Court Opinion

ID: 2718483
Source: CourtListenerOpinion
Date Created: 2014-08-18 16:02:42.057759+00
Date Added: 2024-06-11T13:04:40.715768
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
Nos. 13-1004 & 13-1005
UNITED STATES OF AMERICA,
                                                 Plaintiff-Appellee,

                                 v.

VIKTOR and LILYA DOMNENKO,
                                            Defendants-Appellants.
                     ____________________

         Appeals from the United States District Court for the
            Northern District of Illinois, Eastern Division.
   Nos. 08-CR-00179-5 & 08-CR-00179-6 — Charles R. Norgle, Judge.
                     ____________________

    ARGUED MARCH 31, 2014 — DECIDED AUGUST 18, 2014
                     ____________________

   Before WOOD, Chief Judge, and WILLIAMS, and HAMILTON,
Circuit Judges.
   WILLIAMS, Circuit Judge. Viktor and Lilya Domnenko
committed fraud twice in relation to the same house, once
while buying it and once while selling. When purchasing the
house, they submitted loan documents containing false in-
comes, doctored bank statements, and failed to disclose that
the transaction was far from arm’s length since Viktor’s
company was selling and his wife was buying. And, the
2                                      Nos. 13-1004 & 13-1005

Domnenkos had a deal with Viktor’s company that they
would purchase the house for $750,000 and any money paid
to the company above that amount would go directly to
Viktor. So, the approximate $1 million in loans the Dom-
nenkos received resulted in roughly $250,000 extra that was
not disclosed on the settlement papers as going to the Dom-
nenkos, even though it actually did. As a result of that $1
million loan, the Domnenkos were able to sell the house four
months later for close to the same inflated amount, rather
than the actual $750,000 that they paid for it, without raising
any eyebrows. They also failed to disclose on the HUD-1
forms in the second transaction that they would be giving
kickbacks from the sale to the buyer’s side. Based on those
facts, we reject their argument that the evidence failed to
support their convictions for wire fraud. However, just be-
cause they were involved in a fraudulent scheme does not
necessarily mean it was reasonably foreseeable that all the
subsequent economic damages would occur, especially
when there was no evidence that they knew they were sell-
ing the house to what turned out to be a fictional buyer. For
that reason, we remand for further explanation by the dis-
trict court as to why the loss of roughly $600,000 was “rea-
sonably foreseeable” and why the 14-point sentencing en-
hancement was proper.
                       I. BACKGROUND
   Because the Domnenkos challenge their convictions
based on the sufficiency of the evidence, we draw all reason-
able inferences from the facts in the light most favorable to
the government. See United States v. Torres-Chavez, 744 F.3d
988, 993 (7th Cir. 2014).
Nos. 13-1004 & 13-1005                                      3

    This case stems from two separate sales of the same
house located in Wheaton, Illinois. Viktor Domnenko was a
partner in JVS, a real estate investment group that originally
owned the property. JVS sold the house on February 21, 2007
to Viktor’s wife, Lilya Domnenko. Although Lilya’s name
was going to be on all the paperwork, Viktor told his part-
ners that he would be the actual purchaser, agreed to a pur-
chase price of $750,000, and testimony at trial showed that
he pulled the strings behind the purchase. Lilya obtained
two loans from Washington Mutual Bank (“WAMU”) to buy
the house, but those loans were secured based on documents
that included the following misrepresentations: (1) Lilya’s
monthly income from Viktor’s construction company was
$37,500 (but she actually earned only $1,000 per month ac-
cording to Viktor and Lilya’s jointly filed and signed tax re-
turns); (2) Lilya owned a First Eagle National bank account
with a listed balance of $175,000 (but the balance was actual-
ly $109); and (3) Lilya individually owned another bank ac-
count at Fifth Third Bank (but it was actually jointly owned
with Viktor). In addition, none of the settlement papers in-
cluded the fact that Viktor was a partner at JVS and therefore
was essentially on both sides of the transaction.
    Based on the fraudulent loan documents, WAMU gave
Lilya two loans in the amounts of $749,000 and $240,000 and
she purchased the property. That is obviously above the
$750,000 amount Viktor agreed to pay JVS. Pursuant to
Viktor and JVS’s agreement, any amount above their agreed
upon $750,000 sales price was to be considered “upgrade
fees” and was to revert back to Viktor and another one of his
companies. The JVS minutes disclosed the terms of this “up-
grade fees” deal and the HUD-1 reflected that JVS, as the
seller, was to receive money back from the deal. But, the
4                                      Nos. 13-1004 & 13-1005

