United States v. Maurello ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
2-22-1996
United States v. Maurello
Precedential or Non-Precedential:
Docket 95-5109
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
----------
No. 95-5109
----------
UNITED STATES OF AMERICA
v.
ARTHUR MAURELLO,
Appellant
----------
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Criminal No. 94-438)
----------
Argued November 20, 1995
BEFORE: BECKER, SAROKIN
and WELLFORD,2 Circuit Judges
----------
(Opinion filed February 22, l996)
Brian P. Reilly, Esq. (ARGUED)
Office of Federal Public Defender
22 South Clinton Avenue
Station Plaza #4, 4th Floor
Trenton, NJ 08609
Attorney for Appellant
Kevin McNulty, Esq. (ARGUED)
Office of United States Attorney
970 Broad Street
2
Honorable Harry W. Wellford, United States Court of Appeals for
the Sixth Circuit, sitting by designation.
1
Room 502
Newark, NJ 07102
Attorney for Appellee
----------
OPINION OF THE COURT
----------
SAROKIN, Circuit Judge:
Defendant, a disbarred lawyer, was convicted of mail fraud
by virtue of his unauthorized practice of law. The gross amount
of fees he received from his clients was used to calculate the
loss caused by his fraud, and in turn, the sentence to be imposed
under the guidelines. With some reluctance because of the
conduct involved, we conclude and agree with defendant's
contention that fees paid by those who received satisfactory
services are not to be included in determining the measurement of
loss from his fraudulent scheme. In addition, we remand to the
district court for factual findings as to whether defendant's
self-professed dissatisfied clients suffered actual financial
loss as a result of his scheme, and if so, in what amount.
Because defendant utilized his special skills as an attorney
in procuring clients, we conclude that imposing a two-point
upward adjustment for using a special skill in the commission of
the offense was warranted.
Finally, we vacate and remand with respect to the
restitution imposed for the reasons hereinafter set forth.
After pleading guilty to mail fraud and credit card fraud,
defendant was sentenced pursuant to the Federal Sentencing
2
Guidelines to two concurrent prison terms of thirty-six months
each, to be followed by three years of supervised release. In
addition, he was ordered to pay $25,000 in restitution on each
charge. The issues presented for review are threefold: 1)
whether the district court properly calculated the amount of loss
caused by defendant's mail fraud for purposes of guideline §
2F1.1; 2) whether the district court erred in imposing a two-
point upward adjustment to defendant's base offense level on the
ground that he abused a position of trust and/or used a special
skill to significantly facilitate the commission or concealment
of either offense; and 3) whether the district court erred in
ordering defendant to pay $50,000 restitution ($25,000 on each
count). We will affirm in part, reverse in part, and remand in
part to the district court for further findings of fact.
I.
A. Mail Fraud
Arthur Maurello was admitted to the New Jersey State Bar in
1976. From 1976 to 1990, he practiced as a licensed solo
practitioner. In 1988, however, an ethics complaint was filed
against him. The Disciplinary Review Board conducted an
investigation and found that Mr. Maurello had, among other
things, fraudulently obtained credit cards in the name of his
former wife and tampered with a witness in the course of the
ethics investigation. In re Maurello, 121 N.J. 466, 478-79
(1990). As a result, on October 26, 1990, Mr. Maurello was
permanently disbarred by the New Jersey Supreme Court. Id.
3
In 1989, apparently in anticipation of his possible
disbarment, defendant took steps to set up a law practice under
an assumed name. From the New Jersey Lawyer's Diary, defendant
selected the names of two members of the New Jersey Bar who no
longer practiced law: Robert Burdette and Alan Jeffrey Miller.
Although the facts are not clear from the record, it appears that
defendant acquired personal information about Burdette by "simple
inquiry to the Bar," and about Miller by calling a toll-free
information line provided to the public by the California Bar.
Defendant used this information to obtain driver's licenses,
credit cards and social security cards under the assumed names.
In 1989, defendant briefly established a law practice
entitled "Bell and Burdette." It is unclear whether or to what
extent he actually practiced under this name. He then
reactivated Miller's license to practice law, establishing a law
firm under the name "Alan Jeffrey Miller Chartered" in 1990. He
hired staff and associates, and provided legal services to
hundreds of clients.
B. Credit Card Fraud
From 1988 until December 1991, defendant engaged in a scheme
to commit credit card fraud. Drawing on biographical information
gleaned from obituaries, he obtained birth certificates, death
certificates, and other information on at least twelve different
individuals3 from public records. He then ran credit checks and
3
The Presentence Investigation Report alleges that appellant
obtained credit cards in the names of approximately twenty-eight
different people. Appellant contends that the correct number is
4
obtained driver's licenses under the assumed names. Finally, he
applied for and received credit cards, on which he charged
approximately $230,000 worth of merchandise.
II.
In 1994, a U.S. Postal Inspector filed a criminal complaint
in the District of New Jersey which charged that defendant
committed mail fraud in connection with his unauthorized law
practice. Defendant waived indictment in open court, and a six-
count Information was filed against him. The Information charged
defendant with five counts of mail fraud in violation of 18
U.S.C. §§ 1341 and 1342 and one count of credit card fraud in
violation of 18 U.S.C. §§ 1029 and 1022.
Defendant pled guilty to Count 1 (mail fraud) and Count 6
(credit card fraud). The district court sentenced him as stated
above.
III. Jurisdiction
The district court had jurisdiction pursuant to 18 U.S.C.
§3231. We have appellate jurisdiction pursuant to 28 U.S.C. §
1291 and 18 U.S.C. 3742.
