United States v. Jarvis ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
7-9-2001
United States v. Jarvis
Precedential or Non-Precedential:
Docket 00-1514
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Filed July 19, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-1514
UNITED STATES OF AMERICA,
v.
JOHN T. JARVIS,
Appellant.
On Appeal from the United States District Court
for the Western District of Pennsylvania
District Court Judge: Alan N. Bloch
(D.C. Crim. No. 99-00173-1)
Argued: October 24, 2000
Before: BECKER, Chief Judge, SCIRICA and
FUENTES, Circuit Judges.
(Opinion Filed: July 19, 2001)
Lisa B. Freeland (argued)
Office of the Federal Public Defender
960 Penn Avenue
415 Convention Tower
Pittsburgh, Pennsylvania 15222
Attorney for Appellant
Bonnie R. Schlueter (argued)
Office of the United States Attorney
633 U.S. Post Office & Courthouse
Pittsburgh, Pennsylvania 15219
Attorney for Appellee
OPINION OF THE COURT
FUENTES, Circuit Judge:
This is an appeal of a five-level upward departure from
the fraud sentencing guideline. In December 1999, John T.
Jarvis pled guilty to one count of mail fraud in violation of
18 U.S.C. SS 1341 and 1342. He admitted to participating
in two separate fraudulent schemes that bilked investors of
more than $880,000. The Presentence Investigation Report
("PSR") set Jarvis' guideline sentencing range at 24 to 30
months. However, after determining that Jarvis caused
psychological injury to his victims and knowingly
endangered their solvency, the district judge imposed a five-
level upward departure and sentenced him to a 60-month
prison term. On appeal, Jarvis claims that his conduct did
not go beyond the heartland of typical fraud cases, and that
the court misapplied the guidelines. We find no abuse of
discretion and will therefore affir m.
I.
The charges against Jarvis arose fr om his employment
with Penn Capital Financial Service ("Penn Capital"), a
corporation registered as a broker -dealer with the
Securities and Exchange Commission. At his guilty plea
hearing, Jarvis admitted that, from April 1989 to October
1994, he knowingly participated in two separate fraudulent
investment schemes, one involving the purchase,
rehabilitation, and sale of public housing pr operty, and the
other a fraudulent stock investment scheme concer ning
Penn Capital stock.
The total loss attributable to Jarvis for both schemes is
$883,859. The total number of victims was 27.1 After
discounting the monies returned to investors, the actual
loss they sustained in both schemes amounted to
_________________________________________________________________
1. There were 31 separate investments, but because several individuals
invested in both fraudulent schemes, the total number of victims was
27.
2
$316,743. However, no victim of the frauds who received
money back was paid directly from funds of Jarvis or Penn
Capital. Instead, the repayments were derived from other
fraudulently obtained funds originating from other
defrauded investors.
For sentencing purposes, the PSR calculated Jarvis'
adjusted offense level at 16. This offense level, combined
with a criminal history category of II, gave Jarvis a
guideline sentencing range of 24 to 30 months. Although
victim impact statements had been received fr om 8 victims,
the PSR did not recommend any victim-related adjustments
in Jarvis' offense level, and neither Jarvis nor the
Government objected to the PSR. On April 6, 2000, the
District Court informed the parties that a two-level increase
for abuse of a position of trust under U.S.S.G.S 3B1.3
applied, and that a further two-level vulnerable victim
enhancement under U.S.S.G. S 3A1.1 might be applicable.2
A sentencing hearing was held on April 13 and 27, 2000,
during which evidence relating to victim impact was
obtained. The District Court heard testimony fr om several
of Jarvis' victims. Nathan Patrick Hager testified that Jarvis
had defrauded him and his wife of their entir e life savings,
and all his retirement funds (about $207,000) while
knowing that their only son was dying of cancer . According
to Hager, Jarvis had promised a 9% r eturn on his
investment and assured him that no loss was possible
because the investment was guaranteed by the state.
Sophie Palladini stated that she did not know Jarvis
before he visited her home and introduced her to Penn
Capital. Ultimately, the court found Jarvis r esponsible for
her loss of $70,799.
Michael Esper, who at the time was 79 years old, testified
that Jarvis fraudulently induced him and his spouse to
invest all of the money they had received fr om the sale of
their home when they moved into an apartment. This
apparently amounted to $80,000, which Jarvis guaranteed
would be invested safely.
_________________________________________________________________
2. All citations to the Sentencing Guidelines r efer to the 1998 edition,
which was used in the PSR.
3
Additionally, the Government made an evidentiary proffer
concerning the testimony of several other individuals who
were present in the courtroom. Accor ding to the proffer,
Anne Marie Kmonk would have testified that she was 57
years old when she invested $219,371 with Jarvis and
ultimately received back about $152,035 of her initial
investment. She had also communicated directly with the
sentencing court by letter, stating that she and her spouse
had suffered health problems br ought on by Jarvis'
fraudulent activities.
Anne Wolas would have testified that she was 82 years
old and that her loss from dealing with Jarvis was about
$45,440. She also would have told the court that Jarvis
had visited her home, that he could see that it was modest,
and that it had a value of approximately $65,000. Finally,
she would have testified that Jarvis induced her to invest in
the fraudulent housing scheme by transferring money from
a legitimate investment she had in VMS Vanguard
Mortgage, representing to her that the housing investment
was a branch of Vanguard.