HUD-1 did not explicitly say Viktor would be receiving
roughly $250,000 back and the bank did not know since
Viktor was not disclosed as a member of JVS. So, the dis-
closed transaction on the settlement forms was that JVS was
going to receive an extra quarter million dollars; the undis-
closed transaction is that every cent of that was going back
to the buyer. In all, including the profits he made on the sale
as a partner of JVS and the “upgrade fees”, Viktor and his
company ended up receiving about $260,000 from the deal.
    The Domnenkos lived at the property for about four
months and made all the mortgage payments, but then de-
cided to sell. Viktor told a friend, Olanrewaju Okulaja, that
Viktor would be willing to give cash back to anyone who
was willing to buy the house. Okulaja enlisted the help of
some friends who hatched a plan, having Scott Priest pose as
“Robert Valle” and buy the house. Robert Valle is a real in-
dividual who was not involved in the transaction, but the
friends stole his driver’s license and social security card and
replaced Valle’s pictures with Priest’s, thereby creating a
fake or fictional individual whom we will call “Robert Valle”
or “Priest/Valle.” The Domnenkos and “Robert Valle”
reached a deal and, in June 2007, Viktor, Lilya, Okulaja, and
Priest (posing as Valle), among others, attended the closing.
The closing documents did not disclose that the buyer or an-
yone on the buyer’s side of the transaction would receive
cash back or a finder’s fee, even though such information is
required on HUD-1 settlement documents and there was tes-
timony from an employee at the lending institution that such
information would have been material. “Robert Valle” re-
ceived $1,090,573.06 in loans from Countrywide Insurance to
complete the sale. After the closing, Viktor told Lilya to sign
over her $129,490 proceeds check to Okulaja, which she did.
Nos. 13-1004 & 13-1005                                      5

Not surprisingly, “Robert Valle” defaulted on the loan with-
out making a single payment and Countrywide was eventu-
ally forced to sell the house for $487,500.
    Viktor and Lilya were each charged with three counts of
wire fraud pursuant to 18 U.S.C. § 1343 and aiding and abet-
ting wire fraud under 18 U.S.C. § 2. After a bench trial, the
trial judge found Viktor and Lilya guilty on all three counts.
The Presentence Investigation Report (“PSR”) determined
that the loss to Countrywide was $603,073.06 (the difference
between the value of “Priest/Valle’s” loan and what the
house eventually sold for) and recommended a 14-point en-
hancement pursuant to United States Sentencing Guidelines
§ 2B1.1(b)(1)(H) since the loss was over $400,000. Defense
counsel for both Viktor and Lilya filed written objections to
the enhancement, but the court never explicitly ruled on
those objections. Defense counsel for each of the Domnenkos
argued during the sentencing hearing that they should not
be liable for the $600,000 loss because it was not “reasonably
foreseeable” that damage would result from their actions, as
is required for § 2B1.1(b)(1)(H) to apply. The district court
did not explicitly reject or accept those arguments, but when
the government asked to “confirm with your Honor that the
Court has found the 14-point enhancement for the amount of
loss,” the court responded “Yes” without more. The district
court applied the 14-point enhancement and sentenced
Viktor to 46 months imprisonment on each count to run con-
currently, and Lilya to one year and one day’s imprisonment
on each count to run concurrently. This timely appeal fol-
lowed.
6                                       Nos. 13-1004 & 13-1005

