Court Opinion

ID: 2980431
Source: CourtListenerOpinion
Date Created: 2015-09-22 19:10:25.523366+00
Date Added: 2024-06-11T15:42:10.745136
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                             File Name: 11a0856n.06

                                           No. 11-5452
                                                                                         FILED
                             UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT                             Dec 19, 2011
                                                                              LEONARD GREEN, Clerk

UNITED STATES OF AMERICA,                                )
                                                         )        ON APPEAL FROM THE
       Plaintiff-Appellee,                               )        UNITED STATES DISTRICT
                                                         )        COURT FOR THE EASTERN
v.                                                       )        DISTRICT OF KENTUCKY
                                                         )
JERRY WALLACE,                                           )                           OPINION
                                                         )
       Defendant-Appellant.                              )

BEFORE:        BATCHELDER, Chief Judge; COLE and COOK, Circuit Judges.

       COLE, Circuit Judge. Defendant-Appellant Jerry Wallace pleaded guilty to bank fraud in

violation of 18 U.S.C. § 1344. He signed a plea agreement, consenting to pay $141,000 in restitution

to Lehman Brothers FSB. After the district court entered the plea agreement but before the

sentencing hearing, the court learned that Lehman Brothers had filed bankruptcy some years earlier

and possibly no longer existed as an entity. The government presented evidence that Wallace should

pay restitution to Fannie Mae as the entity “standing in the shoes” of Lehman Brothers FSB. The

district court entered judgment accordingly. Wallace appeals the district court’s determination that

Fannie Mae should receive restitution, arguing that it was not a “victim” under 18 U.S.C. § 3663.

For the reasons that follow, we AFFIRM.
No. 11-5452
United States v. Wallace

                                                  I.

        From approximately September 2004 to December 2006, Defendant-Appellant Jerry Wallace

engaged in a bank fraud scheme in violation of 18 U.S.C. § 1344. The scheme involved a

partner/investor who would purchase an identified property through a private lender, which Wallace

arranged. Wallace would repeatedly refinance the property, each time at a progressively inflated

amount, and each time earning “cash back” for himself. As a result, the collateral securing each loan

would be worth less than the lender believed it to be. Finally, Wallace would induce a second

“investor” to purchase the property under false pretenses and under circumstances that Wallace knew

were likely to lead to default and foreclosure. Invariably, the lender would foreclose on the property

and sell it at a significant loss.

        In his plea agreement, Wallace admits to a specific example of his scheme: On September

9, 2004, he caused a partner/investor to purchase a property at 2320 Twigwood Lane, Cincinnati,

Ohio (“the Twigwood property”) for $240,555.25. He refinanced it several times, inflating the price

and collecting “cash back” on the closing each time. On December 27, 2006, he induced an

“investor,” referred to as G.W., to take out a loan from Lehman Brothers FSB (“Lehman Brothers”)

for $336,000 and buy the Twigwood property. Ultimately, G.W. defaulted on the loan and Lehman

Brothers sold the property for $198,000, suffering a total loss of $138,000.

        In the fall of 2008, Lehman Brothers filed for bankruptcy. On November 15, 2010, the

district court entered a plea agreement, in which Wallace stipulated to the foregoing facts and that

“restitution is owed to Lehman Brothers Bank FSB in the amount of $141,000.” The court set a

sentencing hearing for March 25, 2011. On March 23, 2011, the district court sua sponte

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No. 11-5452
United States v. Wallace

rescheduled the sentencing hearing for April 6, 2011, due to “being advised by U.S. Probation that

there may be an issue regarding the amount of restitution owed by [Wallace], and to what entity.”

The court ordered both parties to submit briefs within one week.

       The government filed no brief, but instead forwarded the following email from Chris

LaRoche, Assistant General Counsel for Aurora Loan Services LLC (“the LaRoche Email”):

       I am a senior attorney here at Aurora Loan Services LLC. You have asked me for
       clarification regarding restitution information related to [G.W.] mortgage loan for
       property located at 2380 [sic] Twigwood Lane, Cincinnati, Ohio 45237. Aurora
       Loan Services LLC is the servicer for the underlying [G.W.] mortgage loan on behalf
       of the investor who owns the [G.W.] loan. As servicer for the loan, Aurora Loan
       Services LLC is responsible for ensuring that the loss to the investor is minimized
       and is responsible for making the investor whole for certain expenses related to the
       [G.W.] mortgage loan.

       The [G.W.] mortgage loan was originated by Lehman Brothers Bank, FSB (known
       as Aurora Bank FSB), a federal savings bank. Aurora Bank FSB is very much still
       in business. Aurora Loan Services LLC is a wholly owned subsidiary of Aurora
       Bank FSB. The investor who owns this loan, and for whom Aurora Loan Services
       acts as mortgage loan servicer, is Fannie Mae as Trustee for Fannie Mae REMIC
       Trust 2007-W2.