Finally, William Becker was prepar ed to testify that he
was temporarily laid off in 1993, permanently in 1994, and
was 52 years old when he retired. He r eportedly would have
testified that, when he invested $8,000 in December 1993,
he told Jarvis that he needed monthly income due to the
layoff and that he received six inter est payment checks
from Jarvis beginning in January 1994. The court
eventually found that Becker would have lost his entire life
savings of $170,000 had Jarvis succeeded in convincing
him to invest it with Penn Capital.
The District Court continued the sentencing hearing until
April 27, 2000. Soon after, the court filed an order notifying
the parties that it was considering an upwar d departure
from the Sentencing Guideline range because Jarvis'
conduct went beyond the heartland of typical fraud cases.
Thereafter, when the sentencing hearing resumed, the
court called Agnes Kato to testify about her losses. Kato
stated that her son-in-law, John Palladini, had intr oduced
her to Jarvis, and she subsequently invested appr oximately
$9,000 in the fraudulent schemes. Jarvis told her she
4
would receive paperwork to document her investment, but
she never did. The court then asked Kato if she had told
Jarvis why she sought to save money, to which she
responded that she had told him that she wanted the
money to provide for the welfare of her son, who became
disabled after a brain aneurysm.
At the conclusion of the hearing, the District Court made
the following determination:
The particular facts underlying defendant's criminal
conduct cannot be captured by the adjustments set
forth in the guidelines. Rather, defendant's predatory
conduct and the reasonably foreseeable consequences
of his action undoubtedly remove this case fr om the
heartland of fraud cases addressed in the guidelines.
Accordingly, the Court finds that an upwar d departure
is warranted.
Following this finding, the court first imposed a four-point
enhancement to Jarvis' offense level for abuse of trust and
vulnerable victims. Based on the PSR's adjusted of fense
level of 16, this resulted in an offense level of 20. Jarvis
does not challenge these enhancements.
This appeal results from the District Court's subsequent
imposition of a further five-level upward departure on two
grounds suggested in the commentary to the fraud
guideline: (1) that "the offense caused reasonably
foreseeable[ ] physical or psychological harm or severe
emotional trauma," U.S.S.G. S 2F1.1, comment. n.11(c),
and (2) that "the offense involved the knowing
endangerment of the solvency of one or mor e victims,"
U.S.S.G. S 2F1.1, comment. n.11(f). The court also invoked
U.S.S.G. S 5K2.3, which addresses extr eme psychological
injury, as additional support for this five-level upward
departure. This increased Jarvis' of fense level from 20 to
25, which, combined with his criminal history category of
II, resulted in a guideline range of 63 to 78 months. The
District Court sentenced Jarvis to 60 months of
incarceration after applying the statutory maximum
applicable to each of the three counts in the indictment.
The court also imposed three years of supervised release,
and ordered Jarvis to pay $316,743 in r estitution.
5
A sentencing court's decision to depart from an
applicable guideline range is generally entitled to
substantial deference and hence is subject to r eview for an
abuse of discretion. Koon v. United States , 518 U.S. 81, 98-
100 (1996). Factual findings are reviewed for clear error.
See 18 U.S.C. S 3742(e); United States v. Helbling, 209 F.3d
226, 242-43 (3d Cir. 2000). Whether " ``the facts found by
the district court warrant application of a particular
guideline provision is a legal question and is to be reviewed
de novo.' " United States v. Wilson , 106 F.3d 1140, 1142-43
(3d Cir. 1997) (quoting United States v. Partington, 21 F.3d
714, 717 (6th Cir. 1994)).
II.
Jarvis initially contends that the District Court lacked
the authority to depart upward from the guideline range on
the basis of psychological injury and knowing
endangerment of victim solvency. We r eject this contention.
Certainly, the Sentencing Guidelines allow a sentencing
judge to take note of the consequences of a fraud scheme
that extends beyond the immediate financial loss. The
sentencing judge may depart from the guidelines if the
judge finds that "there exists an aggravating or mitigating
circumstance of a kind, or to a degree, not adequately
taken into consideration by the Sentencing Commission in
formulating the guidelines." 18 U.S.C.S 3553(b). Further,
where "the [monetary] loss . . . does not fully capture the
harmfulness and seriousness of the conduct, an upward
departure may be warranted." U.S.S.G. S 2F1.1, comment.
n.11. Specifically mentioned as factors outside the
heartland of the fraud guideline are "r easonably foreseeable
. . . psychological harm or severe emotional trauma" and
the "knowing endangerment of the solvency of one or more
victims." U.S.S.G. S 2F1.1, comment. nn.11(c), (f); see also
U.S.S.G. S 5K2.3 (policy statement authorizing departure
for extreme psychological injury).
III.
We next address whether the District Court was justified
in upwardly departing based on at least one victim having
6
suffered psychological harm. The commentary to the fraud
guideline states, "In cases in which the loss determined
under subsection (b)(1) does not fully captur e the
harmfulness and seriousness of the conduct, an upward
departure may be warranted. Examples may include the
following: . . . . (c) the offense caused r easonably
foreseeable, physical or psychological har m or severe
emotional trauma . . . ." U.S.S.G. S 2F1.1, comment. n.11.
The Sentencing Commission has also provided a policy
statement delineating when severe emotional trauma falls
outside the heartland: "If a victim or victims suffered
psychological injury much more serious than that normally
resulting from commission of the of fense, the court may
increase the sentence above the authorized guideline
range." U.S.S.G. S 5K2.3 (emphasis added). Section 5K2.3
further provides that an upward departur e for psychological
injury may be imposed:
only when there is a substantial impair ment of the
intellectual, psychological, emotional, or behavioral
functioning of a victim, when the impairment is likely
to be of an extended or continuous duration, and when
the impairment manifests itself by physical or
psychological symptoms or by changes in behavior
patterns. The court should consider the extent to
which such harm was likely, given the natur e of the
defendant's conduct.