                          II. ANALYSIS
    The Domnenkos appeal their convictions, arguing the ev-
idence was insufficient to support the conviction. They also
appeal the 14-point enhancement, arguing that the $600,000
loss was not a “reasonably foreseeable” result of their fraud.
As discussed below, we reject their first argument relating to
the convictions but remand for further explanation as to why
the loss amount was reasonably foreseeable, and therefore
attributable, to the Domnenkos.
    A. Evidence Sufficient to Support the Convictions
    The Domnenkos first argue the evidence does not sup-
port the trial judge’s verdict because they did not plan or
plot together in relation to the first sale and therefore did not
“scheme” to defraud. They also claim there was no fraud
during the second sale because the purported kickback was
actually repayment of a previous loan that was not tied to
the sale and therefore did not need to be disclosed on the
closing documents. Finally, they assert that when the two
transactions are viewed together, even if the first sale was
fraudulent, there was no “scheme” to defraud since a single
fraudulent transaction does not constitute a “scheme.”
    When faced with a challenge to the sufficiency of the evi-
dence, we ask “whether, after viewing the evidence in the
light most favorable to the government, any rational trier of
fact could have found the essential elements of the crime be-
yond a reasonable doubt.” Torres-Chavez, 744 F.3d at 993
(emphasis in original, quotations omitted). The Domnenkos
face “a nearly insurmountable hurdle.” Id. We will only re-
verse when the “record contains no evidence, regardless of
Nos. 13-1004 & 13-1005                                       7

how it is weighed, from which the [trier of fact] could find
guilt beyond a reasonable doubt.” Id. (quotation omitted).
    To establish wire fraud under 18 U.S.C. § 1343, the gov-
ernment must prove: (1) the Domnenkos’ participation in a
scheme to defraud; (2) their intent to defraud; and (3) the use
of interstate wires in furtherance of the fraud. See United
States v. Sheneman, 682 F.3d 623, 628 (7th Cir. 2012). “‘Intent
to defraud requires a wilful act by the defendant with the
specific intent to deceive or cheat, usually for the purpose of
getting financial gain for one’s self or causing financial loss
to another.’” Id. at 629 (quoting United States v. Howard, 619
F.3d 723, 727 (7th Cir. 2010)). The intent to defraud may be
established both from circumstantial evidence and infer-
ences drawn by examining the scheme itself. Sheneman, 682
F.3d at 629. Because the Domnenkos do not challenge the
third prong, we do not address that issue.
    First, the Domnenkos argue that there was no scheming
involved in the first sale since there was no evidence pre-
sented to support the government’s theory that they
“planned and plotted all along.” However, there is strong
circumstantial evidence that the Domnenkos planned and
plotted together from the very beginning. Viktor told JVS he
was going to buy the house and that he controlled the entire
transaction. His wife eventually used fraudulent means to
follow through on Viktor’s promises to JVS. This shows that
both the Domnenkos were actively involved in the sale, even
though Lilya was the only one who affirmed the truthfulness
of what turned out to be fraudulent documents. Moreover,
the numerous doctored documents that were submitted to
support the loan directly implicated both Domnenkos on
their face—e.g., the removal of Viktor’s name from a joint
8                                       Nos. 13-1004 & 13-1005

checking account, and the inconsistency in the income
amount Lilya received from Viktor’s construction company
as reflected on the loan documents versus their jointly
signed tax forms. Finally, there is the fact that both Lilya and
Viktor sat in on the closing without saying a word while
those doctored documents were used to consummate a sale
from Viktor’s company to Viktor’s wife, which was not a
traditional arm’s length transaction. A WAMU employee
testified that the conflicted nature of the transaction would
have been material information in the bank’s decision to is-
sue the loan. All of this circumstantial evidence together
provides strong proof of a joint intentional plot to defraud
the lender. See United States v. White, 737 F.3d 1121, 1130 (7th
Cir. 2013) (quoting United States v. Britton, 289 F.3d 976, 981
(7th Cir. 2002) for the proposition that “‘circumstantial evi-
dence and … inferences drawn from examining the scheme
itself … demonstrate that the scheme was reasonably calcu-
lated to deceive’”).
    Additional evidence individually implicates each of the
Domnenkos as well. The case against Lilya in relation to the
first sale is straight forward, as the material misrepresenta-
tions she made when she signed the HUD-1 form declaring
the fraudulent documents to be truthful evidenced an intent
to defraud the lender. See, e.g., White, 737 F.3d at 1130 (find-
ing preparation of false HUD-1 statements and falsified doc-
uments was fraudulent); United States v. Jaffe, 387 F.3d 677,
681 (7th Cir. 2004) (signing knowingly untruthful and doc-
tored settlement papers constituted fraud).
    As to Viktor, the most telling evidence is that he sat in the
room during the closing as the fraudulent papers that direct-
ly implicated him were used to close on a sale in which he
Nos. 13-1004 & 13-1005                                          9

