UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
UNITED STATES OF AMERICA, Plaintiff-Appellee,
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BRIEF FOR APPELLANT
The district court, having jurisdiction over this criminal case under 18 U.S.C. § 3231, entered its final judgment on June 10, 1999. A timely notice of appeal having been filed on June 11, 1999, this Court has jurisdiction over this appeal under 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a).
ISSUES PRESENTED FOR REVIEW
I. Whether there was insufficient evidence to support the perjury conviction where the only proof of the allegedly perjurious testimony – the transcript of Ms. xxxxxxx's bankruptcy trial testimony – was never formally moved or received in evidence.
II. Whether the sentencing court erred in applying a 1-level multiple-count adjustment to Ms. xxxxxxx's offense level when the guidelines plainly called for all three offenses to be grouped.
III. Whether the sentencing court erred in applying a 2-level managerial-role enhancement on the basis of Ms. xxxxxxx's instructions to her secretary to alter a letter where the secretary's involvement in the wrongdoing was found to be "unwitting" and the secretary could not, therefore, legally qualify as a "criminally responsible" "participant."
IV. Whether the sentencing court erred in applying a 2-level more-than-minimal-planning enhancement on the basis of "repeated acts over a period of time" where the court did not find at least three separate criminal acts that were not "purely opportune."
V. Whether the sentencing court erred in applying a 2-level obstruction-of-justice enhancement based on Ms. xxxxxxx's alleged perjury during her criminal trial where the court did not preside over that trial and had no basis for determining by clear and convincing evidence that the testimony at issue had been false.
VI. Whether the sentencing court erred in applying an 8-level "loss" enhancement based on a finding that the SBA could expect to recover less than 10% of the pelletizer's original sales price.
STATUTES, GUIDELINES, AND RULES
Pursuant to Rule 28(f), Federal Rules of Appellate Procedure, and D.C. Circuit Rule 28(a)(5), the pertinent statutes, guidelines, and rules are set forth in the Addendum.
STATEMENT OF THE CASE
A.Nature of the Case, Course of Proceedings, and
Disposition in the Court Below.
On March 13, 1998, a federal grand jury returned a ten-count indictment charging Mrs. JoAnn xxxxxxx with four counts of making a false statement in a loan application to Adams National Bank ("Adams" or "the bank") in violation of 18 U.S.C. § 1014, four counts of making the same false statements to the Small Business Administration ("SBA") in violation of 15 U.S.C. § 645, and two counts of perjury during a 1995 bankruptcy trial in violation of 18 U.S.C. § 1623. (Appx:28-42).
On June 29, 1998, the Honorable Emmet G. Sullivan ruled that the government could not charge each of the four allegedly false statements as a separate count where they were all made as part of a single bank loan application which was forwarded to the SBA to obtain a single loan guarantee. (6/29 Tr. 2-6). On July 1, 1998, the government obtained a four-count superseding indictment condensing the four false statements to the bank into Count One and the same four false statements to the SBA into Count Two, with the two perjury counts becoming Counts Three and Four. (Appx:100-113).
On September 14, 1998, a jury trial commenced before the Honorable Harold H. Greene, to whom the case had been transferred. Before the trial began, the court ordered the government to elect between the two perjury counts since they involved essentially the same statements made at different times within one proceeding. (9/14 a.m. Tr. 19-20). The government elected to proceed on Count Four (9/14 a.m. Tr. 21-22), which became Count Three in a retyped indictment (Appx:131-40).
On September 22, 1998, the jury returned verdicts of guilty on all three counts. On June 3, 1999, the Honorable Norma Holloway Johnson, to whom the case had been transferred, sentenced Ms. xxxxxxx to concurrent prison terms of 37 months on Counts One and Three and 24 months on Count Two, concurrent supervised release terms of five years on Count One, one year on Count Two, and three years on Count Three, $542,781.89 in restitution, and a $150 special assessment. (Appx:254-59; S. Tr. 90-92). Ms. xxxxxxx filed a timely notice of appeal. (Appx:260).
B.Statement of Facts.
This case arose out of a 1993 business loan application. At that time, Ms. xxxxxxx and her husband had been co-owners of a successful trash hauling business – xxxxxxx's Refuse, Inc. – for many years. In 1993, the xxxxxxxs formed another company – xxxxxxx's Waste Industries and Manufacturing Company ("MWI") – for the purpose of recycling residual waste paper into fuel pellets. The "pelletizer" machine that would be needed to process the waste paper was to be purchased from Lundell Manufacturing ("Lundell") for $385,000. The pelletizing process was to generate income in two ways: (1) through "tipping fees" received for hauling away the residual waste paper that recycling centers or other companies would otherwise have to pay to put in a landfill; and (2) through the sale of the fuel pellets produced from the waste paper.
Ms. xxxxxxx was the President and 51% owner of MWI. In order to obtain financing for the purchase of the pelletizer, Ms. xxxxxxx engaged the services of John Ford, of the Washington D.C. Development Corporation. Mr. Ford helped prepare a loan application that was submitted to loan officer Christal Milner at Adams National Bank ("Adams" or "the bank"). Based on that application, the bank agreed to loan MWI $296,014 to purchase the pelletizer on the condition that the Small Business Administration ("SBA") agree to provide an 80% guarantee of the loan.
The bank forwarded the loan application to the SBA, and the SBA ultimately approved the 80% guarantee. At the settlement of the loan on November 5, 1993, the bank wired the full $250,000 still due on the machine directly to Lundell and used the rest of the loan proceeds to pay bills related to installation of high-grade electrical components needed to operate the machine. Ms. xxxxxxx did not receive any of the loan proceeds.
Although MWI had a several-month backlog of paper in its warehouse ready to be processed, there were problems with the functioning of the pelletizer from the beginning. Throughout November and December 1993, MWI was able to produce and sell some fuel pellets under its contract with a company called Multitrade. Because that contract had been assigned to the bank as a condition of the loan, that money went directly to the bank. (Appx:229 n.6). However, when the first payment on the loan came due in January, 1994, MWI made no additional payment and the bank put the loan in default.
Adams and the SBA then put MWI into involuntary bankruptcy. MWI countersued, alleging that Adams had breached their loan agreement by wiring full payment to Lundell when the bank was aware that MWI's agreement with Lundell called for installment payments. MWI alleged that by paying Lundell in full, the bank caused MWI to lose all bargaining strength in its dispute with Lundell over the performance of the pelletizer. In defense, the bank alleged that MWI had fraudulently induced the loan.
The two false statement counts in this case were based on that same claim – that Ms. xxxxxxx had made false statements to the bank and the SBA in order to obtain the loan. The perjury count was based on testimony Ms. xxxxxxx gave at the 1995 bankruptcy trial (at which the bankruptcy judge granted the bankruptcy petition and ruled that the bank had not acted improperly in wiring full payment to Lundell).
The government's case was less than compelling. In ruling on Ms. xxxxxxx's motion for judgment of acquittal, the court noted, "[i]t is not the greatest most wonderful case that the government has ever brought on perjury or false statements, but of course that is not my judgment to make." (9/18 a.m. Tr. 54). The jury, although convicting Ms. xxxxxxx on the three counts charged, was also underwhelmed by the government's case. After the verdict, the jury foreman asked to address Judge Greene and, speaking for "everybody," said: "[We] don't think she is a real criminal. Would you be lenient on her please? Could you be lenient on her please?" (9/22 Tr. 11).