Id.Jarvis contends that the District Court erred in upwardly
departing because the evidence and factual findings were
insufficient to establish that any of the victims suffered any
psychological injury. We disagree. In its ruling, the District
Court made specific findings of fact that wer e necessary to
its guideline disposition:
[D]efendant's victims include blue collar workers who
had worked hard and saved many years to be able to
enjoy their retirement. Some of those who lost very
large sums had acquired the money thr ough their
retirement such as a pension fund; another through
the sale of the family home. Due to the defendant's
conduct, many of his victims will be forced to live their
7
retirement years in destitution. Defendant has taken
away the security and comforts that his victims'
lifetime of hard work would have otherwise pr ovided
them. Defendant intentionally took money from people
whom he knew to be of or near advanced age and who
were uneducated investors, convincing them to hand
over their entire life savings and retir ement funds.
Defendant's actions resulted in for eseeable
psychological harm, severe emotional trauma, and
involved the knowing endangerment of the solvency of
one or more of his victims.
Mr. and Mrs. Nathan Hager are curr ently on
depression medication and see a mental health
professional in order to deal with their losses.
Many victims, including Anna Marie and Thomas
Kmonk, have lost their entire savings with little hope of
regaining financial security.
There is a distinction between defrauding a thirty-
year old of his life savings and defrauding a sixty-year
old of his life savings. Defendant could for esee the
unlikelihood of his victims recouping their loss.
. . . .
In over twenty years as a judge on the bench, this is
one of the most egregious cases of fraud that this
Court has seen. The loss calculation determined under
Section 2F1.1 of the guidelines does not fully capture
the harmfulness and seriousness of the defendant's
conduct.
Further, this harmfulness and seriousness is not
adequately addressed by the enhancements for a
vulnerable victim and more than minimal planning.
While the victim of any fraud would certainly
experience emotional distress upon the r ealization that
their money was gone, the psychological harm caused
by defendant was much more serious than that which
would normally be experienced by a fraud victim. To
steal the means by which persons worked to support
themselves in their retirement years, to take the money
that an elderly couple realized at the sale of their
8
largest asset, the family home, to take a couple's
savings at the same time they are forced to bury their
only child, to take an elderly woman's savings meant to
secure a funeral for her disabled son, subjected the
defendant's victims to psychological injury which
exceeds that which could be expected in a run of the
mill fraud case.
Defendant knew of his victims' circumstances and he
certainly would have foreseen the effects his actions
would have upon his victims. Defendant's fraudulent
actions ended in 1994 and yet, this was when his
victims' nightmares were only beginning.
As evidenced by the presence of the victims in this
courtroom and the letters submitted to this Court,
defendant's victims continue to suffer fr om his actions,
desperately seeking to regain some of the money that
they have lost and with it some comfort in their
retirement.
The particular facts underlying defendant's criminal
conduct cannot be captured by the adjustments set
forth in the guidelines. Rather, defendant's predatory
conduct and the reasonably foreseeable consequences
of his action undoubtedly remove this case fr om the
heartland of fraud cases addressed in the guidelines.
Accordingly, the Court finds that an upwar d departure
is warranted.3
The District Court's findings are not clearly erroneous, and
under our de novo review we agree with the court's
application of those facts to the guidelines. Jarvis'
fraudulent scheme caused several victims to suf fer severe
emotional trauma sufficient to justify an upwar d departure
for conduct outside the heartland of the fraud sentencing
guideline. We have previously ruled that"[w]here any one
victim suffers substantial impairment, departure is justified
under section 5K2.3." United States v. Astorri, 923 F.2d
1052, 1059 (3d Cir. 1991). That standar d is satisfied in this
case, where the District Court found that "Mr. and Mrs.
Nathan Hager are currently on depr ession medication and
_________________________________________________________________
3. App. at 144-48.
9
see a mental health professional in order to deal with their
losses." This finding is supported by Mrs. Hager's letter to
the court dated April 22, 2000, in which she wr ote that
"[m]y husband and I are on depression medicine and seeing
a shrink. (Dr.) The medicine is so expensive." While some
level of depression might be thought common to all fraud
victims, the condition the Hagers suffer ed was severe
enough to require them to seek professional mental health
care and to take medication. Thus, the depr ession the
Hagers describe is consistent with the terms of U.S.S.G.
S 2F1.1, comment. n.11(c), and meets the plain meaning of
U.S.S.G. S 5K2.3, which permits an upwar d departure for
psychological harm that is "much mor e serious than that
normally resulting from commission of the offense."
We also disagree with Jarvis' contention that the District
Court could not have found that the Hagers' depr ession "is
likely to be of an extended or continuous duration," as
required by S 5K2.3. The Hagers' son died from cancer on
December 22, 1994. Their letter to the court dated April 22,
2000 stated that Jarvis and his associates had "wiped us
out 2 days after I buried him." Thus, the Hagers suffered
from significant depression more than five years after
Jarvis' scheme. This is confirmed by Mrs. Hager's April 22,
2000 letter, in which she writes: "I have prayed and prayed
over the (5) years finding no solution to this pr oblem." In
sum, the record sufficiently establishes that the Hagers
suffered "a chronic substantial impairment of [their] mental
functioning resulting in physical, psychological or
behavioral symptoms," justifying a S 5K2.3 upward
departure. Astorri, 923 F.2d at 1059.
