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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-1658
UNITED STATES,
Appellee,
v.
EDWARD C. KELLEY,
Defendant, Appellant.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Cyr, Circuit Judge, _____________
and Skinner,* Senior District Judge. _____________________
_____________________
Edward C. Roy, by Appointment of the Court, with whom Roy & _____________ _____
Cook, was on brief for appellant. ____
Margaret E. Curran, Assistant United States Attorney, with __________________
whom Sheldon Whitehouse, United States Attorney, and Charles A. ___________________ __________
Tamuleviz, were on brief for appellee. _________
____________________
February 20, 1996
____________________
____________________
* Of the District of Massachusetts, sitting by designation.
SKINNER, Senior District Judge. Defendant-appellant SKINNER, Senior District Judge. ______________________
Edward Kelley was charged in a six count indictment of mail fraud
in violation of 18 U.S.C. 1341 and making false statements to a
federal agency in violation of 18 U.S.C. 1001. Pursuant to a
guilty plea on the three mail fraud counts, Kelley was sentenced
to 21 months incarceration, followed by three years supervised
release. On appeal of his sentence, Kelley argues (1) that the
district court erred in determining the amount of the loss for
sentencing purposes, and (2) that the district court abused his
discretion in denying a two point offense level reduction for
acceptance of responsibility. We affirm.
I. BACKGROUND I. BACKGROUND __________
A.Facts A.Facts
This prosecution arose out of Edward Kelley's efforts
to enlist the assistance of the Small Business Administration
("S.B.A.") in refinancing his commercial lobster boat, the "Alter
Ego II." Kelley purchased the boat in June 1992 for $5,000 in
cash and a $22,000 promissory note, and quickly sold a 45%
interest to his brother Robert Fletcher for $20,000. The vessel
sustained substantial damage during a severe storm in December
1992.
Kelley applied for disaster relief from the S.B.A., in
the course of which he submitted a Personal Finance Statement
stating that the vessel purchase price was $60,000, rather than
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$27,000, and that he had paid cash in full without incurring any
debt. Both of these averments were false.
Based on this application, the S.B.A. agreed to loan
Kelley $55,100, secured by a mortgage on the vessel and a third
mortgage on Kelley's house. After an initial disbursement of
$10,000 in April 1993, Kelley submitted a Progress Certification
Report indicating that he had purchased lobster traps from Robert
Fletcher's R.A.F. Lobster Company for $32,000. This statement
was also false. After the S.B.A. disbursed the balance of the
loan, Kelley used approximately $15,000 of the S.B.A. funds for
personal expenses. After a total of $864 in repayments over
three months, the loan went into default. Kelley was
subsequently indicted on the basis of the false statements
contained in his Personal Finance Statement and his Progress
Certification Report, and pled guilty to three counts of mail
fraud.
B.The Sentencing Proceeding B.The Sentencing Proceeding
At the sentencing proceeding, the government argued
that Kelley's total offense level should be fifteen, representing
eleven points for fraud involving more than $40,000 under
U.S.S.G. 2F1.1(b)(1)(F), increased by two points for "more than
minimal planning" under U.S.S.G. 2F1.1(b)(2)(A), and augmented
by an additional two points for obstruction of justice under
U.S.S.G. 3C1.1. In support of the obstruction points, the
government cited two attestations Kelley made in completing his
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presentence report submission to the probation office, namely (1)
that he had nothing to do with the theft of navigational
equipment from the Alter Ego, and (2) that he used all disbursed
funds to try to keep the Alter Ego afloat.
At the sentencing proceeding, Kelley contested the
government's calculated offense level, contending that the
government overvalued the loss in light of the S.B.A.'s failure
to pursue civil remedies. Kelley also argued that his submission
to the probation department did not obstruct justice.