was on both sides of the table. He eventually signed onto the
transaction as a joint mortgage holder without ever disclos-
ing his personal involvement, which is an omission com-
bined with an affirmative act of concealment sufficient to
support his conviction. See United States v. Powell, 576 F.3d
482, 491 (7th Cir. 2009) (holding that failure of parties at clos-
ing to reveal their personal gain from the transaction consti-
tuted fraud). The conflicted nature of the transaction is espe-
cially important because Viktor stood to gain quite a bit from
the sale. JVS and Viktor reached a deal that the house would
be sold for $750,000 and any money above that would go to
Viktor as “upgrade fees.” So, Lilya secured a nearly $1 mil-
lion loan for the transaction, with the full expectation that
one quarter of that would be paid right back to Viktor. Since
the bank knew that the extra money was going to JVS but
did not know that Viktor was part of JVS and would person-
ally receive the extra quarter million dollars, there was over
$250,000 that went back to the buyer that was not disclosed
to the lender or disclosed on the HUD-1. This failure to dis-
close the extra amounts on the HUD-1 forms constituted
fraud. See, e.g., White, 737 F.3d at 1130; Jaffe, 387 F.3d at 681.
Moreover, a reasonable trier of fact viewing the evidence in
the light most favorable to the government could conclude
that Viktor intended to defraud the banking institution by
his involvement in the fraudulent documentation. First, he
represented to his JVS partners that he was actually pulling
the strings behind the sale, which showed that he was more
than a passive participant. Second, as discussed above, the
sale itself contained numerous doctored documents that di-
rectly implicated him on their face.
   As to the second sale, the Domnenkos argue that the pro-
ceeds check Lilya signed and Viktor gave to Okulaja repre-
10                                     Nos. 13-1004 & 13-1005

sented a repayment from a previous loan and therefore was
not a kickback that needed to be disclosed on the HUD-1.
While there is testimony to support that position, there is al-
so evidence that supports the conviction, which is enough
when we are reviewing for sufficiency of the evidence.
Torres-Chavez, 744 F.3d at 993 (stating we will “‘overturn a
verdict only when the record contains no evidence, regardless
of how it is weighed, from which the jury could find guilt
beyond a reasonable doubt’” (emphasis added and internal
quotation omitted)). Okulaja testified that Viktor told him
“some of the proceeds would be given to … [the] buyer.”
Okulaja then sent a message to a third party saying that
Viktor would “give money back on the property,” thereby
memorializing the deal. The third party who received the
message confirmed its content at trial, and, as a result of the
text, helped recruit “Priest/Valle.” The third party also testi-
fied that before the closing, the expectation was that the sell-
er would give the buyer a kickback from the sale. Ultimately,
when Lilya signed over her proceeds check, the closing pro-
ceeds went to individuals who were not disclosed on any of
the settlement statements, which is consistent with what
Viktor said would happen. That omission from the closing
documents was fraudulent and a reasonable juror could find
that Viktor knowingly and intentionally caused the kick-
backs not to be disclosed. See, e.g., White, 737 F.3d at 1130;
United States v. Owens, 301 F.3d 521, 528 (7th Cir. 2002) (hold-
ing evidence of undocumented kickbacks at real estate clos-
ing was sufficient to support wire fraud conviction). Wheth-
er or not Viktor knew “Robert Valle” was a fake buyer is ir-
relevant to this issue; all that matters is that he knew and in-
tended that there would be undisclosed kickbacks to
Nos. 13-1004 & 13-1005                                     11