IV. Standard of Review
Our review of the district court's interpretation of "loss"
for purposes of § 2F1.1 is plenary. United States v. Badaracco,
954 F.2d 928 (3d Cir. 1992).
The appropriate standard of review of a district court's
decision regarding the applicability of an adjustment under the
twelve. The court accepted the lower number for sentencing
purposes.
5
Guidelines "depends on the mixture of fact and law necessary to
that court's determination." United States v. Bierley, 922 F.2d
1061, 1064 (3d Cir. 1990). If the decision is "essentially
factual," we apply a clearly erroneous standard. Id. If the
claimed error is legal, however, we review the district court's
decision de novo. Id.
We review a district court's restitution order under a
bifurcated standard: plenary review as to whether restitution is
permitted by law, and abuse of discretion as to the
appropriateness of the particular award. United States v.
Hunter, 52 F.3d 489, 492 (3d Cir. 1995).
IV. Discussion
A. Loss Calculation on Mail Fraud Count
Defendant was sentenced pursuant to § 2F1.1 of the Federal
Sentencing Guidelines, which governs sentencing for fraud. Under
that guideline, the offense level for sentencing purposes is
based in part on the amount of "loss" due to the fraud, with
higher losses resulting in higher sentences. The issue here is
whether money paid by clients for apparently satisfactory legal
services performed by an unlicensed attorney is considered part
of the "loss" from the attorney's fraudulent acts for purposes of
§ 2F1.1.
The Presentence Investigation Report ("PSR") took the
position that only fees paid by dissatisfied clients should be
considered in calculating loss. To compute the monetary loss
from the mail fraud, the probation office sent letters to all
known clients of defendant's unauthorized practice, inquiring
6
whether they considered themselves victims or believed themselves
entitled to restitution. From approximately 225 letters, the
probation office received ninety-seven responses. Seventy of
those who responded expressed satisfaction with defendant's
services, while twenty-seven stated that they were dissatisfied
with the legal services they received and requested their money
back. The fees paid by those twenty-seven persons totalled
approximately $62,000. The probation office recommended that
figure to the court as the total loss from defendant's unlicensed
practice.
At the sentencing hearing, both sides challenged the PSR's
loss computation. Defendant argued that loss should be zero,
because his clients received the legal services for which they
paid. The government, on the other hand, argued that the loss
should include the gross total of all fees paid to defendant
during the period of his illegitimate practice, on the theory
that none of defendant's clients received that for which they had
paid: the services of a licensed attorney.
The district court accepted the government's argument,
reasoning that "[n]o client would have paid any money had he or
she known the defendant assumed the identity of another person,
did not have a license to practice law." App. 598. The court
concluded that since all of the clients "paid . . . the defendant
for something the defendant could never provide . . . , every
dollar that they paid was a loss." Id. Adding together all of
the fees received by the firm, less those fees paid to
7
defendant's partner, the court calculated the total loss from
defendant's mail fraud scheme to be $428,902.
1.
In determining the way in which loss should properly be
measured in this case, we look first to the Guidelines and
Commentary thereto. The Commentary to § 2F1.1 defines loss as
"the value of the money, property, or services unlawfully taken."
Commentary, App. Note 7. The loss calculation need not be
precise; the guidelines require only a "reasonable estimate"
based on the information available. Id. at Note 8.
This estimate, for example, may be based on the
approximate number of victims and an estimate of the
average loss to each victim, or on more general
factors, such as the nature and duration of the fraud
and the revenues generated by similar operations. The
offender's gain from committing the fraud is an
alternative estimate that ordinarily will underestimate
the loss.
Id.
The Commentary to § 2F1.1 then refers the reader to the
Commentary to § 2B1.1 for a fuller discussion of loss valuation.
Section 2B1.1 is the guideline for larceny, embezzlement, and
theft. The Commentary to § 2B1.1 emphasizes the amount taken
from the victims as the primary measure of loss: "The value of
the property stolen plays an important role in determining
sentences for theft and other offenses involving stolen property
because it is an indicator of both the harm to the victim and the
gain to the defendant." § 2B1.1, Background, ¶ 1.
Although the fraud guideline's cross-reference to the theft
guideline suggests that the same measurement of loss--amount
8
taken--should be used in both cases, this court has "decline[d]
to impose an identical [loss valuation] analysis for theft and
fraud crimes in all cases." United States v. Kopp, 951 F.2d 521,
529 (3d Cir. 1991). Because our analysis in Kopp is crucial to
an understanding of subsequent Third Circuit case law, we will
discuss it in some detail.
At the outset, we looked to the legislative purpose behind
the guidelines. We reasoned that
[m]echanical application of the theft guideline in
fraud cases would frustrate the legislative purpose of
the guidelines and contravene the specific language of
the Commission. The sentencing guideline system was
designed to sentence similarly situated defendants
similarly; basing all fraud sentences on a simple
'amount taken' rule without regard to actual or
intended harm would contravene that purpose.
Id. (emphasis added). It is important to note that, while
'amount taken' and 'actual harm' are often the same thing, there
are circumstances in which the amount taken from the victims
understates or overstates the actual harm done--for example, when
the perpetrator returns to the victims all or part of that which
was actually taken from them, thus reducing their actual loss
without altering the amount originally taken. Because the
potential for amount taken to misstate loss is greater in fraud
cases, which are generally not based on a straightforward taking
of property, we concluded our legislative purpose analysis by
stating that "we think it plain that actual harm is generally
relevant to the proper sentence" for fraud. Id.