After hearing testimony from eight witnesses, the
sentencing court rejected the S.B.A.'s valuation of its loss at
$54,236. Specifically, the sentencing court rejected the
testimony of an S.B.A. witness who appraised the value of the
vessel at $5,000. The court implicitly adopted the testimony of
Kelley's expert marine surveyor, Steven Mainella, who testified
that the vessel was worth between $18,000 and $25,000. The
defendant did not, however, attempt to rebut the testimony of an
S.B.A. loan officer as to the potential recovery from Kelley's
house. Consequently, the only evidence before the sentencing
court on the value of the house was that a foreclosure proceeding
would fetch an estimated $104,000, which after satisfying $95,000
in superior mortgages and auction expenses would produce a
negligible recovery.
The court concluded that the S.B.A.'s loss was between
$20,000 and $40,000, resulting in an offense level of ten.
Finding that the S.B.A. had failed to pursue pledged collateral,
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the sentencing court denied restitution. The court added two
points for more than minimal planning, and two more for
obstruction of justice; it concluded that his criminal history
category was one. Accordingly, Kelley was sentenced to 21 months
imprisonment, followed by three years supervised release, which
was within the guideline range.
II. ANALYSIS II. ANALYSIS ________
A.Calculation of the S.B.A.'s Loss A.Calculation of the S.B.A.'s Loss
Kelley argues that the district court's conclusion that
the S.B.A.'s loss ranged between $20,000 and $40,000 was clearly
erroneous in light of evidence adduced at trial. Under the
Sentencing Guidelines, crimes involving fraud are uniformly
assessed a base offense level of six. See U.S.S.G. 2F1.1(a). ___
This base offense level is increased in proportion to the
magnitude of the loss if the victim's loss exceeded $2,000. See ___
U.S.S.G. 2F1.1(b)(1). The commentary to the Guidelines
provides a set of formulae to apply in determining the amount of
the loss in particular circumstances. For example, the
commentary instructs that to calculate the loss in a fraudulent
loan application, the sentencing court starts by taking "the
amount of the loan not repaid at the time the offense is
discovered, reduced by the amount the lending institution has
recovered (or can expect to recover) from any assets pledged to
secure the loan." See U.S.S.G 2F1.1, comment. (n.7(b)). This ___
formula is binding in cases involving the procurement of
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fraudulent loans and is clearly applicable to Kelley's
misconduct. See United States v. Bennett, 37 F.3d 687, 695 (1st ___ ______________ _______
Cir. 1994); see also Stinson v. United States, 113 S. Ct. 1913, ________ _______ _____________
1915 (1993) ("[C]ommentary in the Guidelines Manual that
interprets or explains a guideline is authoritative unless it
violates the Constitution or a federal statute, or is
inconsistent with, or a plainly erroneous reading of, that
guideline.").
Kelley challenges the court's findings as to the value
of the mortgage and the vessel. A sentencing court's valuation
of loss is subject to the "clearly erroneous" standard of review.
See, e.g., United States v. Brandon, 17 F.3d 409, 457 (1st Cir.), ___ ____ _____________ _______
cert. denied, 115 S. Ct. 80 (1994). Although the Guidelines _____________
suggest that a rather specific formula should be applied in this
case, the Sentencing Commission has recognized that it may be
difficult to calculate a specific loss with any degree of
precision. Precise loss may be hard to determine where the value
of collateral is in dispute, either because the victim has not
exercised rights against the collateral, or it is alleged that
such efforts did not bring a fair market price. Cf. United States ___ _____________
v. Chorney, 63 F.3d 78, 82 (1st Cir. 1995) (rejecting defendant's _______
argument that he had been denied sufficient opportunity to
establish fair market value of unpledged assets). In light of
potential difficulties in calculating the loss, the sentencing
court "need only make a reasonable estimate of the loss, given
the available information." See U.S.S.G. 2F1.1, comment (n.8). ___
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With respect to the Alter Ego, the district judge
rejected the government witness' testimony that the vessel had a
value of $5,000, implicitly adopting Steven Mainella's appraisal
of $18,000 to $25,000. Neither party contests use of this figure
on appeal.