The evidence in support of the three counts of conviction was as follows:
1.The Two False Statements Counts
Ms. xxxxxxx was convicted in the first count of making three false statements for the purpose of obtaining the loan from Adams National Bank, in violation of 18 U.S.C. § 1014. The second count was based on the bank's forwarding of those same three statements to the SBA for the purpose of obtaining the guarantee, in violation of 15 U.S.C. § 645.
a.The Central Fidelity Loan
The first alleged false statement involved the failure to report a particular contingent liability on Ms. xxxxxxx's personal financial statement that was submitted with the initial loan application. Specifically, the government contended that the financial statement was false in that it did not disclose that Ms. xxxxxxx was a personal guarantor on a $100,000 loan from Central Fidelity Bank to xxxxxxx's Refuse. The Central Fidelity loan officer testified that the loan was made to xxxxxxx's Refuse to finance the start-up of the xxxxxxxs' new company. (9/15 Tr. 154). Ms. xxxxxxx's testimony confirmed that Central Fidelity had structured the loan so as to allow the xxxxxxxs to use their equity in xxxxxxx's Refuse to help fund MWI, including a $38,500 payment to Lundell as a 10% deposit to obtain delivery of the pelletizer. (9/18 p.m. Tr. 40-42). Ms. xxxxxxx further testified that John Ford had had her sign the personal financial statement form in blank and that she did not know who had actually prepared the personal financial statement but assumed that John Ford did so based on information obtained from MWI's accountant, Peggy Sulkowski. (9/18 p.m. Tr. 36-37; 96-102; 9/21 a.m. Tr. 3-7). The government stipulated that the handwritten version of the personal financial statement did not contain Ms. xxxxxxx's handwriting. (9/21 a.m. 62-63).
b.The Warmus Letter
The second alleged false statement involved the submission to the bank of a letter from Ed Warmus, plant manager of the BFI Recyclery, documenting the amount of residual paper BFI would be supplying to MWI. In October 1993, after submission of the initial loan application to the bank and after the SBA's loan specialist, Freddie Biddle, recommended approval of the guarantee, the SBA's legal department requested that Biddle obtain additional documentation supporting the "tipping fees" projections in the loan application (100 tons per day at $40 per ton), because the contract included with the loan application stated only that BFI was paying MWI $40 per ton of waste paper but did not specify any daily tonnage figure. (9/15 Tr. 48-52). Biddle testified that she contacted bank loan officer Milner to request the additional documentation. (9/15 Tr. 51-52).
MWI's receptionist/secretary, Kim Turner, testified that on October 4, 1993, she called Ed Warmus at Ms. xxxxxxx's request to ask for a letter documenting the tonnage he anticipated sending to MWI. (9/17 (Turner) Tr. 7). Warmus faxed to Ms. Turner a letter stating a figure of 16 tons per day. (9/17 (Turner) Tr. 8). Turner testified that she read the letter over the telephone to Ms. xxxxxxx (who was at home) and Ms. xxxxxxx asked her to call Warmus back and ask him for the maximum amount he anticipated sending. According to Turner, when she called Warmus back, he said that 16 tons was as high as he could go. (9/17 (Turner) Tr. 8-9). Turner then called Ms. xxxxxxx back to report what Warmus had said and, later that day, Ms. xxxxxxx came into the office. (9/17 (Turner) Tr. 9). At some time later, Ms. Turner accompanied Ms. xxxxxxx into the conference room where Ms. xxxxxxx placed a phone call to John Ford. (9/17 (Turner) Tr. 9-10, 29). Turner testified that when Ms. xxxxxxx hung up, she instructed Turner to change the letter to 100 tons. Turner did so by "whiting out" the "16" and changing it by hand to "100." According to Turner, she then showed the change to Ms. xxxxxxx and faxed the revised letter to loan officer Milner at the bank. (9/17 (Turner) Tr. 9-11). Milner subsequently called and spoke to Ms. xxxxxxx, after which Ms. xxxxxxx told Turner to type in the change and write in the initials "EW" beside it. Turner testified she did so and refaxed the letter to Milner. (9/17 (Turner) Tr. 11-12).
Warmus testified that he faxed the 16-ton letter in response to a call from Kim Turner. (9/17 p.m. Tr. 8-9, 11). He denied giving anyone permission to change the letter but acknowledged that he did not remember one way or the other whether he had spoken to Ms. Turner a second time or had ever spoken with Ms. xxxxxxx herself that day. (9/17 p.m. Tr. 11, 31-32).
Ms. xxxxxxx testified that she was home sick that morning when she got a call from Ms. Turner informing her that John Ford had been trying to reach her. She called Ford, who explained that Milner needed verification of the paper tonnage from BFI. Ms. xxxxxxx then called Ms. Turner and asked her to have Warmus send a verifying letter. (9/18 p.m. Tr. 50). Subsequently, Turner called to say that Ford was calling again and he was upset. When Ms. xxxxxxx called Ford, he told her that she should call Warmus back because the numbers in the Warmus letter did not support the financial projections he had given to the bank. (9/18 p.m. Tr. 51). After calling Turner back and having her read the Warmus letter, Ms. xxxxxxx called Warmus herself. She told him she knew he had been shipping more than 16 tons per day and explained that she needed the letter to verify the maximum amount of paper he could possibly send. (9/18 p.m. Tr. 51-52, 113). He indicated he would not be able to send another letter himself that day but agreed when she asked permission to change the existing letter to reflect the maximum amount. (9/18 p.m. Tr. 52). Ms. xxxxxxx then drove to the office where she called Ford back from the conference room. She informed him that Warmus had agreed to change the letter to the maximum and he told her he needed verification of 100 tons per day in order to support the projections. (9/18 p.m. Tr. 53, 113). She then told Turner to white-out the "16" and change it to "100." Ford called back shortly thereafter and said that Milner had said the document looked handwritten and that it needed to be typed. Ms. xxxxxxx then had Turner type in the change. (9/18 p.m. Tr. 54).
c.Warmus's Attempt To Withdraw The Paper Supply
The third alleged false statement involved the failure to disclose on the loan settlement sheet the fact that Warmus had, in the days immediately preceding the settlement, called Ms. xxxxxxx to say that BFI would no longer be supplying any residual paper to MWI.
Warmus testified that at the end of October or beginning of November, he called Ms. xxxxxxx to tell her that his company had decided to "internalize" its residual waste by sending it to a BFI landfill and would no longer need MWI's services in removing the residual paper. (9/17 p.m. Tr. 12). Warmus admitted that Ms. xxxxxxx's immediate reaction was to say, "we have a contract – do you know that we have a contract, that you cannot stop giving me the material?" (9/17 p.m. Tr. 14). Having only arrived as plant manager in September, Warmus responded that he was unaware of any contract but would look into it. (9/17 p.m. Tr. 15). In checking BFI's files, the only contract he found specified only the $40 price per ton, not any particular length of term or amount of tonnage. (9/17 p.m. Tr. 15).
Ms. xxxxxxx testified that she believed MWI had a one-year contract with BFI and that Warmus could not stop supplying MWI with paper until that contract expired. (The plant manager who preceded Warmus, David Minton, had testified that Harvey Lasko – a former Lundell salesman who had become MWI's marketing representative at the beginning of the company's start-up process – had originally presented him with a proposed one-year contract under a cover letter signed by Ms. xxxxxxx, but that he had declined to agree to it and instead negotiated the simpler $40/ton contract. (9/17 a.m. Tr. 12-18).) Ms. xxxxxxx testified that when she told Warmus they had a one-year contract, he said he would look into it and get back to her, leading her to believe as of the date of the settlement that he was reconsidering his statement that he would be withdrawing the paper supply. (9/18 p.m. Tr. 56). It was not until more than one week after the settlement – after correspondence between MWI's attorney and BFI's attorney concerning the existence or non-existence of the one-year contract – that it became clear that BFI did not intend to send any more paper. (9/18 p.m. Tr. 57-60). Indeed, Warmus acknowledged that the invoices show that BFI continued to provide residual paper to MWI through November 10, 1993, almost one week after the settlement. (9/17 p.m. Tr. 18).