At the hearing, the court accepted the email as evidence, under Rule 1101(d)(3). Ruling orally, it

found that Lehman Brothers had “changed names” to Aurora Bank FSB, but otherwise remained the

same party for restitution purposes. It ordered Wallace to pay $141,000 in restitution to Fannie Mae

as “the successor in interest” and “an appropriate victim for purposes of the Victim Witness

Protection Act.” It also sentenced Wallace to twelve months and one day in prison, a downward

departure from the guidelines range of eighteen to twenty-four months.

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No. 11-5452
United States v. Wallace

                                                 II.

A. Standard of Review

       The Court “review[s] orders of restitution de novo.” United States v. Owens, 426 F.3d 800,

808 (6th Cir. 2005) (reviewing a restitution order under the Victim and Witness Protection Act).

“The Court reviews a district court’s findings of fact at sentencing as to ‘loss’ and restitution for

‘clear error.’” United States v. Triana, 468 F.3d 308, 321 (6th Cir. 2006) (quoting United States v.

Rothwell, 387 F.3d 579, 582 (6th Cir.2004)). The Court reviews a district court’s decision not to

hold an evidentiary hearing for an abuse of discretion. United States v. Kuehne, 547 F.3d 667, 693

(6th Cir. 2008).

B. Fannie Mae as “Victim”

       The VWPA provides for “mak[ing] restitution to any victim of such [above-described]

offense.” See 18 U.S.C. § 3663(a)(1). This Court defines “victim” under the VWPA “to reach

‘indirect’ victims . . . as well as ‘direct’ victims.” United States v. Durham, 755 F.2d 511, 512-13

(6th Cir. 1985), abrogated on other grounds by United States v. Clark, 957 F.2d 248, 253 (6th Cir.

1992). Subsequent to this decision, Congress amended the VWPA to define “victim” as:

       a person directly and proximately harmed as a result of the commission of an offense
       . . . including, in the case of an offense that involves as an element a scheme,
       conspiracy, or pattern of criminal activity, any person directly harmed by the
       defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern.

Id. § 3663(a)(2). This amendment “expands the definition of ‘victim’ in cases such as mail fraud,”

i.e., cases involving schemes to defraud. United States v. Davis, 170 F.3d 617, 627 (6th Cir. 1999)

(citing United States v. Jewett, 978 F.2d 248, 253 (6th Cir. 1992)).

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No. 11-5452
United States v. Wallace

        The district court interpreted the VWPA to “permit restitution to be ordered in circumstances

such as those presented here,” where the direct victim had passed on its loss to a successor in

interest. To reach this decision, the district court relied on two Ninth Circuit decisions, United States

v. Youpee, 836 F.2d 1191 (9th Cir. 1988), and United States v. Smith, 944 F.2d 618 (6th Cir. 1991).

In Youpee, the court upheld a restitution award to the insurance company that indemnified the actual

“victim” in the case. In Smith, the court upheld a restitution award to the Federal Savings and Loan

Insurance Corporation, which had acquired the claims of the defrauded savings and loan institution.

The court determined that these cases, although not binding, demonstrated persuasively that the

VWPA permitted a “successor in interest” to the direct victim to receive restitution.

        The court relied on the LaRoche Email to find that Lehman Brothers “is now known as

Aurora Bank FSB.” It reasoned that the name change “is not problematic from a restitution

perspective to permit the defendant to avoid a recognized restitution obligation.” It concluded that

Fannie Mae constituted “an appropriate victim for purposes of the [VWPA],” and awarded the

judgment originally payable to Lehman Brothers to be paid to Fannie Mae.

        Wallace maintains that the court erred in awarding restitution to Fannie Mae, because Fannie

Mae is not a “victim” under the VWPA. He argues the VWPA’s plain language limits “victims” to

“any person directly or proximately harmed as a result of the commission of the offense,” (emphasis

in original) which excludes any entity even one step removed from the defendant’s conduct. He

contends that Hughey v. United States, 495 U.S. 411, 413 (1990), excludes successors in interest,

because it permits restitution “only for the loss caused by the specific conduct that is the basis of the

offense of conviction.” Because the government made no showing of direct harm to Fannie Mae,

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No. 11-5452
United States v. Wallace

nor of any loss that Fannie Mae sustained from Wallace’s conduct, Wallace maintains that it can not

constitute a proper “victim.” He urges the Court to rely on United States v. Campbell, 106 F.3d 64

(5th Cir. 1997), which denied an order of restitution to a bank because it had already recovered its

losses in full from the sale of the underlying property.

       Wallace’s reliance on Hughey and Campbell is misplaced. Both cases address the amount

of restitution that a court could order, but not who is entitled to receive such an award. Hughey

applies to the scope of any order of restitution, “requir[ing] the court to exclude injuries caused by

offenses that are not part of the [conspiracy] of which [the defendant] has been convicted.” United

States v. Elson, 577 F.3d 713, 723 (6th Cir. 2009) (quoting United States v. George, 403 F.3d 470,

474 (7th Cir.2005)) (citing Hughey, 495 U.S. at 418, 420) (second and third brackets in original).

Campbell stands for the proposition that a victim is “entitled to restitution in the amount of the loss

suffered by making a loan to [the defendant],” but not more than that amount. 106 F.3d at 69. The

plea agreement that Wallace signed established “the loss caused by the conduct underlying the

offense of conviction,” as the $138,000 loss that Lehman Brothers sustained as a result of the default.

