fraudulently
induced forbearance agreement. See id. at 662.
  Berheide obviously had a better idea of the value of his
business than did the bank on the day he signed the
forbearance agreement. If he knew that the business assets
were virtually non-existent on July 16, “it is difficult to see
how [the bank] was hurt by the delay” in collecting the
collateral. See id. at 661. For example, if the bank would
have recovered three rolls of carpet and miscellaneous
fixtures on July 16, and did recover three rolls of carpet and
miscellaneous fixtures in early August, the actual and
intended loss is $0.
  It does seem odd that Berheide would commit criminal
fraud in signing the forbearance agreement if there were
minimal assets for the bank to collect. But it is possible that
he truly believed he would be able to find a buyer for the
business. Cf. id. at 662 (explaining that although it was
difficult to determine what benefit the defendant thought
No. 04-3440                                                    7

she might gain from the fraud, an intended loss “is not a
realistically expectable loss . . . [but,] it must exist at least
in the defendant’s mind.”) (internal citation omitted).
Selling the business as a going concern may have allowed
Berheide to pay off his loans and might have even kept him
out of bankruptcy. While it is true that finding a buyer for
the failing business was likely an unrealistic hope, it
appears that Berheide believed it possible. Nevertheless,
there is no basis for a finding that Berheide believed his
business to be worth $521,231.87 on July 16—especially
considering the fact that in early August, nothing remained
except for three rolls of carpeting—and therefore, the
intended loss was calculated improperly.
  Berheide argues that if the loss attributed to him of
$715,305.86 is reduced by $521,231.87, the total loss based
on relevant conduct will be $194,073.99. Accepting the
$194,073.99 figure as the loss amount would increase his
base offense level by 7 (instead of 10), and lead to a calcu-
lated guidelines range of 21-27 months. See U.S.S.G. §
2F1.1(b)(1)(H) (Nov. 1998). It is difficult, however, to
determine the appropriate loss figure from the current
record. It seems clear, for example, that Berheide intended
the bank to suffer the loss of the West Salem property, but
was the real estate worth $200,000 as the bank speculated?
Also, if the government can produce evidence that Berheide
disposed of secured assets between July 16 and early
August, the value of those assets would be properly in-
cluded in the intended loss figure and considered in
Berheide’s resentencing. So, although the record is incom-
plete and we do not know what the intended loss figure
should be, we are certain that it should not include the
$521,231.87 loan balance.
  The district court in this case correctly predicted the
demise of the mandatory sentencing guidelines. See United
States v. Booker, 125 S. Ct. 738 (2005). Judge Shabaz
imposed a sentence treating the guidelines as mandatory,
8                                                No. 04-3440

as agreed to by Berheide, but also stated that “in the event
the United States guidelines are ruled unconstitutional the
Court will also impose an alternative sentence consistent
with the provisions of Section 3553(a) and use the guide-
lines calculated by the Probation Office as advisory and a
reliable indicator in determining the appropriate sentence
within the statutory limits of conviction.” (Sent. Tr. at 22.)
The court imposed a 37-month sentence under both the
mandatory and advisory guidelines schemes.
  By selecting both a mandatory sentence and a
“nonguidelines alternative sentence,” the district court
followed our directive in Booker, 375 F.3d at 515. Typically,
we would now review the discretionary sentence for reason-
ableness. See Booker, 125 S. Ct. at 765. However, in this
case, the government and Berheide entered into a plea
agreement—accepted by the court—in which Berheide
agreed “that the United States Sentencing Guidelines are
applicable in their entirety[.]” It is well established that a
plea agreement is treated as a contract. See, e.g., United
States v. Bownes, 405 F.3d 634, 636 (7th Cir. 2005). Here,
Berheide bargained for the right to be sentenced under the
mandatory guidelines regime. He waived his right to any
possible sentencing benefit that Booker might have afforded
and is entitled to a properly calculated sentence under the
mandatory guidelines.
  Although we must defer to the district court’s findings of
fact unless they are clearly erroneous, here we have a
“definite and firm conviction that a mistake has been
made.” United States v. Brierton, 165 F.3d 1133, 1137 (7th
Cir. 1999). Because the court selected a guidelines range by
relying on a clearly erroneous factual finding, “we are
obliged to remand for resentencing unless, reviewing the
record as a whole, we can conclude that the error was
harmless, i.e., that the error did not affect the district
court’s selection of the sentence imposed.” United States v.
Hollis, 230 F.3d 955, 958 (7th Cir. 2000) (citing Williams v.
No. 04-3440                                                9

United States, 503 U.S. 193, 201-04 (1992)).
  It is apparent that the error made by the district court in
calculating the intended loss figure did affect the sentence
imposed. Therefore, we must vacate the sentence and
remand for resentencing under the sentencing guidelines,
as mandatory. See id.

                     III. Conclusion
  For the reasons stated herein, we VACATE Berheide’s
sentence and REMAND to the district court for resentencing
consistent with this opinion.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                  USCA-02-C-0072—8-30-05m