Therefore, there would have been no reason for Ms. xxxxxxx to have disclosed the Warmus telephone call at the time of the settlement, particularly given the language of the settlement sheet, which required Ms. xxxxxxx to certify only that "[t]here has been no substantial adverse change in financial condition, organization, operations or fixed assets since application for this loan was filed or since the previous disbursement." (9/15 Tr. 117) (emphasis added).
2.The Perjury Count
The perjury count alleged that Ms. xxxxxxx had lied in the bankruptcy trial concerning her conversation with Warmus about changing the 16-ton letter. The indictment set forth that testimony, underlining nine specific statements alleged to be false. (Appx:145-48). The jurors were instructed that they need only agree on the falsity of one of the nine statements in order to convict her of perjury. (9/21 p.m. Tr. 78-79).
The Presentence Report initially calculated Ms. xxxxxxx's sentence as follows: Grouping the two false statement counts, the report started with a base offense level of 6 under U.S.S.G. § 2F1.1, added 8 points under § 2F1.1(b)(1)(I) to account for a "loss" of between $200,000 and $350,000, added 1 point under
§ 3D1.4 to account for the perjury count (which the Probation Officer believed should not be grouped with the false statement counts), added 2 points under § 3B1.1 for Ms. xxxxxxx's "managerial role" in directing her "unwitting" secretary to amend the Warmus letter, and added 2 points under § 2F1.1(b)(2) for more than minimal planning on the ground that the offense involved "repeated acts over a period of time" (§ 1B1.1, comment. (n.1(f)), for a total of 19 points.
In response, the defense filed lengthy pleadings pointing out the material inaccuracies in the PSR (Appx:187-97) and objecting to all of the offense level enhancements (Appx:198-206). The prosecutor asked for the addition of a 2-point obstruction of justice enhancement under U.S.S.G. § 3C1.1 on the ground that Ms. xxxxxxx had committed perjury at the criminal trial (PSR at 22). The Probation Officer, based on "discussion of the defendant's testimony with [the prosecutor], . . . determined that the defendant provided material falsehoods during the course of her testimony" and revised the PSR to apply the 2-point obstruction enhancement (PSR at 22 & ¶ 46), bringing the total Offense Level to 21, with a resulting guideline range of 37-46 months.
At sentencing, the newly-assigned district judge, who had not been present for any of the earlier proceedings, did not make any independent factual or legal findings with respect to Ms. xxxxxxx's objections to the guideline calculation. Instead, the court asked the Probation Officer to address the objections, got the Probation Officer's assurance that "you are convinced, based upon your interviewing of the witnesses and parties, that these enhancements are accurate" (S. Tr. 82), and then, "accepting the recommendations of the Probation Department with respect to those issues that were brought up" (S. Tr. 90), simply adopted the findings and guideline application in the PSR (Appx:259). The court, denying Ms. xxxxxxx's departure motion, then sentenced her to concurrent terms of 37 months on Counts One and Three and 24 months (the statutory maximum) on Count Two.
SUMMARY OF ARGUMENT
With respect to Ms. xxxxxxx's conviction, she asserts that the government failed to present sufficient evidence to support the perjury count by failing to formally move into evidence the transcript of her bankruptcy trial, which was the only proof the court ruled admissible to establish the allegedly perjurious statements.
With respect to Ms. xxxxxxx's sentence, she challenges all five of the court's offense level adjustments and contends that she should have been sentenced at Offense Level 6 rather than Offense Level 21. First, because the perjury count should have been grouped with the false statement counts, the sentencing court erred in applying a 1-level multiple-count adjustment to her offense level.
Second, because the district court found that Ms. xxxxxxx's secretary was an "unwitting" actor in the alteration of the Warmus letter, she could not legally qualify as a criminally responsible "participant" in that alteration such that Ms. xxxxxxx's instructions to her could provide the basis for the court's 2-level "managerial role" enhancement.
Third, because the four acts that formed the basis for the sentencing court's finding of "repeated acts over a period of time" did not include at least three criminal acts that were committed over a period of time and were not "purely opportune," the court erred in applying a 2-level "more than minimal planning" enhancement.
Fourth, because the district court did not preside over Ms. xxxxxxx's criminal trial, and the jury did not necessarily reject the trial testimony upon which the court based its 2-level "obstruction of justice" enhancement, the court was without any basis for finding by clear and convincing evidence that that testimony was perjurious.
Finally, because the loan was more than fully collateralized by the pelletizer, other equipment, and several third party guarantees, and there is undisputed record evidence indicating that the SBA could "expect to recover" most, if not all, of the loan amount from sale of the pelletizer alone, the sentencing court erred in applying an 8-level loss enhancement based on the SBA's decision to sell the pelletizer back to the manufacturer for less than 10% of its original retail price and to forgo collection on the remaining collateral.
I.THERE WAS INSUFFICIENT EVIDENCE TO SUPPORT THE PERJURY CONVICTION WHERE THE ONLY PROOF OF THE ALLEGEDLY PERJURIOUS STATEMENTS WAS NOT PUT IN EVIDENCE.
A.Standard of Review.
This Court generally reviews the sufficiency of the evidence de novo to determine "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).
This Court has recognized that "a 'broadly stated' motion for judgment of acquittal 'without specific grounds' is 'sufficient to preserve [a] full range of challenges . . . to the sufficiency of the evidence." United States v. Spinner, 152 F.3d 950, 955 (D.C. Cir. 1998) (quoting United States v. Hammoude, 51 F.3d 288, 291 (D.C. Cir. 1995)). See also United States v. Milton, 8 F.3d 39, 45 (D.C. Cir. 1993) ("a "general claim of insufficient evidence" was sufficient to preserve a specific point of error not raised below), cert. denied, 513 U.S. 919 (1994).
Here, Ms. xxxxxxx's trial counsel did not point to the specific insufficiency Ms. xxxxxxx now challenges. In her written motion for judgment of acquittal, trial counsel did, in a brief footnote, make a different insufficiency argument with respect to the perjury count (Appx:173 n.4), but that argument was made in addition to counsel's "general claim of insufficient evidence" (Milton, 8 F.3d at 45). See Appx:162 ("xxxxxxx submits that there is no evidence upon which a jury could base a verdict of guilty beyond a reasonable doubt on any of the counts with which xxxxxxx was charged") (emphasis added). (Counsel's oral motions for judgment of acquittal were specific only as to the false statement counts, not the perjury count). (9/18 a.m. Tr. 29, 32-55; 9/21 a.m. Tr. 42-59).
Therefore, trial counsel fully preserved this issue based on her general claim of insufficiency on the perjury count. But even if this Court were to conclude that "plain error" review applies, Spinner makes clear that that standard is met in cases such as this one, where "the government failed to present any evidence on an essential element of a crime." 152 F.3d at 956 (reversing without reaching issue whether "plain error" standard differs from Jackson standard because conviction in absence of any evidence on an element is "manifest miscarriage of justice" that warrants reversal under either standard).
B.The Transcript Of Ms. xxxxxxx's Allegedly Perjurious Bankruptcy Trial Testimony Was Never Moved Or Received In Evidence.