“Priest/Valle” and others on the buyer’s side, and that those
kickbacks were eventually given.
    And, it is also relevant that Viktor received roughly
$260,000 in unreported funds back from the first sale, which
turned what was really a $750,000 transaction into a $1 mil-
lion transaction. As a result of that inflation, the sale from
the Domnenkos to “Robert Valle” for roughly $1 million did
not raise any red flags. Had the original sale been accurately
disclosed as for $750,000, then the $250,000 increase in the
sales price just four months later would have represented a
big warning sign to any objective person viewing the trans-
action and would likely have prevented a lending institution
from giving "Priest/Valle” a roughly $1 million loan to con-
summate the deal.
    The evidence is less strong, though sufficient, with re-
gards to Lilya. But we take this opportunity to note that the
government must present sufficient evidence as to each of
the Domnenkos individually, and cannot meet its burden
simply by presenting evidence as to the Domnenkos jointly.
As with Viktor, there is evidence that Lilya knew that the
Domnenkos were receiving $260,000 from the first sale,
which caused the second sale price to be inflated. Lilya was
present when the handwritten minutes were prepared to re-
flect the deal between Viktor and JVS that anything above
the $750,000 would go back to Viktor and his company. A
reasonable juror could draw the inference that Lilya knew of
this deal, was aware that it inflated the second sale price,
and affirmatively took part in that inflated sale. Lilya knew
that the original purchase was actually only for $750,000—
that is what she told law enforcement agents when she was
first approached—but still sold the property for roughly $1
12                                    Nos. 13-1004 & 13-1005

million just four months later. A reasonable juror could infer
she knew she was taking part in a fraudulent transaction
when she stood to make a 33 percent profit in just four
months.
    In addition to the inflation, there is also circumstantial
evidence that Lilya knew there would be an unreported
kickback in the second sale. Okulaja testified that he and
Viktor discussed the kickback at that closing, which Lilya
attended, before the closing papers were signed. Okulaja al-
so commented at the closing on how neither Okulaja nor his
company was on the HUD-1 forms even though, he testified
later, it was his understanding that he should have been
listed. Lilya knew that neither Okulaja nor anyone else was
included as a recipient of the proceeds from the sale when
she signed the HUD-1 forms, but signed them nonetheless.
In the light most favorable to the government and with all
reasonable inferences drawn in its favor, a rational juror
could find that Lilya knew before the closing was consum-
mated, based on the conversation between Okulaja and
Viktor, that a party not included on the HUD-1 forms would
be receiving a kickback. A juror could therefore conclude
Lilya intended to defraud the lender when she signed those
incomplete HUD-1 forms with that knowledge.
    Our conclusion that there were two fraudulent transac-
tions forecloses the Domnenkos’ argument that, at most,
there was only one fraudulent sale and they could not have
therefore been involved in a “scheme.” We therefore affirm
the convictions.
Nos. 13-1004 & 13-1005                                         13

   B. District Court Erred By Not Explaining Reasoning in
      Adopting 14-Point Enhancement
    The Domnenkos next challenge the district court’s appli-
cation of the 14-point enhancement for a “reasonably fore-
seeable” loss of over $400,000. See U.S.S.G. § 2B1.1(b)(1)(H).
The Domnenkos argue the district court made no finding as
to why the loss Countrywide suffered from the sale to
“Priest/Valle” was reasonably foreseeable to the Dom-
nenkos, especially given the government concession that it is
unlikely either Viktor or Lilya knew they were selling to a
fictional buyer. The definition of loss and whether the dis-
trict court followed proper procedures at sentencing are
questions that we review de novo, but we review the district
court’s loss calculation for clear error. United States v. Leisku-
nas, 656 F.3d 732, 737 (7th Cir. 2011).
    The PSR included a 14-point enhancement for both Lilya
and Viktor relating to Countrywide’s eventual sale of the
home since the amount of loss was $603,073.06, or the differ-
ence between Countrywide’s loan to “Robert Valle” and the
amount Countrywide eventually received in the sale of the
home. Since the loss was over $400,000, the PSR found it
triggered the 14-point enhancement under U.S.S.G. §
2B1.1(b)(1)(H). The PSR, however, did not explain how the
loss was a “reasonably foreseeable” result of the Dom-
nenkos’ fraud, as it must be for the enhancement to apply.
See U.S.S.G. § 2B1.1 Application Note 3(A)(i) (defining actual
loss as “the reasonably foreseeable pecuniary harm that re-
sulted from the offense”). A “‘reasonably foreseeable pecu-
niary harm’ means pecuniary harm that the defendant knew
or, under the circumstances, reasonably should have known,
14                                     Nos. 13-1004 & 13-1005