Next, we stated that "a detailed analysis of the entire
fraud guideline Commentary" supports our conclusion. Id. We
9
reasoned that the language of the cross-reference itself "does
not say that the definitions of 'loss' for theft and fraud crimes
are identical, just that '[v]aluation of loss is discussed in the
Commentary to §2B1.1 . . . .'" Id. Whereas the theft guideline
simply makes amount taken from the victim the preferred measure
of loss, we noted that the fraud guideline requires a "slightly .
. . more complicated" analysis: (1) actual loss is the baseline
measure for fraud, but (2) if either "probable" or "intended"
loss is reasonably calculable and higher than actual loss, then
it should be used instead. Id. (citing Commentary to § 2F1.1,
App. Note 7).4 We therefore concluded that (1) the fraud
guideline defines loss primarily as "the amount of money the
victim has actually lost (estimated at the time of sentencing),
not the potential loss as measured at the time of the crime,"
Kopp, 951 F.2d at 536 (emphasis added); and (2) "the 'loss'
should be revised upward to the loss that the defendant intended
to inflict, if that amount is higher than actual loss." Id.
We noted that this conclusion was "essentially consistent"
with the fraud guideline's cross-reference to the theft guideline
with respect to loss valuation. 951 F.2d at 529. We reasoned
that "[i]n both theft and fraud cases, the guideline 'loss' turns
out to be the higher of the actual loss and the intended loss."
Id.
4
The current version of Application Note 7 does not mention
"probable" loss. It reads as follows: "Consistent with the
provisions of § 2X1.1 (Attempt, Solicitation or Conspiracy), if
an intended loss that the defendant was attempting to inflict can
be determined, this figure will be used if it is greater than the
actual loss."
10
We acknowledged, however, that "our reconciliation of
U.S.S.G. §§ 2B1.1 and 2F1.1 might fail" in the case of
embezzlement. 951 F.2d 530 n.13.
Conceivably, an embezzler might secret away $10,000 in
office funds to invest in a reputable stock, truly
intending and hoping to return the amount taken (plus
interest) after selling the stock. Under a literal
reading of U.S.S.G. § 2B1.1, "loss" is the "amount
taken," $10,000 in our example. In that case intended
loss would be zero, and actual loss might also be zero.
But if U.S.S.G. § 2F1.1 applied (it would not), under
our interpretation "loss" would be zero, and no
sentence enhancement would apply.
951 F.2d at 530 n.13. To address this potential inconsistency,
we suggested that "embezzlement, unlike ordinary theft or fraud,
involves not only a taking but also an action akin to a breach of
fiduciary duty, which might justify always using the amount taken
as 'loss.'" Id.
This language formed the basis of our holding the following
year in United States v. Badaracco, 954 F.2d 928 (3d Cir. 1992).
In Badaracco, we revisited the issue of loss valuation under the
fraud guidelines and restricted the scope of Kopp. Badaracco
involved the president and CEO of a bank who had approved loans
to certain developers on the condition that they award electrical
subcontracts to companies in which he had an interest. The
district court, ruling prior to our decision in Kopp, computed
loss for purposes of § 2F1.1 by adding together the face values
of the fraudulently induced contracts.
During the pendency of the appeal, Kopp was issued. We
ruled in Badaracco, however, that Kopp did not require us to
11
compute loss on the basis of actual loss in that case.
Badaracco, 954 F.2d at 937. Restricting the scope of the rule
articulated in Kopp, we stated that "the sentencing judge is
entitled, probably compelled, to evaluate the size of the loss
based on the particular offense." Id. Then, relying on the dicta
in Kopp regarding embezzlement, we held that "[w]hen the officer
of a financial institution uses his or her position for personal
benefit, there is a breach of fiduciary duty comparable to that
implicated by embezzlement, which may justify using the 'gross
gain' alternative to estimate 'loss.'" Id. at 938. We concluded
that gross gain was the appropriate measure of loss in Badaracco.
Id. at 938.
Since defendant's fraud in this case involved a breach of
fiduciary duty, the government contends that Badaracco governs
and therefore that the appropriate measure of loss is defendant's
"gross gain." Appellee's Br. at 22. We disagree, for two
reasons.
First, the government's interpretation of Badaracco sweeps
far too broadly. As discussed above, we did not hold that gross
gain is the measure to apply in every fraud case involving a
breach of fiduciary duty; rather, we held that "a breach of
fiduciary duty comparable to that implicated by embezzlement . .
. may justify using the 'gross gain' alternative to estimate
'loss.'" Badaracco, 954 F.2d at 938. Defendant's mail fraud
scheme is not sufficiently analogous to embezzlement to justify
using gross gain as the measure of loss. In embezzlement, breach
of fiduciary duty is an inherent element of the crime. Kopp, 951
12
F.2d at 530 n.13. Similarly, in the bank fraud provision
underlying Badaracco, as written and as applied in that case,
breach of fiduciary duty is implicitly an element.5 Under both
crimes, the defendant has rightful possession of or control over
money, which he fraudulently diverts to his own purposes by
breaching his fiduciary responsibility to the money's rightful
owner.
In this case, however, defendant was charged with mail fraud
pursuant to 18 U.S.C. § 1341. The gravamen of his offense is the
use of the mails to further a fraudulent purpose. Defendant did
not fraudulently convert money over which he had possession or
control; rather, he fraudulently induced people to enter into
contracts pursuant to which they gave him money in exchange for
services. The mere fact that defendant's scheme involved a
breach of fiduciary duty does not bring it under the penumbra of
Badaracco.
