Court Opinion

ID: 2978815
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:31:53.329532+00
Date Added: 2024-06-11T15:40:51.455887
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 10a0141n.06

                                         No. 08-2552                                 FILED
                                                                                  Mar 05, 2010
                             UNITED STATES COURT OF APPEALS                 LEONARD GREEN, Clerk
                                  FOR THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,                              )
                                                       )        ON APPEAL FROM THE
       Plaintiff-Appellee,                             )        UNITED STATES DISTRICT
                                                       )        COURT FOR THE EASTERN
v.                                                     )        DISTRICT OF MICHIGAN
                                                       )
PATRICK J. HARRINGTON,                                 )                          OPINION
                                                       )
       Defendant-Appellant.                            )

BEFORE:         SUHRHEINRICH, COLE, and GILMAN, Circuit Judges.

       COLE, Circuit Judge. Defendant-Appellant Patrick J. Harrington challenges his 120-month

sentence for conspiracy, in violation of 18 U.S.C. § 371, and making false declarations before a

federal grand jury, in violation of 18 U.S.C. § 1623. For the reasons explained below, we AFFIRM

his sentence.

                                     I. BACKGROUND

       From 2001 until 2006, Harrington was an executive vice president of Business Loan Express,

LLC (“BLX”) and manager of its Troy, Michigan office. During Harrington’s tenure, BLX was a

preferred lender under the guaranteed-loan program operated by the Small Business Association

(“SBA”), meaning that the SBA delegated loan approval, closing, and servicing authority to BLX.

As a BLX executive vice president and manager, Harrington performed and oversaw these services

on behalf of the SBA.
No. 08-2552
United States of America v. Patrick J. Harrington

       Harrington used his position at BLX to carry out a fraudulent loan scheme. The scheme

worked as follows. Typically, the fraudulent loans involved one to five individuals or groups of

individuals (brokers) who orchestrated the purchase and resale of gas stations, convenience stores,

party stores, restaurants, or small motels. A broker would locate, and sometimes buy, the property

and then find a person to buy the property at an inflated price using an SBA-guaranteed loan issued

by BLX. In some instances, the purchaser was truly interested; in others, the purchaser was a “straw

buyer” who did not intend to operate the business or make loan payments but was promised payment

by the broker to serve as the buyer. In order to qualify the buyers for SBA-guaranteed loans,

Harrington, the brokers, and the buyers would misrepresent the buyers’ financial status or work

experience, misrepresent whether the buyer was a United States citizen, conceal and cover-up the

fact that someone other than the alleged buyer was going to be the beneficial owner or operate the

business, overstate the value of the property, and fraudulently document that the buyer made the

required equity-injection payments. The broker profited from the mark-up in the price of the

property by receiving a percentage of the purchase price.          Harrington profited because his

compensation was based, in part, on the number and amount of loans he originated. In all,

Harrington fraudulently originated and issued eighty-nine SBA-guaranteed loans and two loans with

Community South Bank. The total amount of unlawfully obtained loans was $84,949,000.00.

       In addition to the fraudulent loan scheme, Harrington knowingly made a false, material

declaration under oath before a grand jury that was investigating SBA loan fraud. Harrington

answered questions related to a BLX-issued, SBA-guaranteed loan, claiming to have no knowledge

that the declarations used to satisfy the equity-injection requirement of the loan were fraudulent. In

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No. 08-2552
United States of America v. Patrick J. Harrington

truth, which Harrington knew, the loan packages relied on fraudulent documentation.

       On October 1, 2007, pursuant to a plea agreement with the Government, Harrington pleaded

guilty to conspiracy and making false declarations before a grand jury. The district court accepted

the plea agreement and Harrington’s guilty plea. The United States Probation Office then prepared

a presentence report (“PSR”) and calculated the applicable sentencing range. For the conspiracy

charge, the base level offense was six. Because the loss or intended loss attributed to Harrington was

between $20,000,000 and $50,000,000, the base offense level was increased by twenty-two levels.

Next, the enhancement in U.S.S.G. § 3B1.1 was applied and the offense level was increased by four

because Harrington was an organizer or leader of a criminal activity. In addition, the offense level

was increased by two pursuant to U.S.S.G. § 3B1.3 because Harrington “abused a position of public

or private trust.” Thus, the adjusted offense level for the conspiracy charge was thirty-four. The

PSR also calculated an offense level of fourteen for the false declarations charge, with no

adjustments. Next, the PSR applied the multiple-count adjustment, which meant that thirty-four

became the adjusted offense level. Finally, the PSR deducted three levels for acceptance of

responsibility. Because Harrington has no criminal history, he was placed in a Criminal History

Category I. Based on a total offense level of thirty-one and a Criminal History Category I, the PSR

calculated the guideline range at 108 to 135 months. However, because each count carries a

maximum sentence of five years, the PSR reduced the top of the guideline range to 120 months.