was a potential result of the offense.” Id. at Application Note
3(A)(iv).
    The Domnenkos filed a joint objection to the PSR and ar-
gued during the sentencing hearing that the 14-point en-
hancement should not apply because the loss should not
have been attributed to them. The court adopted the PSR,
but did not explicitly address these points in determining
either of the Domnenkos’ sentences. The only discussion of
the enhancement occurred when the government properly
raised the issue and asked to “confirm with your Honor that
the Court has found the 14-level enhancement for the
amount of loss.” The trial judge responded “Yes” without
more. The court did not further explain its reasoning and
neither Domnenko pressed the issue. The only other refer-
ence made by the court was that the loss was “by no means a
small amount of money.” The Domnenkos correctly argue
this statement by the court was not enough alone to support
the enhancement.
    The district court erred by not explaining why the en-
hancement was proper, specifically why the $600,000 was
“reasonably foreseeable” to either Domnenko. This case is
virtually on all fours with Leiskunas, in which we considered
a sentencing court’s failure to explain why a loss amount
was “reasonably foreseeable.” We stated:
       A sentencing court commits procedural error
       by not adequately explaining its choice of sen-
       tence. … And some statement of the district
       court’s reasoning is necessary for this court to
       be able to meaningfully review its decision.
       Here, the lack of explanation by the district
       court in attributing the [loss] to Leiskunas [as
Nos. 13-1004 & 13-1005                                    15

      a] reasonably foreseeable loss means we cannot
      meaningfully review the court’s decision. And,
      because of the court’s silence, we cannot be
      sure of the effect that Leiskunas’s argument
      had, or could have had, on the court’s sentenc-
      ing decision. These procedural standards oper-
      ate as safeguards against unintentional in-
      fringements on defendants’ rights.
Leiskunas, 656 F.3d at 738 (internal quotations omitted). The
sentencing here suffers from the same deficiencies and re-
quires the same outcome, namely a remand for further ex-
planation. There is no evidence that the Domnenkos knew
that “Priest/Valle” was a fictitious buyer, as the government
conceded during the trial by stating “we believe now that
there is no evidence that the Domnenkos knew about the
stolen identity of Robert Valle.” We are unable to discern
why the district court found the loss Countrywide suffered
after “Robert Valle” failed to make a single payment on the
house should be attributed to the Domnenkos.
    The government argues we can infer the district court’s
reasoning based on the fact that the court found the Dom-
nenkos knowingly and intentionally defrauded Country-
wide, the loss of $600,000 was by no means a small amount,
and that the Domnenkos acted sophisticatedly and with
premeditation. We reject this argument because it reads any
reasonable foreseeability analysis out of the Sentencing
Guidelines. If the government was correct, practically every
defendant convicted in every fraud case could be held re-
sponsible for every resulting loss, foreseeable or not, since
everyone convicted under 18 U.S.C. § 1343 must have had an
intent to defraud. See Sheneman, 682 F.3d at 628. But that is
16                                    Nos. 13-1004 & 13-1005

not what the Guidelines say. The loss must be “reasonably
foreseeable,” which requires some causation analysis, and
that was not done here. See United States v. Whiting, 471 F.3d
792, 802 (7th Cir. 2006) (noting there must be both “but for”
and “legal” causation for the enhancement to apply). We ex-
press no opinion on whether or not the loss is reasonably
foreseeable to the Domnenkos, but such a determination
should be made and explained by the district court. We
therefore remand to give the court an opportunity to explain
its rationale in attributing that loss amount to the Dom-
nenkos.
                      III. CONCLUSION
   The decisions of the district court are AFFIRMED in part
and REVERSED in part, and the case is REMANDED for further
proceedings consistent with this opinion.