Second, even if we agreed with the government's analogy, we
would reject their argument that "gross gain" to the defendant is
the appropriate measure of loss under Badaracco because the
portion of the fraud guideline on which that holding was based
5
18 U.S.C. § 1006, excerpted in Badaracco, provides as follows:
Whoever, being an officer . . . [of] any lending,
mortgage, insurance, credit or savings and loan
corporation or association authorized or acting under
the laws of the United States . . . with intent to
defraud any such institution . . . participates or
shares in or receives directly or indirectly any money,
profit, property, or benefits through any transaction,
loan commission, contract, or any other act of any such
corporation, institution, or association, shall be
fined not more than $10,000 or imprisoned not more than
five years, or both.
13
has been amended. In Badaracco, we held that the analogy to
embezzlement justified our "using the 'gross gain' alternative to
estimate 'loss,' expressly authorized in Application Note 8."
Badaracco, 954 F.2d at 938. In 1991, however, Application Note 8
was amended, deleting "offender's gross gain" and substituting
"offender's gain." See § 2F1.1, Note 8. We noted this change in
Badaracco, but stated that "[b]ecause we do not remand on this
issue, we need not consider the effect of this change in
subsequent sentencings." Badaracco, 954 F.2d at 938 n.11.
Defendant in this case was sentenced on January 31, 1995--nearly
four years after this amendment took effect. Although we do not
need to reach this issue in this case, it seems clear that the
guidelines no longer endorse "gross gain" to the defendant as an
alternative measure of loss.
As a result, pursuant to the mandate of the guidelines and
the reasoning of our decision in Kopp, we conclude that actual
loss is the appropriate basis for loss measurement in this case.
2.
We now turn to the task of determining the appropriate
measurement of actual loss under the facts of this case. The
government contends, and the district court found, that every
dollar paid to defendant during his illegitimate practice was a
dollar lost, because "the true market value of the services
provided by defendant Maurello was zero." Appellee's Br. at 19.
The government asserts that "[l]egal representation by a non-
lawyer is worth nothing in the marketplace; it is a commodity
that cannot be sold, as a matter of law." Id.
14
This argument ignores reality. A client who obtains a
satisfactory contract, settlement, or verdict has received
something of value, irrespective of whether the lawyer was
licensed at the time. The services rendered do not become
worthless if the client later learns that the attorney was not
licensed to practice when the services were performed. If the
validity of the services could later be attacked on the ground
that they were performed by an attorney who had been disbarred,
then the government's argument might have merit; however, there
is no such allegation in this case.
Furthermore, the government's argument contravenes the
clearly expressed policy of the guidelines. Congress instructed
the Sentencing Commission to take the "nature and degree of the
harm caused by the offense" into account in drafting the
guidelines. 28 U.S.C. § 994(c)(3). Thus, the policy statement
at the opening of the guideline manual states that the guidelines
are designed to serve two sentencing purposes: "just deserts" and
"crime control." Guidelines Ch. 1, Part A, § 3. Under the theory
of just deserts, according to the policy statement, "punishment
should be scaled to the offender's culpability and the resulting
harms." Id.
More importantly for our purposes, section 1B1.3, entitled
"Relevant Conduct," states that "specific offense
characteristics" shall be determined on the basis of, inter alia,
"all harm that resulted from the acts and omissions . . . [of the
defendant], and all harm that was the object of such acts and
omissions." §1B1.3(a)(3). Section 2F1.1 clearly designates the
15
amount of loss from fraud as a specific offense characteristic.
§ 2F1.1(b)(1); see also § 2B1.1(b)(1)(designating amount of loss
from theft as a specific offense characteristic). It follows
that the degree of harm caused by defendant's acts is relevant to
the determination of loss. See also Commentary to § 2B1.1,
Background ¶ 1 ("The value of the property stolen plays an
important role in determining sentences . . . because it is an
indicator of both the harm to the victim and the gain to the
defendant."); id. at application note 2 ("Where the market value
is difficult to ascertain or inadequate to measure harm to the
victim, the court may measure loss in some other way, such as
reasonable replacement cost to the victim.")(emphasis added).
The district court in this case rejected actual harm to the
victims as a means of measuring loss on the ground that such an
approach would put the court
in the anomalous position of slapping the wrist of the
competent malefactor and harshly sanctioning the
incompetent one when both are equally culpable because
the crime lies in the fact of their misrepresentation,
not the nature and quality of the representation of
their clients.
App. 59. The court concluded that "assessing the quality of the
services offered by the unlicensed attorney . . . is not the
purpose of the calculation for determining amount of loss." Id.
at 609.
For the reasons just stated, we believe this argument
misconstrues the theory of the guidelines and the nature and
purpose of the loss measurement. The quality of services
rendered is directly relevant to the degree of harm caused by
16
defendant's actions. Under the theory advanced by the district
court, an unlicensed attorney who represents 100 people, earning
$200,000 in fees and obtaining spectacular results for all of
them, would receive the same punishment as one who represents the
same number of clients incompetently and to their detriment but
receives the same amount in fees. A theory that yields such a
perverse result is "simple, but irrational." Kopp, 951 F.2d at
532. We simply cannot agree with the district court's assertion
that two defendants so situated are "equally culpable."