Under the Due Process Clause, "[t]he prosecution bears the burden of proving all elements of the offense charged." Sullivan v. Louisiana, 508 U.S. 275, 277-78 (1993). See also Spinner, 152 F.3d at 956 ("axiomatic that the government bears the burden of proving all elements of a crime beyond a reasonable doubt").
Here, the government failed to put in any evidence of the nine allegedly perjurious statements set forth in the indictment. In examining Laurence Ochs, the attorney who had cross-examined Ms. xxxxxxx in the bankruptcy trial, the prosecutor had him identify Government Exhibit 30 ("GX-30") as the portion of the bankruptcy trial transcript in which "the 100 ton letter, the BFI letter" was discussed. (9/17 p.m. Tr. 64). The following then took place:
[AUSA]: Your Honor, at this time I would like to play the tape of that testimony, and I have prepared copies of that exhibit for the jurors, so I would like to move in that exhibit –
THE COURT: Why does there have to be a tap[e] played as distinguished simply from putting a transcript in?
[AUSA]: Because, Your Honor, I think that the tape is the best evidence. It is not that long.
THE COURT: Well, it is kind of unusual.
[DEFENSE COUNSEL]: Your Honor, that is part of my objection that we had.
THE COURT: This is not the Monica Lewinsky case.
[AUSA]: I know, Your Honor.
THE COURT: It is just a run of the mill case. I don't see any need for playing the tape. You can put in the transcript. If you offer the transcript I will admit it into evidence, but that is all I am going to do.
[AUSA]: Can I introduce the tape into evidence?
THE COURT: No. There is nothing in the tape that isn't in the transcript, is there?
(9/17 p.m. Tr. 64-65) (emphasis added). The prosecutor acknowledged that there was not, but asked to approach the bench, arguing at the bench conference that the tape would show that Ms. xxxxxxx was emphatic and was not confused. (9/17 p.m. Tr. 65-66). The bench conference concluded with the Court repeating its earlier statement, "You can put in the transcript but not the tape." (9/17 p.m. Tr. 66). Back in open court, the prosecutor then asked permission to have the transcript read aloud to the jury with a government investigator playing the part of Ms. xxxxxxx, but the court responded:
THE COURT: Why do they have to hear the testimony?
[AUSA]: Because, Your Honor, that is where the allegations of perjury are, they are in that transcript, and the jurors won't be able to hear it.
THE COURT: They don't have to hear it. They can read it just like they read all the other exhibits.
THE COURT: No.
(9/17 p.m. Tr. 67).
Perhaps thrown off by the Court's thwarting of her plan to play the audiotape of the bankruptcy trial or, in the alternative, have the transcript read into the record, the prosecutor failed to then move the bankruptcy transcript into evidence and the Court never received it in evidence. Instead, the prosecutor proceeded to move in her next exhibit, which the court reporter noted as received with the standard notation:
(Whereupon, Government's Exhibit No. 27, marked for identification, was received in evidence.)
(9/17 p.m. Tr. 67). While the court reporter noted the receipt of all other admitted exhibits in this fashion, there is no such notation with respect to GX-30. Nor does the court reporter's index at the front of that day's transcript indicate receipt of GX-30. (9/17 p.m. Tr. 3). While the exhibit list kept by the clerk does show GX-30 as having been received in evidence on September 17, 1998 (Appx:154), that notation is not supported by anything that occurred on the record and cannot supersede the official court reporter's record of the proceedings. Moreover, the clerk's notation as to GX-30 reveals confusion on the point since it notes both "Kim Turner" and "Mr. Ochs" under the "witness" column (Appx:154) and GX-30 was never mentioned at all during Kim Turner's testimony.
Given the government's failure to put GX-30 in the record, or to put in any stipulation as to its authenticity, there was no evidence to support the government's perjury charge. This Court has not hesitated to reverse in similar circumstances. In United States v. Gilliam, 167 F.3d 628 (D.C. Cir.), cert. denied, 120 S. Ct. 118 (1999), this Court reversed for insufficiency on a felon-in-possession charge where the prosecutor, while informing the district court (who was acting as factfinder in a bench trial) that he had a certified copy of a prior conviction, "never submitted the document to the court for introduction into evidence." Id. at 639. The government argued that Gilliam's failure to challenge the prosecutor's representation that he had a certified copy of a particular conviction and that Gilliam had been convicted of the three prior felony offenses specified in the indictment, was essentially a stipulation to the prior felony element. But this Court rejected that argument, concluding that the failure formally to introduce the certificate was fatal. Id. In Spinner, this Court reversed where it concluded that the government failed to introduce any evidence that the weapon at issue met the statutory requirement of having "a pistol grip that protrudes conspicuously beneath the action of the weapon." 152 F.3d at 957. Although the government had introduced the weapon itself, and a firearms expert had testified that the grip extended beyond the bottom of the "receiver," the government failed to put in any evidence that a "receiver" was equivalent to the statutory term "action." Id. This Court reasoned that, even under a "plain error" standard, "[t]his evidentiary vacuum on a key statutory element requires that we reverse the conviction." Id.
Here, as in Gilliam and Spinner, the government inadvertently failed to get into evidence any proof on a key statutory element. Ms. xxxxxxx's perjury conviction must therefore be vacated with prejudice.
II.THE SENTENCING COURT ERRED IN APPLYING A MULTIPLE-COUNT ADJUSTMENT TO MS. xxxxxxx'S OFFENSE LEVEL.
A.Standard of Review.
A one-level multiple-count adjustment (PSR ¶¶ 54-58) was applied pursuant to U.S.S.G. § 3D1.4 as a result of the Probation Officer's determination that the perjury count should not be grouped with the two false statement counts (PSR ¶ 40):
Although U.S.S.G. § 3D1.2(b) dictates that all of the counts shall be grouped, U.S.S.G. § 2J1.3(d)(1) specifically prohibits grouping of the counts if [sic] the case of perjury arising from testimony was [sic] given in separate proceedings. As the perjury arose from the testimony presented at the bankruptcy trial, a separate proceeding from the instant case, Count 3 shall not be grouped.
Pure errors of guidelines law like this one are reviewed de novo under the standard of review "trichotomy" set forth in United States v. Kim, 23 F.3d 513, 517 (D.C. Cir. 1994). The defense did object to the addition of this point to Ms. xxxxxxx's offense level. See Appx:198 ("The final point is a multiple count adjustment. xxxxxxx submits that none of the proposed enhancements [is] warranted and that the appropriate total offense level is 6."). The failure to make the specific argument made here is of no consequence since the error in breaking the perjury count off from the false statement group was plain under the very guideline relied on by the Probation Officer.
B.The Guidelines Make Plain That The Perjury Count Should Have Been Grouped With The Other Counts.
The Probation Officer acknowledged that under the ordinary grouping rules the perjury count would be grouped with the two false statement counts. (PSR ¶ 40). However, the Probation Officer relied on § 2J1.3(d)(1) as specifically prohibiting such grouping in this case. A plain reading of § 2J1.3(d)(1) shows that it does not apply to this case.
Section 2J1.3(d)(1) is a "Special Instruction" to the perjury guideline that says (emphasis added): "In the case of counts of perjury or subornation of perjury arising from testimony given, or to be given, in separate proceedings, do not group the counts together under § 3D1.2 (Groups of Closely Related Counts)." This instruction clearly refers to cases in which an individual has been convicted of more than one count of perjury. The perjury guideline is written to ensure that such multiple perjury counts each contribute some additional punishment when they arise from testimony in separate proceedings. See Guideline Amendment 402 (effective Nov. 1, 1991) (adding this "special instruction addressing the appropriate treatment of multiple instances of perjury under Chapter Three, Part D (Multiple Counts)") (emphasis added). Indeed, the government recognized that § 2J1.3 refers to multiple perjury convictions when it argued that it should not have to elect between the two perjury counts. See Appx:128 (government citing § 2J1.3's "separate proceedings" provision to show that "[w]ere defendant to be convicted of both [perjury counts], the Guidelines would require that these two counts would be treated as one offense for sentencing purposes").