With respect to the house, the parties agree that the
property was appraised at $130,000 and subject to two superior
mortgages totalling $95,000. At the sentencing hearing, the
S.B.A. loan officer testified that it was standard practice in
the banking industry to value property to be liquidated at
auction at 80% of appraisal value, or $104,000 for Kelley's
house. The S.B.A. loan officer further testified that this
liquidation value would be further offset by the $95,000 in prior
mortgages, and by the estimated $5,000 to $8,000 in auction
expenses. Foreclosure on Kelley's house would thus yield a net
return of $1,000 to $4,000. Kelley did not offer testimony at
the sentencing hearing to dispute this accounting, nor does he
attempt to factually undermine its premises on appeal.
Kelley does make the suggestion that the S.B.A.'s
accounting method is wrong as a matter of law. Specifically,
Kelley argues that the sentencing court must accept the value of
the collateral to the defendant, rather than the victim lending
institution, and that he should be credited for the full $35,000
in equity he could have obtained if he sold the house on the open
market. But the commentary to the Guidelines specifies that
valuation of collateral is the amount the "lending institution"
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could expect to receive from pursuing a security interest. See ___
U.S.S.G. 2F1.1, comment. (n.7(b)). The express reference in
the Guidelines to the mortgagee rather than the mortgagor
precludes Kelley's argument. The value of the loss is to be
offset by the amount the lender could expect to recover from
pursuit of pledged collateral. Consequently, the $1,000 to
$4,000 expected recovery is the proper measure of the value of
the house.
To summarize, the evidence before the sentencing court
demonstrated that if the S.B.A. had pursued civil remedies
against the house and the boat, it could have recouped between
$19,000 and $29,000. Deducting this amount from the $54,236
outstanding loan balance, the S.B.A.'s loss was somewhere between
$24,000 and $35,000. This range is well within the range of loss
found by the court.
Kelley makes a final argument that it was inconsistent
for the sentencing court to deny restitution, while valuing the
S.B.A.'s loss as greater than $20,000. Although Kelley properly
points out that the authority of a sentencing court "to decline
to order restitution is limited," the commentary to the
Sentencing Guidelines suggests there are several factors a court
may consider in declining to order restitution. See U.S.S.G. ___
5E1.1, comment. (backg'd). Prominent among these factors are the
lack of victim's need, uncertainty in calculating the amount of
restitution, and fairness to the victim. See also 18 U.S.C. ________
3664(a). The judge went on at some length in explaining his
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reasons for denying restitution, specifically finding that
because the S.B.A. failed to avail itself of civil remedies, it
was both difficult to ascertain the proper amount of restitution
and fair to deny all restitution.1 Kelley erroneously argues
that an absolute denial of restitution necessarily implies the
conclusion that the S.B.A. had no loss. There is no logical
reason to make such a leap.
B.Obstruction of Justice B.Obstruction of Justice
Kelley also challenges his two point enhancement for
obstruction of justice. Under the Sentencing Guidelines, the
provision of a materially false statement to a probation officer
during the preparation of a presentence report constitutes
obstruction of justice. See U.S.S.G. 3C1.1, comment (n.3(h)). ___
The sentencing court found that the following two passages of the
signed statement which the defendant filed with the probation
department were materially false:
In addition, I hoped to upgrade the boat
with the proceeds of the loan. Some time
after the gear was lost at sea, all of
the electronic equipment on the boat was
stolen by my son. As a result of this
theft, which I had absolutely nothing to
do with, the boat was inoperable. The
boat could not generate any income.
At the time of the application, I was in
a very difficult financial situation and
I was desperate to get the boat back
working. I used all of the funds that I
____________________
1 The government has not filed a cross-appeal to challenge these
findings.
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received to pay for boat related
expenses.