We wish to make clear that we are neither rewarding nor
condoning the unauthorized practice of law. The issue here is
not whether or not defendant will be punished for his conduct,
but rather whether his base offense level will be enhanced on
account of loss caused by his fraud. To the extent that the
unauthorized services provided by defendant have not harmed their
recipients, but to the contrary have benefitted them, we conclude
that defendant's base offense level should not be enhanced. A
person who hires a contractor to construct a building according
to certain specifications, for example, and receives a flawless
and structurally sound building as a result of the bargain,
cannot be said to have suffered a loss simply because he later
learns that the contractor was not licensed at the time of
construction. In those circumstances, the victim has sustained
no loss because he has received the services for which he
bargained, despite the fact that he has received them from a
person who was not legally authorized to offer them. For
17
defendant's conduct in practicing without a license he should be
and has been punished.
The Seventh Circuit's decision in United States v.
Schneider, 930 F.2d 555 (7th Cir. 1991), supports our conclusion.
In deciding the appropriate measure of loss from fraudulently
induced construction contracts that were terminated before the
intended victim paid any money, Judge Posner reasoned that
it is necessary to distinguish between two types of
fraud. One is where the offender--a true con artist .
. . --does not intend to perform his undertaking, the
contract or whatever; he means to pocket the entire
contract price without rendering any service in return.
In such a case the contract price is a reasonable
estimate of what we are calling the expected loss, and
we repeat that no more than a reasonable estimate is
required. The other type of fraud is committed in
order to obtain a contract that the defendant might
otherwise not obtain, but he means to perform the
contract (and is able to do so) and to pocket, as the
profit from the fraud, only the difference between the
contract price and his costs.
Id. at 558. Stating that the estimate of loss pursuant to §
2F1.1 must bear some relation to "economic reality," id. at 559,
the Seventh Circuit ruled that the fraud committed in Schneider
was of the latter type. Because there was no reason to believe
that the defendants would not have performed the contracts "to
the perfect satisfaction of the contracting agency," the court
rejected gross gain to the defendants as the appropriate measure
of loss. Id. at 558. We endorsed this reasoning in Kopp, and we
do so again today.
3.
The government argues in the alternative that the loss from
defendant's fraud should be measured in terms of the total money
18
paid to defendant because that money "was diverted from
defendant's legitimate competitors." We reject this argument for
the same reason we rejected the district court's measurement of
actual loss: it eliminates any meaningful correlation between
severity of punishment and degree of harm caused, and it measures
the loss to those who are not direct victims of the defendant's
conduct. For every fraud in the sale of goods or services, there
is someone who could have sold the same goods or delivered the
same services as promised or represented, but they are but
distant and remote victims of such fraudulent conduct. It is not
their loss which should provide the measure, but rather the
direct victims of defendant's conduct. Every person who commits
the type of fraud for which defendant stands convicted can be
said to have diverted money from legitimate competitors. Thus,
under this theory, the measure of loss in this type of case would
always be equal to the total fees paid to defendant, regardless
of the actual harm to the victims. This would render the degree
of harm caused by a defendant's acts irrelevant to Guideline
sentencing--a result that is contrary to the policy of the
Guidelines as discussed above.
4.
Having rejected the measure of fraud loss employed by the
district court, we must determine an appropriate substitute. For
purposes of § 2F1.1, "the loss need not be determined with
precision. The court need only make a reasonable estimate of the
loss, given the available information." Commentary to § 2F1.1,
App. Note 8.
19
We take as our starting place the probation office's
proposal that actual harm be measured by the total amount of fees
paid by dissatisfied clients. Because this method seeks to
identify those clients who were actually harmed by defendant's
actions, it is a good starting place for measuring loss. It does
not provide a "reasonable estimate" standing alone, however,
because unsubstantiated complaints voiced by clients only after
they have learned of defendant's wrongdoing and their possible
right to restitution are unreliable at best, and inherently
suspect. In order to render the probation office's estimate a
reasonable one for purposes of § 2F1.1, we hold that the
government must demonstrate and the district court must find that
the complaints on which it is based are bona fide and can
reasonably support a loss determination. We therefore remand to
the district court for the purpose of determining whether the
twenty-seven complaints underlying the probation office's loss
estimate bear a reasonable relationship to actual or intended
loss. The district court is not required to determine whether
each complainant has a grievance that could support a malpractice
determination, but merely whether the complainant's claimed loss
has a reasonable basis in fact so that the court is convinced
that the complainant did not respond to the government's inquiry
merely in the hope of procuring a financial windfall.
Our conclusion that the district court overvalued fraud loss
under the circumstances is by no means an indication that the
district court overestimated the seriousness of the underlying
conduct. Section 2F1.1 provides that "[i]n cases in which the
20
loss determined under subsection (b)(1) does not fully capture
the harmfulness and seriousness of the conduct, an upward
departure may be warranted." § 2F1.1. In this case, as in Kopp,
the district court is free to reconsider on remand "whether the
properly calculated 'loss' significantly over- or understates the
gravity of the crime, and therefore whether departure from the
normal sentencing range is appropriate." Kopp, 951 F.2d at 536.
B. Abuse of a Position of Trust or Use of Special Skill
The district court imposed a two-point upward adjustment
pursuant to § 3B1.3 for abuse of a position of trust or use of a
special skill. Section 3B1.3 provides: "If the defendant abused
a position of public or private trust, or used a special skill,
in a manner that significantly facilitated the commission or
concealment of the offense, increase by 2 levels." § 3B1.3. The
district court found that defendant had abused a position of
trust in connection with the mail fraud, and that he had used a
special skill in the commission of both the mail fraud and the
credit card fraud. As either abuse of a position of trust or
use of a special skill standing alone is a sufficient basis for
an upward adjustment, we must uphold the district court's
determination if any one of these three grounds was proper.