       At the sentencing hearing, Harrington’s counsel argued that the leader-of-criminal-activity

enhancement and the abuse-of-trust enhancement were inappropriate. The district court disagreed,

accepted the PSR-calculated guideline range, and sentenced Harrington to 120 months of

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No. 08-2552
United States of America v. Patrick J. Harrington

imprisonment, to be followed by two years of supervised release. The court also assessed a special

fine of $200,000.

        Harrington appealed.

                                            II. ANALYSIS

        Harrington raises two issues on appeal. First, he argues that the district court erred by

applying the four-level enhancement in U.S.S.G. § 3B1.1(a) to his offense level, claiming that he was

not a leader or organizer of criminal activity. Second, he disagrees with the district court’s decision

to apply the two-level enhancement in U.S.S.G. § 3B1.3 to his offense level because, in his view,

he did not violate a position of trust.

A.      U.S.S.G. § 3B1.1(a)

        The standard of review that this Court applies to a district court’s imposition of a leader or

organizer enhancement under U.S.S.G. § 3B1.1(a) is “subject to some debate.” United States v.

Walls, 546 F.3d 728, 734 (6th Cir. 2008) (quoting United States v. McDaniel, 398 F.3d 540, 551 n.10

(6th Cir. 2005)). In the past, this Court reviewed a district court’s factual findings for clear error and

its legal conclusions de novo. Id. But in Buford v. United States, 532 U.S. 59 (2001), the Supreme

Court held that the “fact-bound nature” of the § 4B1.2 sentencing enhancement requires an appellate

court to review deferentially, rather than de novo, a district court’s application of U.S.S.G. § 4B1.2.

Id. at 66. A § 3B1.1(a) determination is similarly fact-bound; thus, Buford’s deferential standard of

review might apply. However, several panels of this court have found it “‘unnecessary to determine

whether Buford requires us to alter the standard of review we apply in reviewing § 3B1.1

enhancements because [each panel] would have affirmed the district court’s sentencing

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No. 08-2552
United States of America v. Patrick J. Harrington

determination under either standard.’” Walls, 546 F.3d at 734 (quoting McDaniel, 398 F.3d at 551

n.10). Like the panels that have come before us, we conclude that it is unnecessary to decide which

standard of review applies because Harrington’s sentence withstands scrutiny under either standard.

       U.S.S.G. § 3B1.1(a) provides that if “the defendant was an organizer or leader of a criminal

activity that involved five or more participants or was otherwise extensive,” the sentencing court

must apply a four-level increase to the defendant’s offense level. To impose an enhancement under

§ 3B1.1(a), a court must find that the defendant “exerted control over at least one individual within

a criminal organization.” United States v. Vandeberg, 201 F.3d 805, 811 (6th Cir. 2000) (internal

quotation marks omitted). In addition, when determining whether to apply the enhancement, the

court considers

       the exercise of decision making authority, the nature of participation in the
       commission of the offense, the recruitment of accomplices, the claimed right to a
       larger share of the fruits of the crime, the degree of participation in planning or
       organizing the offense, the nature and scope of the illegal activity, and the degree of
       control and authority exercised over others.

McDaniel, 398 F.3d at 551 (quoting U.S.S.G. § 3B1.1 applic. n.4). “It is not necessary that a

defendant meet each of these requirements.” United States v. Alepin, 296 F. App’x 509, 514 (6th

Cir. 2008). Instead the “key issue” is the “defendant’s relative responsibility.” Id. (internal

quotation marks omitted).

       Harrington makes two arguments that the district court erroneously applied the enhancement.

First, he contends that he did not have a “claimed right to a larger share of the fruits of the crime”

because he did not share in the loan proceeds. But, as he admits, his compensation at BLX was

based, in part, on the total amount of loans that BLX processed, and his compensation was

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No. 08-2552
United States of America v. Patrick J. Harrington

significant––from 2001 to 2006, he received $4,730,404.98 in compensation. Perhaps the brokers

involved in the scheme benefitted more on individual loans, but Harrington’s share for the entire

scheme was sizable. In United States v. Moncivais, this Court affirmed an enhancement under §

3B1.1, in part, because the defendant had a “large stake in the profitability” of the conspiracy. 492

F.3d 652, 661 (6th Cir. 2007) (internal quotation marks omitted). The same was true here––the more

successful the conspiracy, the more compensation Harrington received. We therefore reject

Harrington’s argument that he did not share a large enough portion of the fruits of the crime to justify

the enhancement.

      Second, Harrington claims that the brokers were the actual orchestrators of the scheme and

that he did not oversee other members of the conspiracy. Again, the record indicates otherwise.

Harrington identified several BLX employees, two of whom worked for him in the Troy office, who

processed the fraudulent loans. Harrington argues that these employees were simply processing the

fraudulent loans as they would have processed any other loan and, therefore, Harrington had no need

to direct them. This defies reason. As their supervisor, Harrington managed them and approved––or

disapproved––of their actions. In addition, the Government offered specific examples of how

Harrington exercised authority over other members of the conspiracy. For instance, on February 28,

2006, Harrington was recorded in a conversation with a co-conspirator. During the conversation,

Harrington instructed the co-conspirator to lie to a federal agent about their scheme. The

conversation also showed Harrington’s awareness of the other co-conspirators’ roles and actions.

