Court Opinion

ID: 154437
Source: CourtListenerOpinion
Date Created: 2010-08-14 03:56:46+00
Date Added: 2024-06-11T15:03:03.343991
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                                     PUBLISH
                                                                          APR 28 1997
                      UNITED STATES COURT OF APPEALS
                                                                     PATRICK FISHER
                                                                               Clerk
                                  TENTH CIRCUIT

    UNITED STATES OF AMERICA,

         Plaintiff - Appellee,
    v.                                                 No. 95-3071

    JOHN J. PAPPERT,

         Defendant - Appellant.

                    Appeal from the United States District Court
                             for the District of Kansas
                              (D.C. No. 94-20016-01)

Tanya J. Treadway, Assistant United States Attorney (Randall K. Rathbun, United
States Attorney, with her on the brief), Kansas City, Kansas, for Plaintiff-
Appellee.

Daniel E. Monnat, Wichita, Kansas, for Defendant-Appellant.

Before TACHA, COFFIN, * and LUCERO, Circuit Judges.

LUCERO, Circuit Judge.

*
      The Honorable Frank M. Coffin, Senior Circuit Judge for the United States
Court of Appeals for the First Circuit, sitting by designation.
      Defendant-appellant John J. Pappert, principal in an office equipment

business, appeals from his conviction for three counts of mail fraud, four counts

of wire fraud, and two counts of submitting false documents to a federally insured

financial institution. See 18 U.S.C. §§ 1341, 1343, 1014. Pappert challenges (1)

the district court’s rulings on jury instructions involving good faith and

materiality; (2) the sufficiency of the evidence of intent to commit fraud, use of

the United States mails, and knowledge of submission of false documents to a

federal bank; and (3) several sentence enhancements. Our jurisdiction arises

under 28 U.S.C. § 1291 and Fed. R. App. P. 4(b). We affirm. 1

      Pappert was the president and majority shareholder of Century Office

Products, Incorporated ("COPI"), a business that leased, sold, and serviced

photocopier machines and other office equipment from its inception in 1980 until

its demise in 1993. Pappert managed the finances and day-to-day operations of

COPI, and was in charge of leasing.

      COPI's leasing operation worked as follows: a representative of the

company would initiate a leasing agreement with a customer, and Pappert would

usually close the deal. Many of these customers were schools and school

1
      This panel previously issued a published opinion in this case, United States
v. Pappert, 104 F.3d 1559 (10th Cir. 1997), but stayed the mandate pending the
Supreme Court’s decision in United States v. Wells, No. 95-1228. That decision
has now been issued. See United States v. Wells, 117 S. Ct. 921 (1997). Based
on the Wells decision, we now vacate our previous opinion.

                                          -2-
districts. Pappert sold most leases to banks or other financing sources, sometimes

through a lease broker. These financing sources would pay COPI in exchange for

the rights to income from the lease and to the equipment itself. If the transaction

took place through a broker, the broker would pay COPI and execute a second

assignment to the financing source.

      COPI’s practice of assigning leases was a key issue at trial. Each lease

agreement contained a provision allowing COPI to assign the lease to third

parties, and permitting reassignment. COPI was not obligated to notify customers

of assignments, and Pappert often did not do so. In some instances, he would tell

customers that he would not sell their lease, then would proceed to do so.

Although Pappert claims that customers were given the choice to pay either COPI

or the financing source, some customers testified that they were simply told to pay

COPI and never learned that their leases had been assigned.

      Periodically, Pappert would offer to replace his customers’ old machines

with new equipment. He convinced the customers that he would “pay off” the old

leases if the customer would take out new leases on better, more up-to-date

equipment. If a customer agreed to enter into a new lease, Pappert would

substitute the new equipment for the old. However, his practice was to take over

the installments without paying off in full the old lease. It was in this fashion

that customers unwittingly became liable on multiple leases.

                                          -3-
      Pappert also misled lending institutions by replacing equipment and taking

over the customers’ payments on their old leases without informing the lenders.

