United States v. Higgins, Donald M. ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-2665
United States of America,
Plaintiff-Appellee,
v.
Donald M. Higgins,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Indiana, Evansville Division.
No. EV 99 15 CR 01--Richard L. Young, Judge.
Argued December 1, 2000--Decided September 26, 2001
Before Posner, Diane P. Wood, and Williams,
Circuit Judges.
Diane P. Wood, Circuit Judge. From March
to the end of May 1999, Donald Higgins
carried out an elaborate scheme to
defraud several banks, a car dealer, and
others along the way. Caught red-handed
in Jacksonville, Illinois, with two cars
he had obtained with the bad checks, he
wound up facing one charge of bank fraud
in violation of 18 U.S.C. sec. 1344, to
which he pleaded guilty. At the initial
sentencing hearing, the district court
imposed a sentence of 51 months in
prison. Higgins appealed, but before this
court heard his appeal, the government
moved to remand the case for
resentencing. The remand was granted. At
this second sentencing hearing, Higgins
moved for the first time to withdraw his
guilty plea. The district court denied
the motion on the ground that the limited
nature of the remand did not permit
consideration of the issue, but it
reduced Higgins’s sentence to 41 months.
Higgins now reasserts on appeal the
argument that his guilty plea lacked an
adequate factual basis and should have
been set aside, and he attacks the new
sentence. We find no error in the
district court’s refusal to set aside the
plea, but we agree with Higgins that the
computation of the loss attributable to
his scheme--crucial to the computation of
the sentence--requires further attention.
I
Higgins began his scheme in March of
1999 by opening a bank account at Civitas
Bank in Evansville, Indiana, under the
name of E&S Enterprises. On April 16,
1999, Civitas closed the account because
it had a negative balance and unpaid
service fees of nearly $400. Civitas
notified Higgins that his account had
been closed.
One month after the closure of the
account, on May 17, 1999, Higgins went to
Kenny Kent Lexus and expressed interest
in buying two used Lexus automobiles. The
dealership agreed to sell them to him for
$69,900. Higgins gave the dealership a
check in that amount drawn on the closed
Civitas account. Perhaps anticipating
Kenny Kent’s inevitable discovery that
the account was closed, Higgins asked the
dealer to hold the check because he was
selling E&S Enterprises, closing the
Civitas account, and taking his banking
business to Old National Bank of
Evansville (ONB); he promised to replace
that check with another one drawn on the
Evansville bank. Kenny Kent agreed to do
so, and, to its later regret, allowed
Higgins to take one of the cars with him
that day.
The next morning, Higgins went to ONB
and asked to speak to the bank manager
about opening a checking account. Higgins
explained that he was dissatisfied with
the service he had been receiving at
Civitas and wanted to bring his banking
business to ONB. As the initial deposit
for his ONB account, Higgins presented
the bank manager with a $420,000 check
drawn on the closed E&S account at
Civitas. The manager began preparing the
documents to open the account while
Higgins took the check to one of the
tellers. The teller processed the check
and gave Higgins a deposit slip
indicating a $420,000 deposit. Higgins
also received temporary checks for his
new account.
With this false evidence of substantial
wealth in hand, Higgins left ONB and
returned to Kenny Kent. He showed the
dealer the $420,000 deposit slip and
wrote out a new check for $69,990. Kenny
Kent accepted the check and delivered the
second car to Higgins on the spot.
Meanwhile, back at ONB, the branch
manager had checked with Civitas about
Higgins’s check and discovered that there
were no funds to cover it. ONB
immediately stopped processing Higgins’s
account application.
Kenny Kent got the news that Higgins’s
check was bad on May 21, 1999, and it
promptly reported the fraud and the theft
of the cars to the police. Three days
later, the police caught up with Higgins
in Jacksonville, Illinois. The trail must
not have been too hard to follow: they
found him there because the Holiday Inn
where he was staying had reported that he
used a worthless check drawn on yet
another account, the First Bank of
Jacksonville, to pay his lodging bill.
Both Lexuses were still in the hotel’s
parking lot. He was arrested and later
indicted on one count of bank fraud
against ONB, in violation of 18 U.S.C.
sec. 1344, and one count of interstate
transportation of stolen motor vehicles,
in violation of 18 U.S.C. sec. 2312. In
exchange for Higgins’s agreement to plead
guilty to the bank fraud charge, the gov
ernment dropped the interstate
transportation charge.
Higgins entered his guilty plea on
October 19, 1999. The district court
accepted the plea after conducting the
usual inquiry under Fed. R. Crim. P. 11,
which included an inquiry designed to
ensure that there is an adequate factual
basis for the plea. See Fed. R. Crim. P.
11(f). In fact, Higgins had stipulated to
the facts underlying his plea in the plea
agreement. The district court sentenced
him to 51 months, in part based on its
conclusion that the loss attributable to
Higgins’s scheme was the full value of
the bad check he deposited at ONB, that
is, $420,000. The court’s later reduction
of the sentence to 41 months was based on
unrelated considerations and did not
reflect any change in this loss
calculation. Higgins now challenges both
the district court’s acceptance of his
guilty plea and the court’s loss
calculation for purposes of sentencing.
II
Higgins argues that he should be
permitted to withdraw his guilty plea to
the bank fraud charge because the facts
to which he stipulated are insufficient
as a matter of law to support a
conviction under 18 U.S.C. sec. 1344.
Higgins concedes that he is raising this
issue for the first time on appeal and
that our review is at most for plain
error. United States v. Cross, 57 F.3d
588 (7th Cir. 1995).