Jarvis argues that the District Court err ed by attributing
the Hagers' mental health problems to his scheme while
overlooking that those problems were caused by the
contemporaneous death of their only son from cancer. This
contention ignores Mrs. Hager's letter, which is replete with
references to the health problems the couple suffered as a
result of Jarvis' fraud -- not the death of their son. She
wrote, for instance, that "[i]t has been a struggle to keep
going with the stress of th[e] financial problems we are
having and [a lot] of health problems." Moreover, in the six-
page letter she refers to her son and his death only twice.
10
One of those references stated that Jarvis and his
associates at Penn Capital "wiped us out 2 days after I
buried him. They knew he was dying."4 These references
support the District Court's enhancement because they
underscore the fact that Jarvis could r easonably foresee the
devastating impact his fraud would have on the Hagers as
a result of their ordeal with their son's cancer.
Further, the Hagers' health problems ar e similar to those
in Astorri, where we upheld an upwar d departure pursuant
to S 5K2.3 for severe psychological har m. There, three sets
of financial fraud victims were identified as having suffered
physical or psychological injury. The evidence showed that
one victim had been forced to obtain high blood pressure
treatment, and another, who had alr eady been in poor
health, "displayed adverse physical and behavioral effects."
Astorri, 923 F.3d at 1058-59. The physical or psychological
health effects on the third set of victims were not described,
apart from the district court judge noting that she had
observed the effects being manifested during the trial. See
id. at 1058. On that record, we deter mined that the District
Court's findings, that at least the first two victims "suffered
extreme psychological injury," were not clearly erroneous.
Id. at 1059. Similarly, the Hagers' documented mental
health problems, which required them to obtain
professional care and take medication even years after the
fraud occurred, adequately supports a finding that they
suffered extreme psychological injury.
The District Court had other evidence upon which to
conclude that an upward departure for severe psychological
injury was warranted. Anne Marie Kmonk wrote to the
District Court that "[i]t is now five years, I am 57 years
old[,] have had health problems (myself and my husband) I
believe brought on by this stressful situation, and wanted
to begin my retirement." Evidence fr om Sophie Palladini
was also relevant. Although Jarvis was not dir ectly
responsible for defrauding her, the District Court found him
at least partly responsible because he intr oduced her to
Penn Capital and he should have foreseen that she would
_________________________________________________________________
4. In her second reference to her son, Mrs. Hager wrote: "I have lost my
son, [a lot] of money, many friends, and almost my faith in God."
11
be victimized by the fraudulent scams taking place there.
Palladini wrote the court that "all the years for the [loss] of
this money emotionally it was very bad and still is." On
another occasion she wrote that "[m]y nerves have put me
in the hospital over this."
Jarvis relies on our decision in United States v. Neadle,
72 F.3d 1104 (3d Cir. 1996), to ar gue that an upward
departure for severe psychological har m was not justified.
There, we reversed a district court's upward departure for
the psychological and social harm imposed on the people of
the Virgin Islands when an insurance company the
defendant had created fraudulently obtained an insurance
license but was subsequently unable to meet its claim
obligations after Hurricane Hugo. See id. at 1106, 1111-12.
The completely speculative grounds upon which the
adjustment was applied in Neadle to an entir e population is
wholly distinguishable from the recor d presented in this
case, which shows discrete instances of sever e
psychological trauma with respect to several specific
individuals.
The other cases upon which Jarvis relies ar e either
distinguishable or appear at odds with the rule in Astorri
that a S 5K2.3 upward departure is justified whenever one
victim suffers severe psychological har m. In United States v.
Pelkey, the First Circuit Court of Appeals concluded that
the emotional trauma, including depression, r esulting from
a fraud was inadequate to uphold an upward departure
under S 5K2.3. See 29 F.3d 11, 16 (1st Cir. 1994). Pelkey,
however, can be distinguished because ther e was no
evidence that any victim needed treatment. Id. By contrast,
the Hagers did require treatment. Mor eover, given the law
of this circuit, Pelkey is a questionable decision to the
extent that it found insufficient evidence despite the fact
that a victim reportedly experienced moments of extreme
despair leading to suicidal ideations. See id. In United
States v. Mandel, the Second Circuit Court of Appeals also
reversed an upward departure based upon severe
psychological harm. See 991 F.2d 55, 58-59 (2d Cir. 1993).
However, whether the same decision would have been
reached in this circuit is questionable because the evidence
there showed that, after the shock of lear ning about the
12
fraud, one victim lost her job and needed to see a therapist,
stopping only when she could no longer affor d it. See id. at
58. Thus, Mandel also appears inconsistent with our rule
that a S 5K2.3 upward departure may be applied when at
least one victim suffers severe psychological injury.
We conclude, therefore, that the District Court's factual
findings are not clearly erroneous, and we are satisfied that
the District Court's application of the facts to the
sentencing guidelines was justified. Thus, we will affirm the
upward departure for psychological injury.
IV.
We now turn to whether the District Court abused its
discretion in upwardly departing for knowing endangerment
of victim solvency. The fraud guideline encourages
heartland departures when a defrauding party endangers
the solvency of at least one victim. "In cases in which the
loss determined under subsection (b)(1) does not fully
capture the harmfulness and seriousness of the conduct,
an upward departure may be warranted. Examples may
include the following: . . . the offense involved the knowing
endangerment of the solvency of one or mor e victims."