Many creditors thought that the original equipment was still in place and the

customers were still making payments. Representatives of the financial

institutions testified that if they had known of Pappert’s repossession, they would

have at least reevaluated the creditworthiness of the transaction. Most indicated

that they would not have accepted the new arrangement because COPI did not

have the good credit of its school district customers.

      Ultimately, Pappert’s operation began to implode. As he fell behind on

more and more payments, several financing institutions began to call in Pappert’s

debt. This led him to submit forged leases through his lease broker to another

bank, Superior National Bank, in an attempt to bring in cash. When that bank

notified the lessees of their delinquency, the lessees discovered Pappert’s ruse.

      Nonpayment on the customers’ many leases eventually led the financing

sources to seek payment directly from the lessees. A slew of lawsuits ensued.

The government tells us that 39 entities lost over $5.5 million, and Superior

National Bank was put into receivership as a result of Pappert’s conduct.

                                          II

      Pappert makes two arguments challenging the trial court’s jury instructions.

“The appropriate standard of review for challenges to jury instructions is whether

                                         -4-
the jury, considering the instructions as a whole, was misled.” United States v.

Smith, 13 F.3d 1421, 1424 (10th Cir.), cert. denied, 115 S. Ct. 209 (1994). Only

where the reviewing court has “substantial doubt that the jury was fairly guided”

will the judgment be disturbed. Id. (quoting United States v. Mullins, 4 F.3d 898,

900 (10th Cir. 1993)). We review de novo to determine the propriety of a jury

instruction to which objection was made at trial, and for plain error where no

objection was made. Id.

                                           A

      Pappert first contends that the court was wrong to instruct the jury that “it

is no defense to a charge of mail fraud or wire fraud that the defendant honestly

believed in the ultimate success of his business,” Appellant’s Partial App. at 53

(Instruction No. 22), while failing to instruct it that “good faith” in one’s

representations is a defense. At trial, the court overruled Pappert’s request that

the court give “the good faith instruction as I commented in chambers.” Tr. at

748. No record is available of the conference in chambers. Pappert did not

object to the inclusion of the “honest belief” instruction.

      Applying de novo review, we conclude that the lack of an instruction on

good faith, considered in light of the entire set of instructions, was not

misleading. Although Pappert insists that the good faith instruction was essential

to his defense, a defendant is not entitled to such an instruction without a

                                          -5-
reasonable factual predicate. United States v. Grissom, 44 F.3d 1507, 1512 (10th

Cir.), cert. denied, 115 S. Ct. 1720 (1995).

      There is sufficient factual support for this defense “when the jury could

reasonably find . . . that the defendant in good faith believed that the plan would

succeed, that the promises made would be kept and the representations carried

out.” United States v. Hopkins, 744 F.2d 716, 718 (10th Cir. 1984) (en banc).

The record indicates that Pappert misled customers to think that he would pay off

the loans in their entirety, sometimes sending written guarantees that loans would

be paid off by a certain date, and on at least one occasion sending a copy of a

check with which he falsely claimed a customer’s loan had been paid off. In

addition, he submitted falsified leases to financing sources. Finally, Pappert

admitted to improprieties when called to task on his overdue debts, once referring

to his own conduct as a “scam.” In light of this record, we find that the jury

could not reasonably have found that the defendant believed his own promises in

good faith. Because there was not adequate factual support for the good faith

defense, the district court properly refused to give a “good faith” instruction.

       Because objection was not made to the “honest belief” instruction at trial,

we review the district court’s instruction for plain error. Smith, 13 F.3d at 1424.

“Plain error, in this context, is error that affects the defendant’s right to a fair and

impartial trial.” Id. The court, in its instruction, accurately stated the law.

                                           -6-
United States v. Reddeck, 22 F.3d 1504, 1507 (10th Cir. 1994) (“‘[E]ven though a

defendant may firmly believe in his plan, his belief will not justify baseless or

reckless representations.’” (quoting United States v. Themy, 624 F.2d 963, 965

(10th Cir. 1980))). The evidence supported giving such an instruction.