A sentencing court's finding of material falseness will be
overturned only where clearly erroneous. See, e.g., United States ___ ____ _____________
v. Tracy, 36 F.3d 199, 202 (1st Cir.), cert. denied, 115 S. Ct. _____ _____________
609 (1994).
Although Kelley argues that the sentencing court erred
in failing to evaluate all testimony used to support a finding of
falseness "in a light most favorable to the defendant," this
interpretative principle only applies to the construction of
allegedly perjurious language, not to the determination of
credibility of fact witnesses. See U.S.S.G. 3C1.1, comment. ___
(n.1). Furthermore, lenitive interpretations only apply "to the
extent that an innocent reading may be plausible." See Tracy, 36 ___ _____
F.3d at 204.
Although Kelley argues that neither of his statements
was false, there was ample evidence before the sentencing court
to support its findings. Kelley's claim that he had nothing to
do with theft of electronic equipment from the Alter Ego was
discredited by the testimony of his son. Mark Kelley testified
that his father asked him to temporarily remove equipment from
the Ego in order to support a fraudulent insurance claim.
Similarly, Kelley's claim that S.B.A. funds were uniformly
dedicated to boat expenses was contradicted by bank records and
cancelled checks indicating almost $15,600 of the S.B.A. loan was
used for mortgage payments, parochial school tuition, and
miscellaneous household expenses. In view of this evidence, the
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defendant's statements were not susceptible to an innocent
interpretation. The sentencing court was warranted in finding
that both statements were false.
Kelley also suggests that neither of these statements
was material. The materiality requirement for an allegedly false
statement "is not a stringent one." United States v. Ovalle- ______________ _______
M rquez, 36 F.3d 212, 226 (1st Cir. 1994), cert. denied, 115 S. _______ ____________
Ct. 1322 (1995). Under the Sentencing Guidelines, a statement is
material which, "if believed, would tend to influence or affect
the issue under determination." See U.S.S.G. 3C1.1, comment. ___
(n.5). Materiality does not require a factual nexus with the
underlying criminal conduct. Rather, for the purposes of a
sentencing determination, materiality involves some attestation
that could influence the court's sentencing discretion, including
(but not limited to) determination of a period of incarceration,
conditions of supervised release, or whether restitution is
awarded. For example, this court has held that lying about
citizenship in a submission to the probation department was
material because of a particular district judge's policy to
suspend supervised release in order to facilitate the deportation
of illegal aliens. See United States v. Biyaga, 9 F.3d 204, 205 ___ _____________ ______
(1st Cir. 1993). A false statement may be material even "if the
falsehood is designed to mitigate significantly the wrongful
conduct and so affect the court's exercise of discretion in
choosing a sentence within the range." See United States v. ___ ______________
Agoro, 995 F.2d 1288, 1292 (1st Cir. 1993). _____
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The making of false statements in the probation
submission is similar enough to the underlying charged conduct
(making false statements to a governmental entity) to establish a
close nexus. Furthermore, both of the statements (if believed)
could have impacted the decisions of the sentencing court.
Kelley's denial of knowledge about the theft and its insurance
implications could have swayed the determination that Kelley had
exhibited "more than minimal planning" under U.S.S.G.
2F1.1(b)(2) or that Kelley had a role as an "organizer" under
U.S.S.G. 3B1.1. Similarly, Kelley's statements about the
expenditure of the proceeds of the S.B.A. loan could have
affected the sentencing court's decision on restitution or
minimal planning. Moreover, the suggestion that the default was
the result of Kelley's "desperation" constituted an attempt to
evoke sympathetic mitigation from the sentencing court. See ___
Agoro, 996 F.2d at 1292. As each of these potential impacts _____
would independently satisfy the materiality requirement, the
findings of the sentencing court were free of error.
III. CONCLUSION III. CONCLUSION __________
For the foregoing reasons, the sentence is affirmed. ________
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Document Info
Docket Number： 95-1658
Filed Date： 2/20/1996
Precedential Status： Precedential
Modified Date： 9/21/2015