U.S.S.G. S 2F1.1, comment. n.11(f).
Jarvis argues that the District Court abused its
discretion because (1) some of its findings regarding the
victims' financial condition were clearly err oneous, and
(2) the remaining findings were insufficient to sustain the
departure because no victim was actually r endered
insolvent. The Government disagrees, ar guing that an
upward departure is warranted if the evidence indicates an
endangering risk of insolvency, a standard that it alleges is
met on this record. Thus, the primary point of dispute is
whether the relevant standard requir es a showing of actual
insolvency or merely the potential of insolvency. We agree
with the Government on this issue.
Admittedly, Jarvis arguably has at least one precedent
favoring his position that actual insolvency is the relevant
inquiry. In a footnote in United States v. Pelkey, the First
Circuit Court of Appeals stated that "[a] departure based on
[the ground of knowing endangerment of victim solvency]
13
requires a court to find that a defendant knowingly pushed
a victim into extreme financial hardship." 29 F.3d at 15
n.5.
However, the propriety of Jarvis' suggested actual
insolvency standard is highly questionable given the plain
language of the fraud guideline's application note 11(f).
That note refers to "knowing endanger ment" of solvency.
"Endangerment" necessarily refers to potentiality. For
example, a common definition of "endanger" is "to bring
into danger or peril of probable har m or loss." Webster's
New Int'l Dictionary 748 (3d ed. 1993) (emphasis added).
Thus, the Sentencing Commission's language appears to
indicate a concern with knowingly exposing a victim to a
significant risk of insolvency. Its language is not consistent
with a requirement of actual insolvency, which is the
standard that Jarvis embraces and Pelkey arguably
endorsed.
Other than Pelkey, every other court of appeals that has
addressed the issue of endangerment of victim solvency has
applied a potentiality standard instead of the one Jarvis
advocates. See United States v. Hogan, 121 F .3d 370, 373
(8th Cir. 1997) (noting serious endanger ment to solvency,
as opposed to actual insolvency); United States v. Ross, 77
F.3d 1525, 1533-36, 1551 (7th Cir. 1996) (referring to "[t]he
extreme risk of victim insolvency in this case" and that "the
crushing weight of . . . student loans spelled almost certain
insolvency");5 see also United States v. Kaye, 23 F.3d 50,
51-53 (2d Cir. 1994) (upholding upwar d adjustment for
rendering victim "financially dependent on the generosity of
others, quite possibly for the rest of her life," despite the
fact that the victim, who was defrauded of $893,700, had
$180,995 returned and spent $40,000 "in an effort to
recoup her losses").
Consistent with the majority trend, we conclude that an
upward departure for knowing endanger ment of victim
solvency is appropriate when a preponderance of the
_________________________________________________________________
5. In Ross, the guideline language concer ning knowing endangerment of
victim solvency was identical to that which pr esently exists, but at the
time was codified at application note 10(f) to U.S.S.G. S 2F1.1. See 77
F.3d at 1551.
14
evidence demonstrates that a defendant knew, or should
have known, that the fraud potentially endanger ed the
victim's solvency. Actual insolvency is not r equired. This
standard may be satisfied even where the risk is limited to
the victim's liquid assets. See Kaye, 23 F .3d at 51.
The facts presented in this case meet that standard.
Jarvis fraudulently divested Wolas of her liquid assets,
amounting to $45,444.6 Jarvis ar gues that he did not
endanger Wolas' solvency because she r etained at least one
known significant asset, a house worth $65,000. W e reject
this argument. Solvency should be consider ed primarily in
terms of liquid assets so that a defrauding party cannot
escape a higher sentence, based on the mere fortuity that
his victim retains an asset such as a home, where the
victim's ability to remain in the home is sever ely
undermined due to the fraud. See id. (affirming upward
departure under S 2F1.1 for extent offinancial loss where
victim was deprived "of most if not all of her liquid assets,
leaving her to rely on the generosity of others, quite
possibly for the rest of her life") (emphasis added).
In addition, the preponderance of the evidence in this
case showed that Jarvis knowingly endangered the solvency
of other victims. He knew, for instance, that he was
endangering the solvency of Nathan Hager, who invested all
of the proceeds he received upon leaving his employer
(approximately $207,000) with Penn Capital. Although
Jarvis invested this money in legitimate mutual funds, he
knew that he was potentially endangering Hager's solvency
by encouraging Hager to invest with Penn Capital. Jarvis'
recognition of this risk is demonstrated by the testimony of
Scott Lindstrom, a Penn Capital broker fr om May 1993 to
January 1995, who stated that, after Jarvis left Penn
Capital, Jarvis asked Lindstrom to contact the Hagers and
warn them to get their money back and not make future
_________________________________________________________________
6. This is the amount the District Court or dered Jarvis to pay in
restitution to Wolas. Wolas herself described her losses as larger in a
letter dated December 23, 1999: "It is to my gr eat sorrow that I have
lost
$55,000 plus all interest that I could have r eceived from the last six
years. This represents the savings that my husband and I counted on to
get us through our old age. There is no chance that we will be able to
save enough money to make up for this tremendous loss."