Similarly, Harrington took the lead on contacting a number of banks in an effort to cover-up and

prolong the fraud after banks began asking questions.

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No. 08-2552
United States of America v. Patrick J. Harrington

      Finally, and perhaps most important, Harrington was the common thread uniting the scheme.

Harrington worked with five independent brokers who directed fraudulent loans to him, but

Harrington was the single person in the conspiracy who had a role in each of the eighty-nine

fraudulent loan transactions. This fact also defeats Harrington’s argument that his co-conspirators

had equal culpability.     To the contrary, without Harrington, the scheme could not have

succeeded––he was the necessary element. Thus, we affirm the district court’s finding that

Harrington was a “leader or organizer of criminal activity” under U.S.S.G. § 3B1.1(a).

B.    U.S.S.G. § 3B1.3

       Like U.S.S.G. § 3B1.1(a), the standard of review which applies to U.S.S.G. § 3B1.3 is

subject to some debate. Compare United States v. May, 568 F.3d 597, 602 (6th Cir. 2009) (“We

review de novo the District Court’s determination that [the defendant] occupied a position of trust

for the purpose of the Sentencing Guidelines.”) (internal quotation marks omitted) (alteration in

original), with United States v. Lang, 333 F.3d 678, 682 (6th Cir. 2003) (applying Buford’s clearly-

erroneous standard where the district court’s application of § 3B1.3 is fact-bound). But we again

conclude that the standard of review does not matter because the district court’s determination would

withstand scrutiny under either standard.

       Under U.S.S.G. § 3B1.3, “[i]f a defendant abused a position of public or private trust,” his

offense level should be increased by two levels. As an initial matter, Harrington argues that he did

not have a position of trust with the SBA, the victim of the offense. Harrington relies on United

States v. Moored, 997 F.2d 139 (6th Cir. 1993), for this argument. In Moored, the defendant used

his relationship with a third party to carry out a scheme to defraud. Id. at 140-41. This Court

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No. 08-2552
United States of America v. Patrick J. Harrington

reversed the abuse-of-trust enhancement because the entity with which the defendant had a

relationship of trust was not the victim of the offense of conviction. Id. at 145. The Court noted that

the defendant’s “position of trust was with a third party,” and, thus, the defendant’s position of trust

had only a “remote connection” to his crime. Id. at 144-45. Harrington argues that the same is true

here: his position of trust was with BLX (a third party), and the victim was the federal government

(a party with whom he did not have a position of trust).

        Harrington’s argument misses the mark. As explained above, the SBA has preferred lenders,

and these lenders are given great latitude in processing SBA-guaranteed loans. BLX was a preferred

lender under the SBA’s commercial-loan program, and Harrington served as a BLX executive vice

president and managed a BLX branch. Per agreements between the SBA and BLX, the SBA

delegated authority to BLX to originate and process financially sound loans, and the SBA trusted

BLX management to follow SBA regulations. Thus, we conclude that Harrington held a position

of trust with the SBA. Cf. United States v. Sedore, 512 F.3d 819, 826 (6th Cir. 2008) (rejecting

defendant’s argument based on Moored and “extending the position of trust that the [d]efendant held

with [the victim’s father] to the [victims]”).

        Harrington also argues that, even if he held a position of trust with the SBA, the enhancement

does not apply because he did not have managerial discretion. The enhancement’s Application Note

1 offers guidance on this point. The Note explains that “[t]his adjustment, for example, applies in

the case of . . . a bank executive’s fraudulent loan scheme . . . [but not] in the case of an

embezzlement or theft by an ordinary bank teller.” U.S.S.G. § 3B1.3 (applic. n.1). This is so

because such positions are not characterized by “managerial discretion.” Id. Harrington claims that

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No. 08-2552
United States of America v. Patrick J. Harrington

he is more like a bank teller than a bank executive because others at BLX were responsible for final

loan approval and, without more discretion, he cannot be held responsible under § 3B1.3. This

argument might be plausible if Harrington was a low-level loan processor. But, as described above,

he was a branch manager and held the title of executive vice president. In fact, as an agent of a

preferred lender, Harrington had signing authority on behalf of the SBA to originate and process

loans. Accordingly, he enjoyed a great deal of discretion––for instance, he admitted that he knew

that a number of his subordinates were submitting fraudulent loans for approval and, instead of

exerting his authority to halt the fraud, he approved the applications. Moreover, the authority he

derived from his position enabled him to facilitate and perpetuate the fraudulent loan scheme. It is

hard to imagine how Harrington would have been able to accomplish his fraud without his high-level

position at BLX or without the authority that the SBA gave to BLX management. Thus, we agree

with the district court that as a branch manager and executive vice president, Harrington enjoyed

managerial discretion as defined by U.S.S.G. § 3B1.3.

       In sum, Harrington used his position of trust with the SBA to facilitate and perpetuate the

fraudulent loan scheme, warranting a two-level enhancement under U.S.S.G. § 3B1.3.

                                      III. CONCLUSION

       For these reasons, we AFFIRM Harrington’s sentence.

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