       Furthermore, the VWPA explicitly contemplates restitution awards to parties that fall outside

its broad definition of “victim.” In cases involving property loss, the VWPA requires any restitution

order to include a directive to “return the property to the owner of the property or someone

designated by the owner.” 18 U.S.C. § 3663(b)(1)(A). In plain terms, “someone designated by the

owner” need not be the actual victim of the crime. A related subsection also permits courts to award

restitution to “the person who provided or is obligated to provide” compensation that a victim “has

received . . . from insurance or any other source.” Id. § 3664(j)(1). So long as the court limits the

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No. 11-5452
United States v. Wallace

restitution award to “the loss caused by the specific conduct that is the basis of the offense of

conviction,” see Hughey, 495 U.S. at 413, it may issue judgment at its own discretion.

       The LaRoche Email explicitly states that “[t]he investor who owns this loan . . . is Fannie

Mae as Trustee for Fannie Mae REMIC Trust 2007-W2.” With this evidence, the court properly

could find that Fannie Mae is the “owner of the property” and require Wallace to return it to them.

Alternatively, since a “wholly owned subsidiary” of Lehman Brothers (sub nom Aurora Bank)

designated Fannie Mae as the owner of the loan, Fannie Mae is “someone designated by the

[original] owner of the property.” Finally, it was proper for the court to view Fannie Mae as “the

person who provided or is obligated to provide the compensation” to Lehman Brothers for its loss.

Under any of these interpretations, Fannie Mae is a proper recipient of a restitution award.

       Wallace further contends that the district court lacked sufficient evidence to name Fannie

Mae as the restitution recipient, and that the court engaged in an erroneous reading of the evidence

at its disposal. Wallace argues that the LaRoche Email alone does not suffice for the court to

develop “a full understanding of the relationship between Lehman Brothers, Fannie Mae, and Aurora

Bank and how those relationships would and could affect the restitution concept.” Specifically,

Wallace maintains that the district court lacked evidence of “when the loan was purchased, was it

purchased at a discount, the type of loan servicer Aurora Loan Services, LLC, was, the type of

compensation arrangements it makes with its investors or the performance history of the LLC.”

       Wallace’s argument fails. First, Rule 1101(d) permits courts to accept hearsay in sentencing

hearings. United States v. Silverman, 976 F.2d 1502, 1512 (6th Cir. 1992) (en banc). The Court

requires only that “the accused must be given an opportunity to refute [hearsay evidence], and the

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No. 11-5452
United States v. Wallace

evidence must bear some minimal indicia of reliability in respect of defendant’s right to due

process.” Id. (quoting United States v. Robinson, 898 F.2d 1111, 1115 (6th Cir. 1990)). While the

LaRoche Email may lack the degree of reliability that live, in-court testimony contains, this Court

has held that statements made by victims’ attorneys at sentencing hearings can bear the requisite

“indicia of reliability.” See Elson, 577 F.3d at 732. Therefore, the court properly relied on this

evidence.

       Second, evidence of the specifics of Fannie Mae’s ownership of the loan are immaterial,

because Wallace advised the court that he did not challenge the amount of the restitution order.

Therefore, he waives any challenge to that amount on appeal.

C. Evidentiary Hearing

       Wallace argues that the district court improperly denied him a full evidentiary hearing as

permitted by 18 U.S.C. § 3664, rendering the restitution order an unconstitutional taking of property

without due process of law, in violation of the Fifth Amendment. Wallace contends that evidence

of Fannie Mae’s actual losses could have “altered the outcome of the restitution hearing,” potentially

changing both the amount of the restitution award and its recipient. Thus, the district court denied

him due process in the course of depriving him of property.

       Wallace’s argument has no merit. The court’s decision to “require additional documentation

or hear testimony” is discretionary. 18 U.S.C. § 3664(d)(4); United States v. Vandeberg, 201 F.3d
805, 813 (6th Cir. 2000) (“Section 3664(d)(5) does not mandate that such an evidentiary hearing

must be conducted.”) The statute providing for the restitution hearing contains no criteria for how

a court should decide whether or not to hold a hearing. See 18 U.S.C. § 3664(d)(4). Wallace

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No. 11-5452
United States v. Wallace

advances no legal basis for claiming a right to an evidentiary hearing, and therefore, the trial court

did not abuse its discretion or deny him due process in declining to hold one.

       To be sure, the government carries the burden of proving, by a preponderance of the

evidence, the amount of restitution owed to a victim. 18 U.S.C. § 3664(e). In this case, however,

the government presented evidence that Wallace had agreed to pay a specific amount of restitution

to a specific entity. It presented evidence from that specific entity designating an alternative

recipient with a direct relationship to the loss that Wallace caused. Wallace presented no evidence

to contradict the government, despite having the opportunity to do so. Therefore, the district court

did not abuse its discretion by relying on this evidence to establish the amount of restitution.

                                                 III.

       For the reasons stated above, we AFFIRM the judgment of the district court.

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