The application of § 2J1.3's grouping exception in this case was clearly wrong. First, Ms. xxxxxxx was being sentenced for only one count of perjury, not the "counts of perjury" the plain text of the guideline addresses. Second, to ignore the plain language of § 2J1.3 and apply it to a single perjury count produces an illogical result in that this grouping exception would apply in every case involving only one perjury count. Because a "trial" is a "separate proceeding" from any other proceeding (§ 2J1.3, comment. (n.5)), and since it is not possible to be convicted of perjury as part of the same criminal trial in which that perjury is committed, by definition, all single convictions for perjury "aris[e] from testimony  given in separate proceedings." PSR
¶ 40 (citing language from § 2J1.3(d)(1)). Thus, § 2J1.3 makes sense only if read in conformance with its plain language.
Because Ms. xxxxxxx's offense level was fundamentally miscalculated, this Court should remand for resentencing without the 1-level multiple-count adjustment.
III.THE SENTENCING COURT ERRED IN APPLYING THE "MANAGERIAL ROLE" ENHANCEMENT TO MS. xxxxxxx'S OFFENSE LEVEL.
A.Standard of Review.
The Probation Officer recommended a two-level managerial-role enhancement based on Ms. xxxxxxx's direction to her secretary – a concededly "unwitting participant" – to amend the Warmus letter:
The defendant was the President of xxxxxxx's Waste. As such, she held a leadership and managerial role over the employees of xxxxxxx's Waste, who were unwitting participants in the fraud. Specifically, the defendant directed the activities of Kim Turner, secretary at xxxxxxx's Waste. Pursuant to § 3B1.1(c), two levels are added.
(PSR ¶ 45) (emphasis added).
Ms. xxxxxxx objected to this enhancement on the ground that "[a]s the trial record clearly indicates and the [PSR] concedes, Kim Turner was not a knowing participant in the alleged falsification" of the Warmus letter, challenging any suggestion that "xxxxxxx, by directing her secretary to change the letter in the ordinary course of her duties as secretary, thereby became a manager or supervisor of other lower-level participants in a scheme to defraud." (Appx:195). See also Appx:204-05 (objecting on ground that purpose of aggravated role enhancement is to account for "relative responsibility" among "participants in a criminal enterprise" and PSR acknowledges that Turner was not a knowing participant).
This Court must apply de novo review to the sentencing court's legal error in applying a role enhancement based on management of someone whose involvement was found to be "unwitting" and who could therefore not legally qualify as a criminally responsible "participant." See Kim, 23 F.3d at 517 (issues of law under guidelines reviewed de novo).
B.Directing Kim Turner Could Not Provide The Legal Basis For A Role Enhancement Because, Having Been Found To Be An "Unwitting" Actor, Turner Could Not Legally Qualify As A Criminally Responsible "Participant."
The aggravating role guideline provides for a 2-level enhancement "[i]f the defendant was an organizer, leader, manager, or supervisor in any criminal activity other than described in [the two previous subsections, which provide for a 3- or 4-level enhancement where the defendant was a supervisor/manager or organizer/leader of criminal activity that involved five or more participants or was otherwise extensive]." § 3B1.1(c). The sentencing court based its 2-level "managerial role" enhancement solely on Ms. xxxxxxx's actions in directing her secretary, Kim Turner, to amend the Warmus letter. These actions could not legally support such an enhancement, however, given the Probation Officer's recognition, and the sentencing court's finding as fact, that Ms. Turner's involvement in that episode was entirely "unwitting." (PSR ¶ 45; Appx:259).
The aggravating role guideline specifies that "[t]o qualify for an adjustment under this section, the defendant must have been the organizer, leader, manager, or supervisor of one or more other participants." § 3B1.1, comment. (n.2) (emphasis added). "Participant" under the aggravating role guideline is clearly defined and clearly excludes unwitting actors such as Ms. Turner:
A "participant" is a person who is criminally responsible for the commission of the offense, but need not have been convicted. A person who is not criminally responsible for the commission of the offense . . . is not a participant.
§ 3B1.1, comment. (n.1) (emphasis added). See United States v. Bapack, 129 F.3d 1320, 1325 (D.C. Cir. 1997) (2-level enhancement of § 3B1.1(c) applies only if defendant managed a "criminally responsible" "participant;" enhancement applied where defendant "supervised the knowing creation of a materially false document" by subordinates in violation of 18 U.S.C. § 1001) (emphasis added); United States v. Kelley, 36 F.3d 1118, 1129 & n.6 (D.C. Cir. 1994) (agreeing that § 3B1.1(c) "applies only to one who exercises control over criminally responsible subordinates;" 2-level enhancement applicable where defendant exercised substantial control over "both knowing and unwitting accomplices") (emphasis added).
As defense counsel pointed out below, a contrary rule would be nonsensical because it would treat every defendant who directed an unwitting third party in some purely ministerial act as a "manager" of "criminal activity," and would call for an enhancement in, for example, every mail fraud case in which a defendant sent someone else to the post office to mail the offending letter. (Appx:205-06).
Here, the government never argued – nor could it argue – that Ms. Turner was in fact "criminally responsible." In any event, the district court found as fact that Turner's involvement was "unwitting." As Ms. xxxxxxx's instructions to Turner were the only basis for the managerial-role enhancement, it cannot stand as a matter of law.
IV.THE SENTENCING COURT ERRED IN APPLYING THE "MORE THAN MINIMAL PLANNING" ENHANCEMENT TO MS. xxxxxxx'S OFFENSE LEVEL.
A.Standard of Review.
This Court has applied "due deference" review to a sentencing court's conclusion that the "more than minimal planning" enhancement was applicable. Kim, 23 F.3d at 517.
Trial counsel fully preserved Ms. xxxxxxx's challenge to this enhancement by arguing that, eliminating those acts that were "purely opportune," § 1B1.1, comment. (n.1(f)), Ms. xxxxxxx's crimes involved only one act, not "repeated acts." (Appx:202-04).
B.The Sentencing Court's "More Than Minimal Planning" Conclusion Was Not Based On At Least Three Acts That Were Not "Purely Opportune."
Under the guidelines, "'[m]ore than minimal planning,' is deemed present in any case involving repeated acts over a period of time, unless it is clear that each instance was purely opportune." § 1B1.1, comment. (n.1(f)). This Court in Kim held, as a matter of law, that "'repeated acts' in the description of more than minimal planning contemplates at least three acts." 23 F.3d at 515.
The "repeated acts" provision was the sole basis for the Probation Officer's "more than minimal planning" enhancement: "This offense clearly involved more than minimal planning, as it involved several acts and spanned over the course of a significant period of time." (PSR ¶ 43). The PSR did not, however, specify which acts it considered to constitute the "several" acts. Only at the sentencing hearing, when asked by the court to respond to Ms. xxxxxxx's challenge to the enhancement did the Probation Officer set forth the alleged factual basis for it, listing four acts:
With respect to the more than minimal planning, the Defendant made numerous statements throughout the – false – numerous statements throughout the loan process.  She failed to disclose herself as a guarantor of the loan on xxxxxxx's Refuse.  She had overinflated the revenue projection sheet.  In a resume which she submitted in her loan application, she also stated that she had received an Associate of Arts degree from the Northern Virginia Community College, which she had not.  The revenue projection also was seriously impacted several days before the loan closing. The Defendant knew this and failed to disclose this at the time of closing.