15
investments with Penn Capital. However, by the time
Lindstrom contacted the Hagers, another Penn Capital
broker had induced them to liquidate their legitimate
mutual funds and invest in the fraudulent investment
products. Ultimately, the investment led to Nathan Hager's
loss of his "life savings plus [his] life's pension of thirty
years." Although Jarvis was not held responsible for this
loss, the District Court did not err in considering it as
relevant sentencing information. See U.S.S.G. S 1B1.3(a)
(offense level is to be determined on the basis of (1) all acts
and omissions aided, abetted, and induced, and (2) in the
case of jointly undertaken criminal activity, "all reasonably
foreseeable acts and omissions of others in furtherance of
the jointly undertaken criminal activity," and (3) all
resulting harm from those acts or omissions).
Jarvis also knowingly risked endangering the solvency of
Becker. Although Becker invested only $8,000 with Jarvis,
the evidence established that Jarvis had attempted to
induce Becker to invest his $170,000 retir ement account
with Penn Capital. It was only because Becker had r esisted
and chose instead to invest that money with a r eputable
investment firm that he had not lost it to Penn Capital's
fraudulent schemes.
In sum, we are satisfied that the District Court's upward
departure for knowing endangerment of victim solvency was
justified.7
V.
Having decided that the grounds upon which the District
Court decided to upwardly depart were valid, we finally
turn to Jarvis' claim that the extent of the departure was
unreasonable. See 18 U.S.C. S 3742(e)(3). Our review:
_________________________________________________________________
7. Jarvis correctly points out that the District Court erred in finding
that
"Anne Marie and Thomas Kmonk[ ] have lost their entire life savings with
little hope of regaining financial security." The record indicates that,
although the Kmonks had invested $219,371.64 in the Housing Fund
and stock schemes with Jarvis and Penn Capital, they received back
$152,035 by operation of the fraud scheme. However , this sole factual
error in the context of the other factual findings, by the District Court,
does not vitiate our upholding the upward departure in this case.
16
looks to the amount and extent of the departur e in
light of the grounds for departing. In assessing
reasonableness . . . court of appeals [ar e] to examine
the factors to be considered in imposing a sentence
under the Guidelines, as well as the district court's
stated reasons for the imposition of the particular
sentence. A sentence thus can be "reasonable" even if
some of the reasons given by the district court to
justify the departure from the presumptive guideline
range are invalid, provided that the r emaining reasons
are sufficient to justify the magnitude of the departure.
Williams v. United States, 503 U.S. 193, 203-04 (1992)
(citation omitted).
Here, the District Court applied a five-level upward
departure based upon the combined factors of severe
psychological injury and knowing endangerment of victim
solvency. We note that the District Court lumped the two
bases (psychological injury and victim insolvency) into one
overall departure of five levels, ther eby making it difficult to
examine whether the extent of the departure on each basis
was reasonable.
Nevertheless, the District Court would have been well
within its discretion in upwardly departing four levels based
upon combining the factors of severe psychological injury
and knowing endangerment of victim solvency. W e have
previously approved a two-level upwar d departure for
severe psychological injury under S 5K2.3 under
circumstances somewhat similar to those in Jarvis' case.
See United States v. Astorri, 923 F.2d 1052, 1058-59 (3d
Cir. 1991). As for knowing endangerment of victim solvency
under S 2F1.1, comment. n.11(f), another court of appeals
has approved a two level upward departur e on that ground
under circumstances that are comparable to those in
Jarvis' case. See United States v. Hogan, 121 F.3d 370, 373
(8th Cir. 1997).
We need not decide whether application of the one
additional level was erroneous because Jarvis effectively
received a three or four level upwar d departure. Despite
Jarvis' ultimate guideline range of 63 to 78 months, the
court actually sentenced Jarvis to the lower 60-month
17
8. Adjusted offense levels of 23 and 24 (instead of the 25 Jarvis
received)
would yield, respectively, guideline ranges of 51-63 and 57-71 months.
See U.S.S.G., ch. 5, pt. A (sentencing table).
statutory maximum imprisonment term. The dif ference
between Jarvis' final guideline range and his actual
sentence worked to reduce the District Court's effective
upward departure: a three or four level upward departure
would leave Jarvis with a guideline range in which a 60
month sentence could be imposed based on his criminal
history category of II.8 Since a four-level departure would
have been fully within the District Court's discr etion, no
error occurred and no remand is necessary. "If the party
defending the sentence persuades the court of appeals that
the district court would have imposed the same sentence
absent the erroneous factor, then a r emand is not required
. . . and the court of appeals may affirm the sentence as
long as it is also satisfied that the departur e is reasonable
. . . ." Williams, 503 U.S. at 203.
VI.
For the reasons set forth above, we will affirm the District
Court's sentence.
18
BECKER, CHIEF JUDGE, CONCURRING IN THE
JUDGMENT.
There can be no doubt, based upon the way in which he
treated his victims, that John Jarvis is a despicable person
who deserved to have "the book thrown at him." It therefore
seems difficult, at first blush, to take issue with Judge
Fuentes' forceful opinion affirming the upward adjustments
to Jarvis' base offense level under the United States
Sentencing Guidelines. But the Guidelines ar e a carefully
reticulated set of regulations whose animating goal is the
elimination of the former regime in which a judge could
react to such terrible conduct by simply imposing a harsh
sentence or, conversely, reward a felon with an otherwise
exemplary background by "giving him a br eak." The
Guidelines establish instead a regime under which: (1)
harms are quantified through car eful legal definition; and
(2) a range of punishments derived from those definitions is
prescribed, subject to a variety of guided departures that
depend on objective judicial findings that must be
consonant with the Guidelines' terms. Most importantly,
sentencing judges are not free to ignor e the strictures of the
Guidelines, however untoward they deem the r esult.
