Court Opinion

ID: 2963945
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:17:49.662934+00
Date Added: 2024-06-11T11:42:48.890831
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

          No. 95-1658

                                    UNITED STATES,

                                      Appellee,

                                          v.

                                  EDWARD C. KELLEY,

                                Defendant, Appellant.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF RHODE ISLAND

                    [Hon. Ronald R. Lagueux, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                               Torruella, Chief Judge,
                                          ___________

                                 Cyr, Circuit Judge,
                                      _____________

                         and Skinner,* Senior District Judge.
                                       _____________________

                                _____________________

               Edward C. Roy, by Appointment of the Court, with whom  Roy &
               _____________                                          _____
          Cook, was on brief for appellant.
          ____
               Margaret E. Curran, Assistant  United States Attorney,  with
               __________________
          whom Sheldon  Whitehouse, United States Attorney,  and Charles A.
               ___________________                               __________
          Tamuleviz, were on brief for appellee.
          _________

                                 ____________________
                                  February 20, 1996
                                 ____________________

                              
          ____________________

          *  Of the District of Massachusetts, sitting by designation.

                    SKINNER,  Senior  District Judge.   Defendant-appellant
                    SKINNER,  Senior  District Judge.
                              ______________________

          Edward Kelley was charged in a six count indictment of mail fraud

          in violation of 18 U.S.C.   1341 and making false statements to a

          federal  agency in violation of 18 U.S.C.    1001.  Pursuant to a

          guilty  plea on the three mail fraud counts, Kelley was sentenced

          to 21  months incarceration,  followed by three  years supervised

          release.  On appeal of  his sentence, Kelley argues (1)  that the

          district  court erred in determining  the amount of  the loss for

          sentencing purposes, and  (2) that the district  court abused his

          discretion  in denying  a two point  offense level  reduction for

          acceptance of responsibility.  We affirm.

                                   I.   BACKGROUND
                                   I.   BACKGROUND
                                        __________

                    A.Facts
                    A.Facts

                    This prosecution  arose out of Edward  Kelley's efforts

          to  enlist the  assistance of  the Small  Business Administration

          ("S.B.A.") in refinancing his commercial lobster boat, the "Alter

          Ego II."   Kelley purchased the  boat in June 1992  for $5,000 in

          cash  and a  $22,000  promissory note,  and  quickly sold  a  45%

          interest  to his brother Robert Fletcher for $20,000.  The vessel

          sustained substantial  damage during  a severe storm  in December

          1992.  

                    Kelley applied for disaster  relief from the S.B.A., in

          the  course of  which he  submitted a Personal  Finance Statement

          stating that the vessel  purchase price was $60,000,  rather than

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          $27,000, and that he had paid cash in full without incurring  any

          debt.  Both of these averments were false.

                    Based on  this application,  the S.B.A. agreed  to loan

          Kelley $55,100, secured by  a mortgage on the vessel  and a third

          mortgage  on Kelley's house.   After  an initial  disbursement of

          $10,000 in April 1993,  Kelley submitted a Progress Certification

          Report indicating that he had purchased lobster traps from Robert

          Fletcher's R.A.F.  Lobster Company  for $32,000.   This statement

          was also false.   After the  S.B.A. disbursed the balance  of the

          loan, Kelley  used approximately $15,000 of the  S.B.A. funds for

          personal  expenses.   After a  total of  $864 in  repayments over

          three  months,   the  loan  went   into  default.     Kelley  was

          subsequently  indicted  on  the  basis of  the  false  statements

          contained  in his  Personal  Finance Statement  and his  Progress

          Certification  Report, and  pled guilty  to three counts  of mail

          fraud.

                    B.The Sentencing Proceeding
                    B.The Sentencing Proceeding

                    At  the  sentencing proceeding,  the  government argued

          that Kelley's total offense level should be fifteen, representing

          eleven  points  for  fraud  involving  more  than  $40,000  under

          U.S.S.G.   2F1.1(b)(1)(F), increased by two points for "more than

          minimal planning" under U.S.S.G.    2F1.1(b)(2)(A), and augmented

          by an  additional two  points for  obstruction  of justice  under

          U.S.S.G.    3C1.1.   In  support of  the obstruction  points, the

          government cited  two attestations Kelley made  in completing his

                                         -3-

          presentence report submission to the probation office, namely (1)

          that  he had  nothing  to  do  with  the  theft  of  navigational

          equipment from the Alter Ego, and (2) that  he used all disbursed

          funds to try to keep the Alter Ego afloat.

                    At  the  sentencing  proceeding,  Kelley  contested the

          government's  calculated  offense   level,  contending  that  the

          government overvalued the loss  in light of the  S.B.A.'s failure

          to pursue civil remedies.  Kelley also argued that his submission

          to the probation department did not obstruct justice.