So, these actions that were taken by the Defendant clearly constitute more than minimal planning as they occurred over an extended period of time and occurred on numerous occasions.
(S. Tr. 80). The sentencing court did not specify the basis for its more than minimal planning enhancement other than to say it "accept[ed] the recommendations of the Probation Department with respect to those issues that were brought up" (S. Tr. 90) and that it "adopts the factual findings and guideline application in the presentence report" (Appx:259).
The four acts relied on by the Probation Officer clearly do not satisfy the "repeated acts" test. First, the first three allegedly false statements all occurred simultaneously, as part of the submission of the loan application, not "over a period of time" as required by § 1B1.1, comment. (n.1(f)), and cannot therefore count as more than one qualifying act. See S. Tr. 67 (defense counsel challenging more than minimal planning enhancement on ground that "[t]his was one loan application").
Second, the "repeated acts" test cannot be satisfied by acts that are not themselves criminal. Ms. xxxxxxx was originally charged with making a false statement based on the third act the Probation Officer cites (the submission of a false resume), but the trial court granted a judgment of acquittal on that aspect of the false statement counts, ruling that the statement involved a matter so trivial that Ms. xxxxxxx could not have reasonably believed it would affect the decision of the bank or the SBA with respect to making/guaranteeing the loan. (9/21 a.m. Tr. 57-58) (citing United States v. Wells, 519 U.S. 482 (1997)). Likewise, with respect to the second act relied on by the Probation Officer, the revenue projections could not qualify as illegal false statements and the government never charged them as such, presumably because it recognized that a "projection" – which is by its very nature a prediction of a hoped-for future event – cannot be objectively "false."
Third, as argued by defense counsel below (Appx:203-04), the fourth act relied on by the Probation Officer (the failure to tell the bank at closing that Warmus had indicated an intention to cease supplying MWI with residual paper), was "purely opportune." Ms. xxxxxxx could not have anticipated such a development (which was based on a new BFI corporate policy to send all residual waste to BFI landfills) and she therefore could not have planned not to disclose it. Rather, Ms. xxxxxxx was convicted of withholding information at settlement that did not even exist until a few days before the settlement when BFI made the unexpected decision to begin disposing of its residual waste in-house. Thus, this false statements violation was purely opportunistic – the result of a wholly "fortuitous circumstance that prompted [Ms. xxxxxxx] to act," United States v. Broumas, 69 F.3d 1178, 1183 (D.C. Cir. 1995), cert. denied, 517 U.S. 1148 (1996), or in this case, fail to act.
Because the four acts that formed the basis for the sentencing court's "repeated acts" enhancement did not include at least three criminal acts that were repeated over a period of time and were not "purely opportune," this Court should reverse that 2-level enhancement.
V.THE SENTENCING COURT ERRED IN APPLYING THE "OBSTRUCTION OF JUSTICE" ENHANCEMENT TO MS. xxxxxxx'S OFFENSE LEVEL.
A.Standard of Review.
Upon the prosecutor's suggestion that Ms. xxxxxxx had perjured herself at trial, the Probation Officer recommended that Ms. xxxxxxx receive the 2-level obstruction of justice enhancement under § 3C1.1. (PSR at 22 & ¶ 40). At the time of Ms. xxxxxxx's offenses, Application Note 1 to this guideline provided: "In applying this provision in respect to alleged false testimony or statements by the defendant, such testimony or statements should be evaluated in a light most favorable to the defendant."
§ 3C1.1, comment. (n.1) (emphasis added). This Court has interpreted this provision to alter the normal standard of proof at sentencing: "[W]hen a district court judge makes a finding of perjury under section 3C1.1, he or she must make independent findings based on clear and convincing evidence." United States v. Montague, 40 F.3d 1251, 1256 (D.C. Cir. 1994) (emphasis added). See also United States v. Dunnigan, 507 U.S. 87, 95 (1993) (to apply perjury enhancement, "district court must review the evidence and make independent findings necessary to establish a willful impediment to or obstruction of justice," preferably by "address[ing] each element of the alleged perjury in a separate and clear finding").
Defense counsel invoked the clear-and-convincing standard and preserved Ms. xxxxxxx's sufficiency of the evidence claim when he argued with respect to the obstruction enhancement that "Ms. xxxxxxx testified at her trial and the Government alleges that she testified falsely[;] first of all, we don't believe the Government has shown that by clear and convincing evidence." (S. Tr. 68). This Court reviews the sentencing court's adoption of the PSR's finding that Ms. xxxxxxx perjured herself at trial under a "clearly erroneous" standard. Kim, 23 F.3d at 517.
B.The Sentencing Court Had No Basis For Finding That Ms. xxxxxxx Committed Perjury At Her Criminal Trial When The Court Had Not Been Present At That Trial.
The Probation Officer based the obstruction enhancement on four alleged instances of perjury during Ms. xxxxxxx's criminal trial:
During her trial testimony on September 18 and September 20, 1998,  the defendant stated that Ed Warmus gave her permission to change the BFI letter which was submitted to the bank.  xxxxxxx also stated that the information on her Personal Financial Statement "most likely" came from her accountant. Previously, xxxxxxx stated that she had supplied the information.  The defendant provided material falsehoods regarding her denial that she gave production estimates contained in the loan application. During the bankruptcy trial, xxxxxxx stated that she had given the production estimates of tons she was to process, the number of production days and the rate of pay.  The defendant also denied that she received a salary from the company. Review of the W-2 Forms and the payroll checks reflect xxxxxxx received over $22,000 during 1993.
(PSR ¶ 40). The Probation Officer reasoned that these inconsistencies showed that Ms. xxxxxxx provided "material falsehoods" at her criminal trial, justifying the 2-point obstruction enhancement. (Id.). The district court did not make any "independent findings based on clear and convincing evidence," Montague, 40 F.3d at 1256, but simply adopted the findings of the PSR, which gave no indication of having applied a standard of proof greater than a preponderance.
Nor could this particular district court have properly made such findings, whether under a clear-and-convincing – or any other – standard of proof. The sentencing judge – not having been present for the allegedly perjurious testimony – was simply not in a position to make the credibility findings necessary to determine whether Ms. xxxxxxx had committed perjury at her criminal trial. After all, the reason Congress requires appellate courts to "accept the findings of fact of the [sentencing] court unless they are clearly erroneous" is to ensure that the courts of appeal "give due regard to the opportunity of the [sentencing] court to judge the credibility of witnesses," 18 U.S.C. § 3742(e) (quoted in Kim, 23 F.3d at 517) – an opportunity that was missing in this unusual case.
The Probation Officer, who likewise was not present at the trial, relied on "discussion of the defendant's testimony with [the prosecutor]" (PSR at 22) and simply cited instances in which Ms. xxxxxxx's trial testimony either conflicted with Ed Warmus's trial testimony or allegedly conflicted with her own prior testimony. But not having been present to evaluate the demeanor and credibility of Ms. xxxxxxx and Mr. Warmus, the district court had no basis for finding that Ms. xxxxxxx had lied.