Principally at issue here is Guideline S 5K2.3, a guided
departure provision, which authorizes the sentencing court
to increase the sentence above the normal Guideline range
if a victim suffered "psychological injury much more serious
than that normally resulting from commission of the
offense." The section goes on to explicate this standard as
follows:
Normally, psychological injury would be sufficiently
severe to warrant application of this adjustment only
when there is a substantial impairment of the
intellectual, psychological, emotional, or behavioral
functioning of a victim, when the impairment is likely
to be of an extended or continuous duration, and when
the impairment manifests itself by physical or
psychological symptoms or by changes in behavior
patterns.
U.S.S.G. S 5K2.3.
19
The Guidelines text imposes a rigorous standar d of proof,
and for good reason. Fraud offenses that involve duping
people out of their life's savings will usually cause
psychological injury; the greater the loss to the victim, the
greater the probable injury. The Guidelines capture most of
the harm from fraud offenses by incrementally increasing
the sentencing range in accord with the amount of money
involved, see U.S.S.G. S 2F1.1(b)(1), or by enhancing the
sentencing range for vulnerable victims, see U.S.S.G.
S 3A1.1(b). Thus, in S 5K2.3 the Commission apparently
wanted to be quite specific as to the showing needed for a
psychological injury enhancement so as not to duplicate
these other factors.
I do not believe that the evidence upon which the District
Court imposed the substantial upward adjustment for
psychological harm meets the rigorous standard of the
Guidelines, which in essence requires r eliable evidence.
More specifically, I believe that neither the uncorroborated
letter from Mr. & Mrs. Hager that they are on depression
medication and are "seeing a shrink," nor the
uncorroborated and vague letter from Anna Marie Kmonk
relating that she and her husband "have had health
problems . . . I believe brought on by this stressful
situation" provides the reliable evidence of psychological
injury "much more serious than that nor mally resulting"
from the offense that is requir ed by S 5K2.3. Furthermore,
these letters are the strongest pieces of evidence in the
Government's case; there is nothing comparable respecting
the other victims.
The majority's conclusion that these letters meet the
S 5K2.3 test is grounded on our opinion in United States v.
Astorri, 923 F.2d 1052 (3d Cir. 1991), in which, based on
quite similar evidence, the panel affirmed the District
Court's upward adjustment for psychological har m.
Because I agree with the majority that Astorri controls, I am
constrained to join in the judgment of the Court. 1 I write
separately because I believe that Astorri was wrongly
_________________________________________________________________
1. I note in this regard my agr eement with the segment of Judge Fuentes'
opinion dealing with the upward adjustment for knowing endangerment
of the victim(s) solvency.
20
decided; my hope is to persuade the Court to take up this
case en banc to overrule Astorri, or better still, to convince
the Sentencing Commission to revise S 5K2.3 so as to
clarify it and make clear that cases of this genr e do not
justify an upward adjustment.
Astorri involved a fact pattern very similar to that in the
case at bar: the defendant was convicted of defrauding
unsuspecting investors, including many elderly persons
who thereby lost much or all of their life savings.2 As in this
case, the district court adjusted upward the base offense
level for fraud to account for the amount involved in the
fraud under U.S.S.G. S 2F1.1, and added a two-level
enhancement for vulnerable victims under S 3A1.1. The
important adjustment in Astorri for our purposes was the
district court's two-level upward departur e under S 5K2.3
for the extreme psychological injury inflicted on the victims
of the fraud. When the defendant appealed, the panel
majority upheld the departure based on two factors: (1) the
district court had gauged the effects on the victims from its
observations at trial; and (2) two of the fraud victims had
suffered physical and behavioral manifestations of their
psychological injury, thus meeting the requir ements of
S 5K2.3. As the Court put it: "Mrs. Needles has been forced
to seek treatment for high blood pressur e as a result of
Astorri's scheme. She continues to be under a doctor's care.
. . . Record evidence reveals that Mr . Taylor, already in poor
health, displayed adverse physical and behavioral ef fects
from those dealings." 923 F.2d at 1059. The basis for these
conclusions about the physical effects felt by the victims
was two uncorroborated letters, one written by Mr. Taylor's
attorney, and one written by the Needles themselves.
I believe that this upward adjustment in Astorri was
improper because it was not founded on r eliable evidence,
and was not demonstrably justified by psychological injury
"much more serious than that nor mally resulting from
commission of the offense." U.S.S.G. S 5K2.3 (emphasis
added). My point of departure is the dissenting opinion in
Astorri of my late respected colleague, Judge William D.
_________________________________________________________________
2. In another--and odd--bit of similarity between these two cases, both
Astorri and Jarvis dated daughters of their fraud victims.
21
Hutchinson. Indeed, the best way to make my point is to
quote (at some length) Judge Hutchinson's wor ds:
The evidence about the effect Astorri's fraud had on
the Taylors and the Needles' health is insufficient to
support the district court's conclusion that some of the
victims suffered the kind of substantial and permanent
physical, intellectual or behavioral impairments that
Guidelines S 5K2.3 requires befor e an upward
departure for extreme psychological injury is
authorized. These unsupported lay statements ar e not
reliable evidence of the kind requir ed to support
enhancement of a guidelines sentence. See, e.g., United
States v. Sciarrino, 884 F.2d 95 (3d Cir .) (while hearsay
is permissible in determining a guidelines sentence, it
must have some degree of reliability), cert. denied, 493
U.S. 997, 110 S. Ct. 553, 107 L.Ed. 2d 549 (1989).