Therefore, the district court did not commit plain error.

                                           B

      Pappert next asserts that the court erred in instructing the jury on the

offense of submitting false documents to a federally insured financial institution.

The court properly instructed the jury that materiality was an element of the

offense, but added:

      You are further instructed that whether the statement was material is
      a question for the Court, and that the Court has determined that the
      statements in question were material as a matter of law.

Appellant’s App. at 55-56 (Instruction No. 24). Although Pappert did not object

to this instruction at trial and never contested the materiality of the relevant

statements, he claims that the court’s failure to submit the element of materiality

to the jury was plain error, reversible under United States v. Gaudin, 115 S. Ct.

2310 (1995), decided after this case was tried.

      The first question before us is whether the district court erred. See United

States v. Olano, 507 U.S. 725, 732-33 (1993). Although this circuit, like many

others, treated materiality as an element of § 1014, United States v. Smith, 838

                                          -7-
F.2d 436, 439 (10th Cir. 1988), the Supreme Court has recently decided that

materiality of a falsehood is not an element of a § 1014 offense, United States v.

Wells, 117 S. Ct. 921, 926-31 (1997). Because the § 1014 offense does not

require the materiality of a statement, the jury’s failure to be instructed on it or to

decide it was not error. Hence, the basis on which Pappert asserts error under

Gaudin has been negated. See United States v. Copus, 95-6034, slip op. at 9

(10th Cir. Apr. 23, 1997).

                                           III

      The district court denied Pappert’s motions for judgment of acquittal on

grounds of insufficient evidence. Pappert challenges this determination on a

number of grounds. In reviewing the district court’s determination, “the relevant

question is whether, after viewing the evidence in the light most favorable to the

prosecution, any rational trier of fact could have found the essential elements of

the crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319

(1979) (emphasis in original); U.S. v. Harrod, 981 F.2d 1171, 1174 (10th Cir.

1992). In answering this question, “we may neither weigh conflicting evidence

nor consider the credibility of witnesses.” Harrod, 981 F.2d at 1175 (quoting

U.S. v. Darrell, 828 F.2d 644, 647 (10th Cir. 1987)). Applying this standard, we

affirm the denial of defendant’s motions.

                                           -8-
                                          A

      Pappert challenges the sufficiency of the evidence underlying his fraud

convictions on two grounds. First, he claims that the prosecution failed to prove

intent, because it was evident that he made his communications in good faith. He

contends that his payment of installments on some of the leases that he took over,

promising to “pay off,” evinces this good faith. Additionally, Pappert contends

that his “willingness and repeated attempts to work with his financing sources to

correct the financial messes he had created” also suggests good faith.

      In the previous part, we affirmed the district court’s decision not to give a

good faith jury instruction, because we found no reasonable factual predicate for a

good faith finding. For the same reason, we reject Pappert’s challenge to the

sufficiency of evidence regarding his fraudulent intent. We find that the evidence

regarding Pappert’s misrepresentations supports the jury’s finding on this matter.

                                          B

      With respect to his mail fraud convictions, Pappert claims that the evidence

failed to show the United States mails were used. For each of the three counts of

mail fraud, witnesses testified that they received Pappert’s letters via the United

States mail. In addition, the jury saw the documents in question, which were

folded in thirds as if sent in a standard envelope, and heard testimony on

Pappert’s normal course of business with respect to transmitting letters. Although

                                         -9-
the defendant suggests the evidence is conflicting and incredible, such

assessments lie within the province of the jury. Viewing the evidence most

favorably to the prosecution, we find it sufficient to convince a rational jury

beyond a reasonable doubt that the letters were sent via United States mail.