1. Use of a Special Skill
We begin by addressing the district court's finding that
defendant used a special skill in the commission of both
offenses. The Commentary to § 3B1.3 describes the enhancement for
use of a special skill in the commission of an offense as
follows:
21
"Special skill" refers to a skill not possessed by
members of the general public and usually requiring
substantial education, training or licensing. Examples
would include pilots, lawyers, doctors, accountants,
chemists, and demolition experts.
Application Note 2. Like the enhancement for abuse of a position
of trust, this adjustment "applies to persons who abuse . . .
their special skills to facilitate significantly the commission
or concealment of a crime." Background to § 3B1.3.
a. Mail Fraud
i.
To impose an upward adjustment for use of a special skill
pursuant to § 3B1.3, a court must find two things: (1) that
defendant possesses a special skill; and (2) that he used it to
significantly facilitate the commission or concealment of his
offense. United States v. Hickman, 991 F.2d 1110, 1112 (3d Cir.
1993). In this case, the district court neither made specific
findings of fact nor articulated reasons in support of its
conclusion that defendant used a special skill in perpetrating
the mail fraud scheme. As a result, we must determine whether
the record as a whole "demonstrates" the manner in which
defendant used his special skill to facilitate the commission or
concealment of the offense. United States v. Rice, 52 F.3d 843,
850 (10th Cir. 1985); United States v. Gandy, 36 F.3d 912, 916
(10th Cir. 1994). If the record as a whole supports the district
court's enhancement of defendant's sentence for use of a special
skill in the commission of the mail fraud offense, then we need
22
not remand for specific factual findings in support of the
enhancement. Id.
We begin with the first prong of the § 3B1.3 inquiry:
whether defendant possesses a special skill within the meaning of
the guideline. The court appears to have found that defendant's
"special skill is [not] the practice of law per se, but rather is
the knowledge that one obtains through a legal education and
prior practice." App. 580; see also Govt's Br. at 44 ("[T]he
special skill adjustment rested on the whole panoply of practical
skills associated with a legal career."). We note at the outset
that defendant's legal training clearly constitutes a special
skill, as lawyering is specifically listed as an example of a
special skill in the text of the Guideline. Moreover, under the
circumstances, we believe that including defendant's experiences
and general knowledge acquired over the course of his legal
career within the contours of his special skill is warranted.
See United States v. Culver, 929 F.2d 389 (8th Cir. 1991)(finding
use of special skill where pilot convicted of conspiracy to
transport stolen aircraft had used his skills to plan for fuel
and devise flight plans, despite arrest before take-off); United
States v. White, 972 F.2d 590, 600-01, cert. denied, 113 S. Ct.
1651 (1993), cert. denied sub nom Wilson v. United States, id.
(finding use of special skill where defense attorney specializing
in drug cases used knowledge acquired as a prosecutor and defense
lawyer to avoid surveillance during drug conspiracy activities).
23
The district court's decision with respect to the second
part of the inquiry--whether defendant used his special skill to
significantly facilitate the mail fraud--is a question of fact
that we review for clear error. The factual basis of the
district court's finding is not clear from the record. The
government's argument, which presumably the court adopted, is
that defendant "used his special legal skills" in "ascertaining
the names of inactive lawyers or obtaining their credit histories
for the purpose of assuming their identities." Govt. Br. at 38.
According to the government's Sentencing Memorandum, which was
part of the record at the time of sentencing, the defendant's
education and experiences as a licensed attorney
enabled him to successfully portray himself to his
clients, adversaries, and the courts as a knowledgeable
attorney. By using these skills, he was able to conceal
the truth about his identity and his unlicensed status
and enabled him [sic] to dupe more people into hiring
him under the false impression that he was licensed to
practice law. In short, he used his previous
experience, education, and training to perpetuate the
fraud and to conceal it.
App. 548.
We note that this case presents a rather unique situation
insofar as the very use of the special skill (legal competence)
mitigated the severity of the offense by avoiding harm to
victims. Nevertheless, the fact remains that defendant was an
experienced lawyer with experience in setting up a law practice
and soliciting clients, that these skills are not possessed by
the general public, and that he used these skills to facilitate
his fraudulent scheme and to avoid detection. The district
24
court's decision to adjust defendant's sentence upwardly for use
of a special skill was not clearly erroneous.
ii.
Defendant argues that enhancing his sentence for use of a
special skill pursuant to § 3B1.3 while also imposing an upward
adjustment under § 2F1.1(b)(3)(B) constitutes impermissible
double counting. Guideline § 2F1.1(b)(3)(B) provides for a two-
level increase in offense level if the offense involved
"violation of any judicial or administrative order." Id. Since
defendant's unlicensed practice was a direct violation of the New
Jersey Supreme Court order of disbarment, the district court
enhanced his sentence pursuant to § 2F1.1(b)(3)(B). Defendant
apparently does not challenge this enhancement, but rather uses
it as the basis for his challenge to the § 3B1.3 adjustment for
use of a special skill in connection with his mail fraud scheme.
The theory behind his argument is that both enhancements punish
the same behavior: the practice of law.
In United States v. Wong, 3 F.3d 667 (3d Cir. 1993), we
addressed the issue of double counting under the guidelines.
Defendant in that case challenged the simultaneous imposition of
upward adjustments for more than minimal planning under
§2B1.1(b)(5) and for acting as an organizer or leader of a
criminal enterprise under § 3B1.1(c). We reasoned that "because
the Guidelines are explicit when two Sentencing Guideline
sections may not be applied at the same time, the principle of
statutory construction, 'expressio unius est exclusio alterius,'
applies." Id. at 670-71. We concluded that "an adjustment that
25
clearly applies to the conduct of an offense must be imposed
unless the Guidelines exclude its applicability." Id. at 671.