With respect to the supposed inconsistencies in her own prior testimony, the PSR appears to assume that the differences were irreconcilable and then further assumes that it must have been the later testimony that was false. Both of these premises are incorrect and, indeed, inconsistent with the clear-and-convincing standard of proof. First, Ms. xxxxxxx was confronted with the two alleged inconsistencies at trial and explained them. The only way the sentencing judge could evaluate whether the alleged inconsistencies were in fact irreconcilable would have been to have heard and evaluated the truthfulness of Ms. xxxxxxx's explanations. Second, even if the sentencing court had been able to determine that the inconsistencies were irreconcilable and therefore conclude that both statements could not be true, that still leaves the issue of which statement was false – an issue the sentencing judge was without any basis for resolving since the judge had not heard either one. It is important to note that if the sentencing court had undertaken to decide whether Ms. xxxxxxx's statements were irreconcilable and, if so, whether it was the trial testimony that was false (and there is no indication that the court did any more than accept the Probation Officer's assumptions), the guidelines would have required the court to have viewed that testimony "in a light most favorable to [Ms. xxxxxxx]," which "means putting a thumb on the scale, or resolving all doubts, in favor of the defendant." Montague, 40 F.3d at 1254. See also id. at 1255 ("Under a clear-and-convincing standard, . . . the judge would sort the evidence with respect to which he or she is uncertain, and then put that evidence in the defendant's pile.").
This case is not like Dozier, in which the defendant complained that the sentencing court had not explained why it credited a witness's testimony that the defendant attempted to suborn his perjury in light of the jury's apparent rejection of some parts of that witness's testimony. As this Court noted, "there is little mystery on that point: the court heard [the witness] testify first-hand and hence was able to judge his credibility directly." Dozier, 162 F.3d at 125. Here, the court did not hear Ms. xxxxxxx's disputed testimony and it is indeed a mystery why the court adopted the Probation Officer's recommendation that it was perjurious, which recommendation was based on nothing more than "discussion of the defendant's testimony with [the prosecutor]." (PSR at 22).
As was the case in Montague, the sentencing court here could not assume that the jury's finding of guilty was equivalent to a finding that she perjured herself at the criminal trial. As in Montague, "the jury in this case did not need to decide whether appellant testified falsely in order to find h[er] guilty." 40 F.3d at 1256, n.4. (Indeed, it seems highly unlikely the jurors would have told Judge Greene they did not consider her a "real criminal" and asked him to be "lenient on her" (9/22 Tr. 11) if they believed she had lied to them under oath.) The jury did not have to reject Ms. xxxxxxx's testimony that "the information on [Ms. xxxxxxx's] Personal Financial Statement 'most likely' came from her accountant" (PSR ¶ 46) in order to convict her of "knowingly fail[ing] to tell Adams National Bank . . . that she was a personal guarantor on [the Central Fidelity] loan." (Appx:158) (Special Verdict Form). Likewise, the jury could have believed her "denial that she gave production estimates contained in the loan application" (PSR ¶ 46) and still convicted her of knowing that the Warmus letter contained "a false statement that BFI could supply xxxxxxx's Waste with 100 tons of waste paper per day." (Appx:158) (Special Verdict Form). And the jury obviously did not have to decide whether she did or did not "receive a salary from the company" (PSR ¶ 46) – a fact that was not material to any of the elements charged.
Nor can the perjury conviction (which involved her testimony at the bankruptcy trial) be interpreted as a finding that Ms. xxxxxxx lied at the criminal trial with respect to whether "Ed Warmus gave her permission to change the BFI letter which was submitted to the bank" (PSR ¶ 46). As Ms. xxxxxxx conceded at the criminal trial, her bankruptcy testimony concerning the Warmus letter "differs from your testimony today in some respects" (9/18 p.m. Tr. 72). And, in the absence of a special verdict form, we have no way of knowing which of the nine allegedly perjurious statements at the bankruptcy trial was the basis for the jury's guilty verdict. See 9/21 p.m. Tr. 79 (court instructing jurors they could convict on perjury count if "at least one of statements [underlined in the indictment] was false"). For example, the jury could have believed Ms. xxxxxxx's testimony in the criminal trial, in which she said that she simply got Warmus's permission to change the letter to the "maximum amount" and did not find out until she subsequently spoke to Ford that the figure needed to support the projections was 100 tons (9/18 p.m. Tr. 51-53, 113-16), and on that basis convicted her of lying in the bankruptcy trial when she said Warmus gave her explicit permission to change the letter from 16 tons to 100 tons:
He said that we could alter, we could change the document from 16 tons a day to 100 tons per day. Because I asked him what was the maximum amount of material that he would be able to ship us on a given day.
(Appx:146) (Second Retyped Superseding Indictment at 7). In fact, the prosecutor pointed out this very inconsistency during her cross-examination of Ms. xxxxxxx:
[Ms. xxxxxxx]: I never told you that anybody said that I could have a maximum 100 tons. What I asked Mr. Warmus was if I could put in the maximum amount of tons he could receive. I didn't even have a number in my mind, not a number in my mind.
[AUSA]: Mrs. xxxxxxx, that is not what you testified to in the bankruptcy trial, is it?
(9/18 p.m. Tr. 115-16). Thus, as in Montague, the jury could have believed the testimony that was the basis for the obstruction enhancement and nevertheless found Ms. xxxxxxx guilty of perjuring herself in the bankruptcy proceeding. Similarly, the false statements convictions in no way prove that the jury disbelieved Ms. xxxxxxx's trial testimony about the Warmus letter; whether she did or did not have permission to change the letter to the "maximum amount" says nothing about whether she knew that the letter as changed was false.
VI. THE SENTENCING COURT ERRED IN APPLYING AN 8-LEVEL ENHANCEMENT FOR "LOSS."
A.Standard of Review.
"The government bears the burden of establishing 'loss' under § 2F1.1 by a preponderance of the evidence." United States v. Leonzo, 50 F.3d 1086, 1087-88 (D.C. Cir. 1995). Defense counsel objected to the loss calculation adopted by the district court, arguing that properly accounting for what the SBA could have expected to recover from the sale of the collateral and the guarantees of xxxxxxx's Refuse and Ms. xxxxxxx's family members, the loss should have been zero. (Appx:198-202; S. Tr. 63-67). This Court reviews the district court's "loss" finding for clear error. Leonzo, 50 F.3d at 1088 (citing Kim, 23 F.3d at 517).
B.The Court's Finding That The SBA Could Expect To Recover Less Than 10% Of The Pelletizer's Original Sales Price Was Clearly Erroneous.
The fraud guideline, U.S.S.G. § 2F1.1, provides that in a case in which a defendant fraudulently obtains a loan,
the loss is 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.
§ 2F1.1, comment. (n.7(b)). The PSR applied an 8-point loss adjustment, corresponding to a loss between $200,000 and $350,000, based on MWI's failure to repay any of the $296,014 loan. See PSR ¶ 42 ("The monetary loss in this case has been determined to be $296,014, the amount of the loan which was fraudulently obtained."). The government agreed that Ms. xxxxxxx should receive an 8-level adjustment for loss, although it calculated the total loss as $271,900.78, by deducting from the loan amount the $24,113.22 the SBA netted from the pledged assets (specifically, the $45,000 the SBA received when it sold the pelletizer back to Lundell in November, 1995, less the SBA's storage and auction expenses). (Appx:228-29, 251-53) (attaching Affidavit of SBA Loan Specialist Doris Rousey, explaining procedures under which collateral was liquidated). At sentencing, the Probation Officer defended the 8-point enhancement, claiming that Ms. xxxxxxx "was given credit for a liquidation sale of the equipment" (presumably a reference to the $24,113.22 the PSR had set forth as the "sales price" (PSR ¶¶ 33 & 34)), but informing the court erroneously, that "[t]hat's bringing her loss amount down to $296,014." (S. Tr. 79). Again, the sentencing court simply "accept[ed] the recommendations of the Probation Department with respect to those issues that were brought up" (S. Tr. 90), and applied an 8-point loss adjustment, without making any specific finding as to the amount of loss.