Likewise, I think the sentencing judge's own
observations that the psychological trauma naturally
resulting from the economic losses Astorri's fraud
visited upon his victims and his profound betrayal of
the Kronyaks and their daughter is insufficient to show
objective symptoms of substantial and continuous
intellectual, psychological, emotional or behavioral
impairment. Those observations are conclusions that
must be founded on reliable evidence under the
guidelines. They are not themselves evidence.
Perhaps determinations of crime's effect on its
victims would have been better left to the observations
and sound discretion of the sentencing judge, but
Congress has decided otherwise. See Mistr etta v. United
States, 488 U.S. 361, 109 S. Ct. 647, 652, 102 L.Ed.
2d 714 (1989). The Sentencing Commission has acted
to implement Congress's decision when it confined the
sentencing judge to a relatively narrow sentence range
objectively determined on the basis of r eliable evidence
that particular effects accompany a particular crime.
Even in departures, where a fairly lar ge element of
discretion is retained, facts grounded on reliable
evidence must show that one of the reasons for
departure is present.
22
I do not doubt that a person suffers psychologically
when he loses his life's savings, let alone his home.
However, I believe any economic loss a victim suffers is
otherwise adequately taken into account under
Guidelines S 2F1.1(b)(1)(H), adjusting the of fense level
for the amount of monetary loss. Likewise, I believe
that the age of the victim is taken into account under
Guidelines S 3A1.1, relating to vulnerable victims, a
section which the district court correctly applied to
enhance Astorri's sentence.
Astorri's conduct demonstrates a heartless
willingness to trade on the affection of the woman he
had promised to marry and the trust she and her
parents placed in him while he secretly plundered the
savings her parents had reserved against their old age.
The common understanding of men and women of
every time and place condemns Astorri as a despicable
cad. However, the Sentencing Commission has taken
Astorri's truly outrageous and cynical manipulation of
his fiancee's family for his own private gain into
consideration in Guidelines S 3A1.1, r elating to
vulnerable victims, and Guidelines S 3B1.3, r elating to
abuse of trust.
Guidelines S 5K2.3 focuses elsewher e in permitting
enhancement for extreme psychological suf fering.
There is no reliable evidence in this r ecord to show
such an injury. Although the evidence here is sufficient
to support the district court's finding that Astorri's
victims were vulnerable and to show that his scheme
included the elements of an abuse of trust, it was not
sufficient to show any of Astorri's victims suf fered
"extreme psychological injury" and so per mit
enhancement of his sentence under S 5K2.3.
923 F.2d at 1061-62 (Hutchinson, J., dissenting).
I agree. Although Astorri contr ols the outcome of this
case because of the similarity of the facts and evidence
used to support the S 5K2.3 departure, the arguments in
Judge Hutchinson's dissent ring true. I do not believe that,
under the correct interpretation of S 5K2.3, the evidence
before the District Court in this case was sufficiently
23
reliable to support the necessary finding of"psychological
injury much more serious than that normally resulting
from commission of the offense"; the evidence simply does
not sufficiently support a finding of "substantial
impairment of the intellectual, psychological, emotional, or
behavioral functioning of a victim . . . [that] manifests itself
by physical or psychological symptoms or by changes in
behavior patterns."
Both here and in Astorri, the District Court relied upon
the conclusory lay statements of the victims (or their
lawyers) and the court's own observations of the victims to
support the departure. But the Guidelines (and due
process) generally require that evidence used in sentencing
be reliable. See, e.g., United States v. Sciarrino, 884 F.2d 95(3d Cir. 1989). I agree with Judge Hutchinson that the type
of evidence employed in Astorri (and in this case) is
insufficiently reliable to use as a basis for an upward
departure under S 5K2.3. More specifically, I believe that
Judge Hutchinson was correct that, because the
Sentencing Guidelines generally require an objective basis
for a departure or enhancement, something mor e than
conclusory, unsupported lay statements and the District
Court's "eyeballing" of the victim should be r equired to
show the requisite impairment of physical, psychological, or
behavioral functioning and the comparative severity of
psychological injury.
I do not suggest that expert medical testimony is a
prerequisite to a S 5K2.3 departur e (although such
testimony would certainly suffice as objective evidence). I
do, however, believe that medical evidence is preferable and
that, in the absence of detailed and truly compelling lay
reports, some sort of medical evidence from an expert
should be required--e.g., an affidavit or even a signed letter
from a health care provider, or the victim's medical records.
In short, the basis for the departure should be more than
the naked claims of the victim set forth in a letter .
I believe that we should take up this case en banc to
overrule Astorri. This issue arises with some degree of
regularity and surely presents an important question.
Alternatively, I suggest to the Sentencing Commission that
24
it alter S 5K2.3 (thus effectively overruling Astorri) by adding
to the end of that Guideline something like the following:
In the absence of detailed and truly compelling lay
testimony from the victim, a departure by the
sentencing court under this section should be based
upon objective evidence such as an affidavit or signed
letter from the victim's health care pr ovider or a
verified copy of the victim's medical recor ds.
An amendment along these lines would provide for an
objective basis for upward departures under S 5K2.3 that
would make that section consonant with the Guidelines as
a whole. The clerk will send a copy of this opinion to the
Chair and General Counsel of the Sentencing Commission.
With these thoughts, I join in the judgment of the Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
25