That reasoning applies with equal force here. Nothing in
the Guidelines indicates that § 3B1.3 and § 2F1.1(b)(3)(B) may
not be applied in tandem. We therefore reject defendant's double
counting argument.
We note that even in the absence of governing legal
precedent, we would reject defendant's argument on purely logical
grounds. Contrary to his assertions, the enhancements under §
2F1.1(b)(3)(B) and § 3B1.3 do not "dr[a]w from the same well."
United States v. Kopshever, 6 F.3d 1218, 1224 (7th Cir. 1993).
On the contrary, neither one punishes the practice of law per se.
The former punishes defendant's flagrant violation of a judicial
order; the latter, his use of the panoply of skills associated
with legal practice to facilitate passing himself off as a
licensed attorney. "[E]ven if there is some overlap in the
factual basis for two or more sentencing adjustments, so long as
there is sufficient factual basis for each they may both be
applied." United States v. Haines, 32 F.3d 290, 293-93 (7th Cir.
1994). Despite the slight overlap between these two provisions
as applied in this case, they target different behavior. As a
result, even if the law forbade double counting in the absence of
explicit instructions in the guidelines, the simultaneous
application of these two enhancement provisions would not
constitute double counting.
iii.
26
Because we have concluded that the district court properly
imposed a two-point upward adjustment for use of a special skill
in the commission of the mail fraud offense, we need not and do
not reach the issues of whether defendant used a special skill in
the commission of the credit card fraud or abused a position of
trust within the meaning of the guidelines.
C. Restitution
Under the Victim and Witness Protection Act, which is
incorporated into the Guidelines by § 5E1.1, a district court
sentencing a defendant convicted of an offense under Title 18
"may order . . . that the defendant make restitution to any
victim of such offense." 18 U.S.C. § 3663(a)(1). In determining
whether to order restitution and setting the amount, the court
shall consider the amount of the loss sustained by any
victim as a result of the offense, the financial
resources of the defendant, the financial needs and
earning ability of the defendant and the defendant's
dependents, and such other factors as the court deems
appropriate.
18 U.S.C. § 3664(a). In this circuit, the sentencing court must
make specific factual findings as to the amount of loss sustained
by the victims, the defendant's ability to pay, and the
relationship between the amount of restitution ordered and the
loss caused by defendant's offense. United States v. Graham,
1995 WL 744974, *3 (3d Cir. 1995); United States v. Logar, 975
F.2d 958, 961 (3d Cir. 1992).
In this case, the district court ordered defendant to pay
$25,000 in restitution on the mail fraud counts and $25,000 on
the credit card fraud count. Counsel for both sides briefly
27
addressed the issue of defendant's resources and his ability to
pay. Defense counsel argued that defendant has "no resources"
and owes $170,000 in state and federal taxes, App. 646-48, and
expressed doubt that "restitution is actually feasible in this
case." App. 648. The prosecutor then argued, without going into
greater detail, that "the sum total that we know about the
defendant's assets are set forth in paragraph 134 of the
presentence report." App. 649. Although she did not address
restitution on the mail fraud counts, she concluded by
acknowledging: "Obviously I don't believe there is going to be
enough to repay all the credit card companies that suffered an
injury . . . ." App. 649.
The only factual information in the record regarding
defendant's financial resources and ability to pay is found in
the PSR. The PSR lists defendant's assets as follows: a
condominium valued at $110,000; $18,000 in a money market
account; a few hundred dollars in a checking account; $70 in a
savings account; and automobiles valued at $2500. PSR ¶ 134.
The PSR reports that defendant and his wife owe $12,800 on their
credit cards (not including the fraudulent credit card activity).
Id. at ¶ 135. Defendant's wife's income of $1741 per month is the
only income to the household and is insufficient to cover their
monthly expenses of $1992. Id. at 136. The PSR concludes that
defendant "is capable of maintaining steady employment . . .
[and] paying partial restitution." Id. at ¶ 137.
28
None of these factual allegations is undisputed. Defendant
challenged virtually all of them in his sentencing memorandum.
Contrary to the PSR's assessment, defendant maintains that he
has no assets. His wife's assets are separately and
individually held. All purchases were made by Ms.
Rzeczyeki and were accumulated through her own
earnings. All assets listed except the I.R.A. are the
defendant's wife's, not his. Reference to these
separate assets should be excised. The I.R.A. was the
property of the defendant, but was liquidated following
the defendant's arrest and used to pay living expenses
for the past ten (10) months. Thus, the defendant has
no assets.
App. 54. In addition, defendant challenges the PSR's assessment
of his future earning potential and ability to pay:
Mr. Maurello has no assets. Upon release from custody,
financial resources will remain limited. This is
especially true since his tax returns have been filed
pursuant to the plea agreement, and [he] is obligated
to pay the resulting liabilities. He owes money to the
Internal Revenue Service which includes tax liability,
interest and penalties which, all totalled, are more
than $170,000.
Id.
"Where a defendant alleges any factual inaccuracy in the
presentence report, the Court must make: (1) a finding as to the
allegation, or (2) a determination that no such finding is
necessary because the matter controverted will not be taken into
account in sentencing." United States v. Cherry, 10 F.3d 1003,
1013 (3d Cir. 1993). Here, in response to this cursory and
conflicting testimony, the court stated as follows:
Well, the defendant's varied and extensive crimes
set forth in the presentence report have left a
financial mess and a substantial amount of loss to a
diverse variety of victims and limited resources to
repay.