At most, it appears that the sentencing court gave Ms. xxxxxxx credit for the $24,113.22 the SBA netted when it sold the pelletizer back to Lundell for $45,000. Even assuming the legitimacy of the SBA's expenses, to treat the $45,000 as the most the SBA could "expect to recover" (§ 2F1.1, comment. (n.7(b)) was clearly erroneous. As defense counsel argued below (S. Tr. 65), that figure was less than 10% of the pelletizer's original $460,000 sales price. (Lundell had sold the machine to MWI at a discounted price of $385,000) (S. Tr. 65). It is simply not reasonable to believe that the machine lost over 90% of its value in only two years, particularly when it had been operated for only two months and had therefore incurred only two months of wear and tear.
Two record facts support Ms. xxxxxxx's contention that the $45,000 sales price was not what the SBA could reasonably have expected to recover. First, as defense counsel informed the district court at sentencing,
The manufacturer in this case, Lundell, sent a letter to Ms. xxxxxxx at the outset when they sold the machine saying that in a year's time it would keep 85 to 90 percent of its value.
(S. Tr. 65). It is unreasonable to conclude that the very same manufacturer who had said that the machine would retain 85-90% of its value after a year of operation would be willing to pay no more than 10% of its original value after only two months of operation. If the SBA had sold the machine for just 77% of the $385,000 Lundell had charged MWI, it would have covered the entire amount of the loan and there would have been no loss at all – even with no recovery at all from the other collateral and the six loan guarantees.
Second, the bankruptcy court's factual findings, made in the course of ruling on MWI's breach of contract claim against Lundell (Appx:43-99), reveal that a test of the pelletizer conducted on October 22, 1994 – a year after the sale to MWI and a year before the sale back to Lundell – showed that the machine was operating at 80% of the capacity that Lundell had guaranteed when it sold the machine to MWI and that Lundell believed it could be brought up to full capacity with minor modifications. (Appx:59-61). Specifically, Lundell had guaranteed that the machine would produce at least 5 tons of pellets per hour. (Appx:45). A Lundell representative testified in the bankruptcy proceeding that the test run at the time of delivery to MWI had shown it was producing between 3 and 5 tons per hour. (Appx:48-52). The bankruptcy court concluded that MWI had not met its burden of showing that the machine was not capable of producing 5 tons per hour upon delivery given its failure to have provided scales for an accurate measurement and the poor quality of paper used in the test. (Appx:70-71). (The Lundell representative had testified that he was confident that, with clean paper, the machine could have produced 5 tons per hour at the time of delivery) (Appx:49).
The subsequent test in October 1994 with clean paper revealed that the machine was producing 4 tons per hour, or 80% of its guaranteed capacity. (Appx:59). The bankruptcy court noted that the condition of the machine had deteriorated in the period since delivery, with the knives having become dulled due to use of low quality paper during the two months of operation and the augurs having become rusty due to having wet paper left in them while the machine stood idle. (Appx:59, 70). Of relevance here, however, was the conclusion of the Lundell representative that the augurs could be "properly scour[ed]" simply by processing 30-40 tons of paper through the machine (Appx:59 n.10). In addition, Lundell asserted immediately after the October 1994 test that, with "substitution of heavier knives with a different design in the shredder assembly," "the equipment is capable of [a 5 ton per hour] capacity today." (Appx:60-61). Thus, Lundell itself believed that, with minor modifications, the pelletizer, even after the deterioration caused by the exposure to wet paper, could be made to produce at full capacity.
Given these judicial fact-findings, it is simply not reasonable to believe that Lundell was willing to pay no more than $45,000 to buy back the pelletizer. As it was, Lundell started out with a pelletizer it was willing to sell for $385,000 and ended up with $243,500 and a barely used pelletizer (which Lundell is on record as stating could be brought up to full capacity with minimal rehabilitation). Clearly, the SBA's supposed "loss" was really just Lundell's windfall gain and the sentencing court's acceptance of the SBA's decision to negotiate the give-away price of only $45,000 was clearly erroneous. Cf. United States v. Williams, 50 F.3d 863, 864 (10th Cir. 1995) (general test for determining "market value" is "the price a willing buyer would pay a willing seller").
This conclusion is further supported by the SBA's failure to mitigate its "loss" through sale of the other collateral or any timely effort to collect on the five personal guarantees and the corporate guarantee of xxxxxxx's Refuse on which the loan had been contingent. (Appx:247). As set forth in Ms. xxxxxxx's initial sentencing memorandum, MWI's collateral included electrical components for the pelletizer (worth approximately $45,000), furniture (worth approximately $10,000), inventory (worth approximately $15,000), several copying machines (worth approximately $10,000), and tools and equipment (worth approximately $15,000). (Appx:200). The SBA "Loan Specialist" valued all of MWI's office furniture and equipment at less than $1,000 ("[b]ased upon my experience") and opted to abandon it rather than make further efforts to sell it. (Appx:252). In addition, the SBA waited more than five years – until just two months before Ms. xxxxxxx's sentencing – to even notify the loan guarantors of any intent to collect on the guarantees. (S. Tr. 66). By that time, corporate guarantor xxxxxxx's Refuse had been sold. (Appx:200). All of these actions make clear that the district court erred in simply accepting the SBA's assertion that it could expect to recover no more than the $24,113.22 it netted from the sale of the pelletizer.
The purpose of calculating loss in a fraud case is "to measure the economic harm [the defendant] caused," on the theory that "[t]he greater the harm the greater the defendant's culpability." United States v. Gottfried, 58 F.3d 648, 651 (D.C. Cir. 1995). Here, the loss as calculated by the government, and apparently adopted by the district court, does not meaningfully reflect the defendant's culpability. Ms. xxxxxxx was convicted of no more than making false statements in the course of obtaining a fully collateralized loan.
Given the value of the collateral supporting the loan, the record does not support a finding of any loss. This Court should therefore remand for resentencing without any loss adjustment or, failing that, for the district court to make a new loss finding on the existing record. See Leonzo, 50 F.3d at 1088 (government not permitted second bite at apple where it failed to adequately demonstrate its claimed loss at initial sentencing).
For the foregoing reasons, Ms. xxxxxxx's perjury conviction must be reversed, her judgment vacated, and the case remanded for resentencing at Offense Level 6.
FEDERAL PUBLIC DEFENDER
LISA B. WRIGHT
Assistant Federal Public Defender
625 Indiana Avenue, N.W., Suite 550
Washington, D.C. 20004
Counsel for Appellant JoAnn xxxxxxx
CERTIFICATE OF LENGTH
I hereby certify that the foregoing Brief for Appellant does not exceed the number of words permitted pursuant to D.C. Circuit Rule 28(d).
LISA B. WRIGHT
Assistant Federal Public Defender
CERTIFICATE OF SERVICE
I hereby certify that two copies of the foregoing Brief for Appellant and one copy of Volume Two of Appellant's Appendix have been served by first-class mail, postage pre-paid, on AUSA John R. Fisher, Chief, Appellate Division, 555 Fourth Street, N.W., Room 8104, Washington, D.C., 20001, and one copy of Volume One of Appellant's Appendix and one copy of Appellant's Sealed Appendix have been served on AUSA John R. Fisher by delivering them by hand to the mailbox for the United States Attorney at the United States Courthouse, this 17th day of March, 2000.
LISA B. WRIGHT
Assistant Federal Public Defender