                    After  hearing  testimony  from  eight  witnesses,  the

          sentencing court rejected  the S.B.A.'s valuation of  its loss at

          $54,236.    Specifically,  the  sentencing  court  rejected   the

          testimony of an  S.B.A. witness  who appraised the  value of  the

          vessel  at $5,000.  The court implicitly adopted the testimony of

          Kelley's expert  marine surveyor, Steven Mainella,  who testified

          that  the  vessel was  worth between  $18,000  and $25,000.   The

          defendant  did not, however, attempt to rebut the testimony of an

          S.B.A. loan  officer as to  the potential recovery  from Kelley's

          house.   Consequently,  the only  evidence before  the sentencing

          court on the value of the house was that a foreclosure proceeding

          would fetch an estimated $104,000, which after satisfying $95,000

          in  superior  mortgages  and  auction expenses  would  produce  a

          negligible recovery.

                    The court concluded that  the S.B.A.'s loss was between

          $20,000  and  $40,000,  resulting in  an  offense  level of  ten.

          Finding  that the S.B.A. had failed to pursue pledged collateral,

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          the  sentencing court  denied restitution.   The court  added two

          points  for  more  than  minimal   planning,  and  two  more  for

          obstruction of  justice; it  concluded that his  criminal history

          category was one.  Accordingly, Kelley was sentenced to 21 months

          imprisonment, followed  by three years  supervised release, which

          was within the guideline range.

                                    II.  ANALYSIS
                                    II.  ANALYSIS
                                         ________

                    A.Calculation of the S.B.A.'s Loss
                    A.Calculation of the S.B.A.'s Loss

                    Kelley argues that the district court's conclusion that

          the S.B.A.'s loss ranged between  $20,000 and $40,000 was clearly

          erroneous  in  light of  evidence adduced  at  trial.   Under the

          Sentencing  Guidelines,  crimes  involving  fraud  are  uniformly

          assessed a base offense level  of six.  See U.S.S.G.    2F1.1(a).
                                                  ___

          This  base offense  level  is  increased  in  proportion  to  the

          magnitude of the loss  if the victim's loss exceeded  $2,000. See
                                                                        ___

          U.S.S.G.    2F1.1(b)(1).    The  commentary   to  the  Guidelines

          provides a  set of formulae to apply in determining the amount of

          the  loss   in  particular  circumstances.     For  example,  the

          commentary instructs that  to calculate the loss  in a fraudulent

          loan  application, the  sentencing  court starts  by taking  "the

          amount  of  the  loan not  repaid  at  the  time  the offense  is

          discovered,  reduced by  the amount  the lending  institution has

          recovered (or can expect  to recover) from any assets  pledged to

          secure the loan."  See U.S.S.G   2F1.1,  comment. (n.7(b)).  This
                             ___

          formula  is  binding  in   cases  involving  the  procurement  of

                                         -5-

          fraudulent   loans  and   is  clearly   applicable  to   Kelley's

          misconduct.  See United  States v. Bennett, 37 F.3d 687, 695 (1st
                       ___ ______________    _______

          Cir. 1994); see also Stinson  v. United States, 113 S. Ct.  1913,
                      ________ _______     _____________

          1915   (1993)  ("[C]ommentary  in   the  Guidelines  Manual  that

          interprets  or explains  a guideline  is authoritative  unless it

          violates   the  Constitution   or  a   federal  statute,   or  is

          inconsistent  with,  or  a  plainly erroneous  reading  of,  that

          guideline.").

                    Kelley challenges the court's  findings as to the value

          of the mortgage and  the vessel.  A sentencing  court's valuation

          of loss is subject to the "clearly erroneous" standard of review.

          See, e.g., United States v. Brandon, 17 F.3d 409, 457 (1st Cir.),
          ___  ____  _____________    _______

          cert.  denied, 115  S. Ct.  80 (1994).   Although  the Guidelines
          _____________

          suggest  that a rather specific formula should be applied in this

          case,  the Sentencing  Commission has  recognized that it  may be

          difficult  to  calculate  a  specific  loss with  any  degree  of

          precision.  Precise loss may be hard to determine where the value

          of  collateral is in dispute,  either because the  victim has not

          exercised rights against  the collateral, or  it is alleged  that

          such efforts did not bring a fair market price. Cf. United States
                                                          ___ _____________

          v. Chorney, 63 F.3d 78, 82 (1st Cir. 1995) (rejecting defendant's
             _______

          argument  that  he  had  been denied  sufficient  opportunity  to

          establish  fair market value of  unpledged assets).   In light of

          potential difficulties in  calculating the  loss, the  sentencing

          court  "need only make a  reasonable estimate of  the loss, given

          the available information."  See U.S.S.G.   2F1.1, comment (n.8).
                                       ___

                                         -6-

                    With  respect  to the  Alter  Ego,  the district  judge

          rejected the government witness' testimony  that the vessel had a

          value of $5,000, implicitly adopting  Steven Mainella's appraisal

          of $18,000 to $25,000.  Neither party contests use of this figure

          on appeal.