29
I don't want to deprecate the loss of the
defendant's in any way. On the other hand, I don't
want to set an amount of restitution which is unlikely
to ever be repaid. This is a very difficult
undertaking.
We know who is to get the money. What we don't
know is how much to order that they be given. The
amount of loss is substantial, as we know. The
defendant is never going to pay back a good portion of
it.
Without derogating in any way any efforts that the
victims may take on their own to collect, I will limit
restitution to $50,000 . . . on each count in lieu of
any fine.
App. 650.
It is apparent from this excerpt that the district court
failed to make the findings of fact required by our decisions in
Cherry and Logar. First, the court made no finding regarding
defendant's ability to pay. While the Victim and Witness
Protection Act provides that "[t]he burden of demonstrating the
financial resources of the defendant and the financial needs of
the defendant's dependents shall be on the defendant," 18 U.S.C.
§3664(d), the court cannot impose restitution without making
specific findings of fact in this regard. Defendant asserts (1)
that he owes $170,000 in back taxes, (2) that those taxes are
subject to collection by levy upon his wages, (3) that he has
never earned more than $25,000 per year in any job, and (4) that
the most he will take home following deduction of back taxes by
the IRS is $161.54 per week. Appellant's Br. at 37-38. If these
assertions are correct, then defendant will not even earn $50,000
over the course of three years, much less be able to pay that
amount in restitution. The court's only mention of defendant's
ability to pay was the pro forma statement that "I don't mean to
30
deprecate the defendant's crimes by setting the amount of
$50,000, but merely to try to, as the Guidelines tell us, try to
equate the restitution obligation with the defendant's ability to
pay as he may be able to obtain monies in the future." App. 651.
Moreover, the district court failed to make an express
factual finding in the restitution context regarding the
relationship between the claimed losses to victims and
defendant's offense conduct. It may be the case that the
district court relied on its earlier finding in the fraud loss
context that all clients were victims and all fees paid were
losses. Because these losses would not necessarily be subject to
restitution, however, the district court erred in not making a
specific finding for purposes of restitution. More importantly,
even if the court had made a specific finding that all fees paid
to defendant were losses related to his offense, that finding
would be clearly erroneous in light of our holding in Part VA of
this opinion. As discussed above, insofar as defendant's clients
were satisfied with his services, the fees that they paid in
exchange for those services cannot be considered losses.
While the district court's award of restitution on the
credit card fraud count is somewhat less problematic, insofar as
the victims of that fraud and the amount that each is owed is
clearly established, the district court's failure to make a
specific finding as to defendant's ability to pay requires remand
on this issue as well.
We therefore remand to the district court for factual
findings in support of the restitution order. This is especially
31
appropriate in light of our ruling today that the appropriate
measure of loss was not the total of all fees paid to the
illegitimate practice ($428,902), but rather the fees paid by
those clients who were justifiably dissatisfied (approximately
$62,000 if existing complaints are verified). Thus, one of the
key factors that the district court should have considered in
setting the amount of restitution was inflated to nearly seven
times its correct value.
Furthermore, we do not require that the district court make
a separate finding as to the amount of restitution due to each
victim. The court may establish a formula and authorize the
Probation Office, not the U.S. Attorney, to apply it. The
parties might also stipulate to the identity and amounts to be
paid subject to court approval. However, we specifically express
our view that the Probation Department rather than the U.S.
Attorney is the proper agency to carry out such functions.
VI. Conclusion
For the foregoing reasons, we will (1) reverse the district
court's fraud loss valuation and remand to the district court for
factfinding and resentencing consistent with this opinion; (2)
affirm the district court's imposition of a two-point upward
adjustment for use of a special skill in connection with the mail
fraud; and (3) vacate the district court's order of restitution
and remand to the district court for appropriate factual
findings.
32
WELLFORD, Circuit Judge, concurring.
I concur in the majority opinion but write separately to
emphasize several aspects of the case. The amount paid by
Maurello's fraud victims who indicated dissatisfaction with his
services represents to this judge a good initial measure of the
degree of "loss" involved by reason of this deceitful and
unconscionable conduct by a disbarred lawyer. The "value" of
legal services is hard to gauge by laymen clients just as the
"measure of harm" to these "clients" is difficult to assay. It
is also a serious challenge to ascertain to what extent
Maurello's services may have benefitted the victims or "clients"
33
who did not complain. A qualified and licensed attorney may have
done a better job for less money, or it may be that Maurello's
services were actually inadequate, unknown to his "client." Upon
the remand, I would emphasize that the district court must only
determine whether the dissatisfied "clients" or victims have "a
reasonable basis in fact" for their professed feeling of having
been shortchanged by Maurello.
I am disposed to concur, not altogether enthusiastically,
with my brothers in their interpretation of United States v.
Kopp, 951 F.2d 521 (3d Cir. 1991), and United States v.
Badaracco, 954 F.2d 928 (3d Cir. 1992), in assessing fraud loss
under the guidelines. I find it difficult, however, to find a
good analogy between the services of an unlicensed contractor in
building a structure, and the services of a disbarred lawyer in
handling a domestic relations case. Thus, I do not find United
States v. Schneider, 930 F.2d 555 (7th Cir. 1991), particularly
relevant.
I would also emphasize that the district court is "free to
reconsider on remand" whether an upward departure is
"appropriate" in light of all the circumstances.
34