                                           IV

         Pappert claims that the district court erred in enhancing his sentence under

various sentencing guidelines. Pappert was sentenced to 60 months for his

conviction on the first count of the indictment, and to 97 months on each of the

eight other counts of which he was convicted. The sentences for the counts were

to run concurrently. We review the district court’s interpretation and application

of the sentencing guidelines de novo. United States v. McAlpine, 32 F.3d 484,

487-88 (10th Cir.), cert. denied, 115 S. Ct. 610 (1994). We review the court’s

underlying findings of fact for clear error. Id. at 488. We will accept these

factual findings unless the record does not support them or, after reviewing the

record, “we are left with the definite and firm conviction that a mistake has been

made.” Id. (quoting United States v. Easterling, 921 F.2d 1073, 1077 (10th Cir.

1990).

                                            A

         The court found that Pappert’s criminal activity caused a total loss of

$5,528,413.31. Based on this amount of loss, it added 14 to his base offense level

                                           -10-
pursuant to USSG § 2F1.1(b)(1)(O). Calculation of loss is determined for

sentencing with reference to USSG § 1B1.3, and may include all relevant conduct

by the defendant creating loss. United States v. Sapp, 53 F.3d 1100, 1104 (10th

Cir. 1995), cert. denied, 116 S. Ct. 796 (1996).

      Pappert challenges the amount of loss calculation. First, he argues that the

figure does not properly represent the loss caused by his conduct. The guidelines

suggest that any assets pledged to secure the loan should be deducted from the

total amount of loss. USSG § 2F1.1, comment. (n.7(b)). In several instances,

victims of Pappert’s activity retained the copier machines that were the subject of

the leases, and the court apparently did not deduct the value of the machines from

its total loss calculation. In response, the government raises factual questions

about whether the victims were left with collateral of any real value. Specifically,

the government points out that evidence was offered indicating: (1) sometimes,

used machines were represented to be new; (2) some machines were pledged as

collateral on multiple leases; and (3) in at least one case, by the time the

financing source considered repossession, the machinery had depreciated to the

point where repossessing it would have cost more than the machine was worth.

      Regarding valuation of loss, § 2F1.1 refers sentencing courts to § 2B1.1,

which instructs that “loss need not be determined with precision. The court need

only make a reasonable estimate of the loss, given the available information.”

                                          -11-
USSG § 2F1.1, comment. (n.7); § 2B1.1 comment. (n.3). Although loss should be

reduced by the amount the victim has recovered or expects to recover, USSG §

2F1.1, comment. (n.7(a)), the government raised legitimate questions concerning

the value of any such offset in this case. The district court’s loss calculation

represents a reasonable resolution of these thorny factual issues, and we therefore

affirm.

      Next, Pappert asserts that the district court erred in failing to subtract from

the loss figure approximately one million dollars, which he paid back to two

financing sources, Central National Bank (“CNB”) and Master Lease. Pappert

argues that the debts were overdue as a result of genuine financial difficulties,

unconnected to the course of conduct for which he was convicted, and almost

entirely paid off before his arrest.

      We disagree that Pappert’s overdue debts with CNB and Master Lease are

not “relevant conduct” for sentencing purposes. The guidelines state that the

offense level may be determined on the basis of conduct that is “part of the same

course of conduct or common scheme or plan as the offense of conviction.”

USSG § 1B1.3(a)(2). The “same course of conduct” means that the defendant

repeated the same type of activity over time. The focus is on “whether defendant

has engaged in an identifiable behavior pattern of specified criminal activity.”

United States v. Roederer, 11 F.3d 973, 979 (10th Cir. 1993) (quotations omitted).

                                         -12-
      Pappert appears to have perpetrated the same fraudulent acts against CNB

and Master Lease as against other financing sources. His actions fit a clearly

identifiable pattern: he went from one financing source to the next after using up

his credit with each. This behavior was part of a single course of conduct. See

id.

      We also reject the appellant’s claim that the money he repaid CNB and

Master Lease under settlement agreements should have been deducted from the

amount of loss. “Loss” is defined by the guidelines as “the value of the property

taken, damaged, or destroyed.” USSG § 2B1.1, comment. (n.2). We have taken

this to mean the “net value, not the gross value, of what was taken.” United

States v. Gennuso, 967 F.2d 1460, 1462 (10th Cir. 1992) (quoting United States v.