                    With respect to the  house, the parties agree that  the

          property was appraised  at $130,000 and  subject to two  superior

          mortgages  totalling $95,000.    At the  sentencing hearing,  the

          S.B.A. loan  officer testified that  it was standard  practice in

          the  banking industry  to  value  property  to be  liquidated  at

          auction  at 80%  of  appraisal value,  or  $104,000 for  Kelley's

          house.   The  S.B.A.  loan officer  further  testified that  this

          liquidation value would be further offset by the $95,000 in prior

          mortgages, and  by  the estimated  $5,000  to $8,000  in  auction

          expenses.  Foreclosure on  Kelley's house would thus yield  a net

          return of  $1,000 to $4,000.   Kelley did not offer  testimony at

          the  sentencing hearing to  dispute this accounting,  nor does he

          attempt to factually undermine its premises on appeal.

                    Kelley  does  make  the  suggestion  that  the S.B.A.'s

          accounting method is  wrong as  a matter of  law.   Specifically,

          Kelley  argues that the sentencing court must accept the value of

          the  collateral to the defendant,  rather than the victim lending

          institution,  and that he should be credited for the full $35,000

          in equity he could have obtained if he sold the house on the open

          market.    But the  commentary to  the Guidelines  specifies that

          valuation of  collateral is the amount  the "lending institution"

                                         -7-

          could expect to  receive from pursuing  a security interest.  See
                                                                        ___

          U.S.S.G.    2F1.1, comment. (n.7(b)).   The express  reference in

          the  Guidelines  to  the  mortgagee  rather  than  the  mortgagor

          precludes  Kelley's argument.   The  value of the  loss is  to be

          offset  by the  amount the  lender could  expect to  recover from

          pursuit  of  pledged collateral.    Consequently,  the $1,000  to

          $4,000  expected recovery is the  proper measure of  the value of

          the house.

                    To summarize, the evidence  before the sentencing court

          demonstrated  that  if  the  S.B.A. had  pursued  civil  remedies

          against  the house and the  boat, it could  have recouped between

          $19,000  and $29,000.    Deducting this  amount from  the $54,236

          outstanding loan balance, the S.B.A.'s loss was somewhere between

          $24,000 and $35,000.  This range is well within the range of loss

          found by the court.

                    Kelley makes a final  argument that it was inconsistent

          for the sentencing  court to deny restitution, while  valuing the

          S.B.A.'s loss as greater than  $20,000.  Although Kelley properly

          points out that the  authority of a sentencing court  "to decline

          to  order   restitution  is  limited,"  the   commentary  to  the

          Sentencing Guidelines suggests there  are several factors a court

          may consider in  declining to order  restitution. See U.S.S.G.   
                                                            ___

          5E1.1, comment. (backg'd).  Prominent among these factors are the

          lack of victim's need,  uncertainty in calculating the amount  of

          restitution, and fairness  to the  victim. See also  18 U.S.C.   
                                                     ________

          3664(a).   The  judge went  on at some  length in  explaining his

                                         -8-

          reasons   for  denying  restitution,  specifically  finding  that

          because the S.B.A. failed  to avail itself of civil  remedies, it

          was both difficult to ascertain the proper amount  of restitution

          and fair  to deny  all restitution.1   Kelley erroneously  argues

          that an  absolute denial  of restitution necessarily  implies the

          conclusion that  the S.B.A. had  no loss.   There  is no  logical

          reason to make such a leap.

                    B.Obstruction of Justice
                    B.Obstruction of Justice

                    Kelley also challenges  his two  point enhancement  for

          obstruction  of justice.   Under  the Sentencing  Guidelines, the

          provision of a materially false statement to a  probation officer

          during  the  preparation  of  a  presentence  report  constitutes

          obstruction of  justice. See U.S.S.G.    3C1.1, comment (n.3(h)).
                                   ___

          The sentencing court found that the following two passages of the

          signed  statement which  the defendant  filed with  the probation

          department were materially false:

                      In addition, I hoped to upgrade  the boat
                      with the proceeds of the loan.  Some time
                      after the  gear was  lost at sea,  all of
                      the electronic equipment  on the boat was
                      stolen by  my son.   As a result  of this
                      theft,  which I had absolutely nothing to
                      do with,  the boat  was inoperable.   The
                      boat could not generate any income.

                      At the time of  the application, I was in
                      a very difficult financial  situation and
                      I  was  desperate to  get  the boat  back
                      working.   I used all of the funds that I

                              
          ____________________

          1  The government has not filed a cross-appeal to challenge these
          findings.

                                         -9-

                      received   to   pay   for  boat   related
                      expenses.

          A  sentencing  court's  finding  of material  falseness  will  be

          overturned only where clearly erroneous. See, e.g., United States
                                                   ___  ____  _____________

          v. Tracy, 36  F.3d 199, 202 (1st Cir.), cert.  denied, 115 S. Ct.
             _____                                _____________

          609 (1994).

                    Although Kelley argues that the  sentencing court erred

          in failing to evaluate all testimony used to support a finding of

          falseness  "in a  light most  favorable to  the  defendant," this

          interpretative  principle  only applies  to  the construction  of

          allegedly  perjurious  language,  not  to  the  determination  of

          credibility of fact  witnesses.  See  U.S.S.G.   3C1.1,  comment.
                                           ___

          (n.1).  Furthermore, lenitive  interpretations only apply "to the

          extent that an innocent reading may be plausible."  See Tracy, 36
                                                              ___ _____

          F.3d at 204.

                    Although Kelley  argues that neither  of his statements

          was  false, there was ample evidence  before the sentencing court

          to support its  findings.  Kelley's claim that  he had nothing to

          do  with theft  of electronic  equipment from  the Alter  Ego was

          discredited by the testimony  of his son.  Mark  Kelley testified

          that his father  asked him to  temporarily remove equipment  from

          the Ego  in  order  to  support  a  fraudulent  insurance  claim.

          Similarly,  Kelley's  claim  that  S.B.A.  funds  were  uniformly

          dedicated to  boat expenses was contradicted by  bank records and

          cancelled checks indicating almost $15,600 of the S.B.A. loan was

          used  for  mortgage  payments,   parochial  school  tuition,  and

          miscellaneous household expenses.   In view of this evidence, the

                                         -10-

          defendant's  statements  were  not  susceptible  to  an  innocent

          interpretation.   The sentencing  court was warranted  in finding

          that both statements were false.

                    Kelley  also suggests that  neither of these statements

          was material.  The materiality requirement for an allegedly false

          statement "is  not a  stringent one."  United  States v.  Ovalle-
                                                 ______________     _______

          M rquez, 36 F.3d 212, 226  (1st Cir. 1994), cert. denied,  115 S.
          _______                                     ____________

          Ct. 1322 (1995).  Under the Sentencing Guidelines, a statement is

          material which, "if  believed, would tend to  influence or affect

          the issue  under determination."  See U.S.S.G.    3C1.1, comment.
                                            ___

          (n.5).  Materiality  does not  require a factual  nexus with  the

          underlying  criminal conduct.    Rather, for  the  purposes of  a

          sentencing determination, materiality  involves some  attestation

          that could influence the court's sentencing discretion, including

          (but not  limited to) determination of a period of incarceration,

          conditions  of  supervised  release, or  whether  restitution  is

          awarded.    For example,  this court  has  held that  lying about

          citizenship  in  a submission  to  the  probation department  was

          material  because  of a  particular  district  judge's policy  to

          suspend supervised release in order to facilitate the deportation

          of illegal aliens. See United States  v. Biyaga, 9 F.3d 204,  205
                             ___ _____________     ______

          (1st Cir. 1993).  A false statement may be material  even "if the

          falsehood  is designed  to  mitigate  significantly the  wrongful

          conduct  and so  affect  the court's  exercise  of discretion  in

          choosing  a sentence  within the  range."   See United  States v.
                                                      ___ ______________

          Agoro, 995 F.2d 1288, 1292 (1st Cir. 1993).
          _____

                                         -11-

                      The  making  of  false statements  in  the  probation

          submission is  similar enough  to the underlying  charged conduct

          (making false statements to a governmental entity) to establish a

          close  nexus.  Furthermore, both  of the statements (if believed)

          could  have  impacted  the  decisions of  the  sentencing  court.

          Kelley's denial  of knowledge about  the theft and  its insurance

          implications could have swayed  the determination that Kelley had

          exhibited  "more   than  minimal   planning"  under   U.S.S.G.   

          2F1.1(b)(2) or that  Kelley had  a role as  an "organizer"  under

          U.S.S.G.     3B1.1.   Similarly,  Kelley's  statements about  the

          expenditure  of  the  proceeds  of the  S.B.A.  loan  could  have

          affected  the  sentencing  court's  decision  on  restitution  or

          minimal planning.   Moreover, the suggestion that the default was

          the result  of Kelley's  "desperation" constituted an  attempt to

          evoke  sympathetic mitigation  from  the sentencing  court.   See
                                                                        ___

          Agoro, 996  F.2d at  1292.   As each  of these  potential impacts
          _____

          would  independently  satisfy  the  materiality  requirement, the

          findings of the sentencing court were free of error.

                                  III.   CONCLUSION
                                  III.   CONCLUSION
                                         __________

                    For the foregoing reasons, the sentence is affirmed.
                                                               ________

                                         -12-