Smith, 951 F.2d 1164, 1167 (10th Cir. 1991)). The cases in which we have noted

this distinction have calculated net loss by subtracting the value of what was

given to the victim(s) during the course of the transaction from the value of what

was fraudulently taken. See, e.g., Smith, 951 F.2d at 1167 (subtracting security

interest given in exchange for fraudulently attained loans); Gennuso, 967 F.2d at

1462 (subtracting value received from amount victim paid in a fraudulent

marketing scheme); United States v. Reddeck, 22 F.3d 1504, 1513 (10th Cir.

1994) (remanding to district court to subtract value, if any, of education from

tuition paid, where students were fraudulently informed about accreditation of

                                        -13-
university). We have not required sentencing courts to deduct money

subsequently returned to victims when calculating amount of loss. United States

v. Kunzman, 54 F.3d 1522, 1532 (10th Cir. 1995).

      Here, the court found that Pappert repaid money he owed his creditors only

“after [he] was caught in his criminal conduct.” Presentence Report at ¶ 71.

Were we to hold that it was erroneous for the court to sentence him based on

reimbursed losses, we would enable defendants to buy a sentence reduction after

being caught. The guidelines do not authorize such a principle, and we reject it.

We do not allow defendants to barter prison time in exchange for restitution. 2

                                          B

      Pappert also claims that the district court erred in enhancing his sentence

based on his abuse of a position of public or private trust under USSG § 3B1.3.

He asserts that his dealings were arms-length commercial transactions that did not

place him in a position of trust; and that even if he were considered to be in such

a position, it did not make detection of his criminal activity more difficult.

2
       Pappert relies on United States v. Gallegos, 975 F.2d. 710 (10th Cir. 1992)
for his assertion that the amounts repaid to his creditors should be subtracted from
the loss total. Gallegos does not support this position because the bank in that
case recovered some of its loss from third parties, not the defendant. Id. at 712.
Moreover, we remanded only so that the district court could clarify whether it was
utilizing an actual or intended loss standard. Id. at 713; see also USSG § 2F1.1,
comment. (n.7(b)) (courts must use intended loss when it is greater than actual
loss). We did not hold that the guidelines require deduction of monies actually
returned to the victims.

                                         -14-
Whether a defendant occupied a position of trust is a factual question that we

review for clear error. United States v. Queen, 4 F.3d 925, 928 (10th Cir. 1993),

cert. denied, 114 S. Ct. 1230 (1994).

      The guidelines provide the following commentary:

      “Public or private trust” refers to a position . . . characterized by
      professional or managerial discretion (i.e., substantial discretionary
      judgment that is ordinarily given considerable deference). . . . For
      this enhancement to apply, the position of trust must have
      contributed in some significant way to facilitating the commission or
      concealment of the offense (e.g., by making the detection of the
      offense or the defendant’s responsibility for the offense more
      difficult).

Id., comment. (n.1).

      As detailed in United States v. Koehn, 74 F.3d 199 (10th Cir. 1996), we

have applied § 3B1.3 in two categories of cases: (1) where employees abuse their

position within their own organization to take advantage of the employer, and (2)

where someone uses a “fiduciary or personal trust relationship” to perpetrate the

charged offense against the beneficiary of the trust. Id. at 201 (quoting United

States v. Brunson, 54 F.3d 673, 677 (10th Cir.), cert. denied, 116 S. Ct. 397

(1995)). With respect to the latter category, there is not a bright line between

formal or informal fiduciary relationships, and run-of-the-mill commercial

relationships. “[W]e must carefully distinguish between those arms-length

commercial relationships where trust is created by the defendant’s personality or

                                         -15-
the victim’s credulity, and relationships in which the victim’s trust is based on

defendant’s position in the transaction.” Id.

      This case does not involve a formal fiduciary relationship--Pappert was

neither an attorney, an accountant or any other formal trustee--but rather presents

a situation in which the defendant created sufficient indicia of a position of trust

that he should be treated as if he did occupy such a position. Queen, 4 F.3d at

929 n.3. In isolation, each one of his lease agreements might appear to be a

standard commercial transaction, executed at arm’s length. However, when

Pappert’s acts are considered in the aggregate, it appears that he created a

position of trust. Each time he offered to replace a customer’s equipment, he

signed them to a new lease and convinced them that he would “pay off” their

obligation on the prior lease(s). He often left customers liable on several leases

simultaneously. Meanwhile, he made enough payments to keep the financing

sources from catching on--a realization which would not have satisfied at least

some of the banks, because school districts (and not copier salesmen) were

considered good credit risks. Because the banks remained ignorant, they did not

notify the customers of their multiple liability. In this manner, by virtue of his

role as the middleman between customer and financing source, he gained a

                                         -16-
position of trust with respect to the customers that enabled him to conceal his

fraud for long periods of time. 3

                                         C

      Pappert also received an enhancement of his sentence based on §

2F1.1(b)(6), which increases the offense level by four if the offense:

      (A) substantially jeopardized the safety and soundness of a financial
      institution; or

      (B) affected a financial institution and the defendant derived more
      than $1,000,000 in gross receipts from the offense.

USSG § 2F1.1(b)(6). The district court found that Pappert’s conduct satisfied

both (A) and (B).

      Pappert claims that the record does not contain sufficient evidence to

support a finding that his conduct satisfied (b)(6)(A). “Relevant conduct” for the

purposes of sentencing includes conduct for which the defendant was not

convicted, as long as such conduct is proven by a preponderance of the evidence.

Sapp, 53 F.3d at 1104. The guidelines explain that USSG § 2F1.1(b)(6)(A) is

3
       Defendant rightly points out that the sentencing court’s finding that Pappert
used his “special skills” to perpetrate the fraud in this case is incorrect. Section
3B1.3 also provides for enhancement if the defendant used a “special skill”
requiring “substantial education, training or licensing,” USSG § 3B1.3, but the
“position of trust” is an entirely distinct ground for adjusting the sentence. The
court found that Pappert created a position of trust in the course of his dealings
with his clients, which enabled him to commit difficult to detect wrongs, and on
these grounds we affirm.

                                        -17-
satisfied when, “as a consequence of the offense, the institution became insolvent

. . . or was placed in substantial jeopardy” of becoming insolvent. USSG § 2F1.1,

comment. (n.15). Here, defendant sold two forged leases, through a broker, to

Superior National Bank (“SNB”). The supposed lessees, knowing nothing about

the leases, refused payment. In addition, Pappert submitted ten other leases,

several of which also went unpaid by the lessees. Regarding these, Pappert led

the customers to think that he was assuming their debt; because he did not inform

the bank that he was taking over payments, the bank was unaware that he did so.

      A preponderance of the evidence supports finding that as a consequence of

the forged leases and the leases Pappert had secretly taken over from his

customers, the bank lost $578,556.23. The vice-president of SNB testified that

the bank’s closing was an “effect” of the losses, and that the losses were a

“contributing factor” of the closing. Based on the amount of loss, Pappert’s role

in the loss, the bank’s closing, and the bank official’s testimony that the losses

contributed to the closing, we conclude that the district court correctly enhanced

Pappert’s sentence under (b)(6)(A). 4

4
      The parties also dispute whether (b)(6)(B) was satisfied. Section 2F1.1 is
disjunctive; because (b)(6)(A) is satisfied we need not address (b)(6)(B).

                                         -18-
 D

-19-
      Finally, Pappert challenges the district court’s restitution order. He claims

that because the district court’s calculations of loss were incorrect, and because

the restitution order was based on these calculations, the restitution total was also

incorrect. Because we approve of both the district court’s loss calculations, and

the court’s determination of restitution based on the loss totals listed in

Government Exhibit 138, we conclude Pappert’s argument is meritless.

                                           V

      The district court’s judgment is AFFIRMED.

                                          -20-