Higgins is complaining that the facts
that formed the basis of his conviction
showed no more than the knowing deposit
of a bad check and that this alone is not
enough to support a bank fraud
conviction. In order to support a
conviction under sec. 1344(1), the
government must prove that the defendant
engaged in a "pattern or course of
conduct designed to deceive a financial
institution with the intent to cause
actual or potential loss." United States
v. Ledonne, 21 F.3d 1418, 1427-28 (7th
Cir. 1994). It is not necessary for it to
prove that the defendant made any
specific misrepresentations or false
statements. United States v. Doherty, 969
F.2d 425, 429 (7th Cir. 1992). Simply
attempting to deposit a bad check does
not constitute a scheme to defraud, id.
at 427, but it can be evidence of a
pattern or course of conduct designed to
deceive a financial institution. Ledonne,
21 F.3d at 1428. To convict under sec.
1344(2), the government must prove both
that the defendant engaged in a scheme to
obtain the monies, funds, or credits of
the financial institution and that the
scheme involved "other acts or
communications of misrepresentation." Id.
at 1426. Again, merely writing a bad
check is not enough to constitute bank
fraud under this subsection; the
defendant must, in addition, have made
false representations or promises. Id.
If Higgins were correct that he admitted
under oath only the knowing deposits of
bad checks, we would need to consider to
what extent he would be entitled to
reopen his guilty plea proceedings. But
he is not: the facts to which Higgins
agreed go well beyond the knowing deposit
of a bad check and are sufficient to
support a conviction under either sec.
1334(1) or sec. 1334(2). Higgins violated
sec. 1334(1) when he presented the ONB
bank manager with the $420,000 Civitas
check, attempting (successfully) to
induce ONB to open a checking account for
him with a balance of $420,000 to which
he could have immediate access through
the temporary checks, which he could then
use to purchase the Lexus automobiles.
The deposit of the bogus $420,000 check
and the use of ONB’s temporary checks
evidenced Higgins’s intent to expose ONB
to potential loss. It is of no
consequence that ONB did not suffer any
actual financial loss from the scheme, or
even that such loss was highly unlikely.
See United States v. Ryan, 213 F.3d 347,
350 (7th Cir. 2000).
Higgins also satisfied the requirements
for conviction under sec. 1334(2). He
presented the $420,000 check to the ONB
bank manager along with an elaborate tale
about his dissatisfaction with Civitas
and his desire to bring E&S’s banking
business to ONB. Mirroring the strategy
he apparently used with Kenny Kent Lexus,
his false statements tended to allay
concerns ONB might have about a check of
that size, and they improved the chances
that ONB would make funds available to
Higgins without waiting for the check to
clear. The fact that ONB’s bank manager
had the good sense to investigate
Higgins’s claims does not make Higgins
any less guilty of bank fraud. The
district court, therefore, properly
denied Higgins’s motion to withdraw the
plea.
III
In order to establish the appropriate
sentencing range for bank fraud under the
Sentencing Guidelines, the district court
is required to determine the amount of
loss attributable to the scheme. See
U.S.S.G. sec. 2F1.1(b)(1); United States
v. Bonanno, 146 F.3d 502, 509 (7th Cir.
1998). Comment 8 to U.S.S.G. sec. 2F1.1
instructs courts that "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." The district court
concluded that Higgins intended to impose
on ONB a loss amounting to the entire
$420,000--representing the amount of the
bad Civitas check he deposited with ONB.
The district court’s loss determination
is a question of fact which we review for
clear error. Bonanno, 146 F.3d at 508-09.
The meaning of "loss" is a legal question
which we review de novo. United States v.
Mount, 966 F.2d 262, 265 (7th Cir. 1992).
Higgins claims that the district court
made two legal errors, either of which
would require reversal. First, citing
United States v. Mau, 45 F.3d 212, 216
(7th Cir. 1995), he argues that the
amount of loss as a matter of law can
only be the actual loss at the time of
discovery, not the intended loss, because
that is the rule that applies for check
kiting schemes. Higgins concedes that his
was not a simple check kiting scheme, but
he urges that it was close enough that
the same rule ought to be applied in his
case. We rejected precisely the argument
that Higgins advances in United States v.
Kipta, 212 F.3d 1049 (7th Cir. 2000).
Like Higgins, Kipta’s crime was writing
checks on a single account that she
inflated with bogus deposits. When she
was caught, she had imposed $38,219.92 in
actual losses on First Chicago Bank, but
her inflated account balance was
$171,355.46. Kipta argued that actual
loss was the appropriate loss measure. We
disagreed, holding that the district
court properly sentenced Kipta for the
loss she intended to inflict--the full
$171,355.46. Id. at 1052. In Higgins’s
case too, the district court properly
looked to intended loss, in keeping with
U.S.S.G. sec. 2F1.1, comment. (n.8).
Higgins further argues that, even if
intended loss was the appropriate
standard, the district court did not
properly determine the intended loss
figure. We agree with this contention.
Intended loss analysis, as the name
suggests, turns upon how much loss the
defendant actually intended to impose on
the financial institution. It does not
matter whether the loss materialized or
even whether it was economically possible
to impose such a loss, see United States
v. Stockheimer, 157 F.3d 1082, 1090 (7th
Cir. 1998) (affirming $80 million
intended loss and limiting economic
reality arguments to motions for downward
departure), but the district court must
find, by a preponderance of the evidence,
that the defendant intended to impose on
the financial institution the particular
amount of loss for which he is to be
sentenced. See United States v. Strozier,
981 F.2d 281, 284-85 (7th Cir. 1992)
(affirming intended loss determination
made after finding, based on significant
circumstantial evidence, that defendant
would have continued writing checks
against account but for his arrest);
United States v. Lauer, 148 F.3d 766,
767-68 (7th Cir. 1998) (same).
Our review of the sentencing hearing
transcript forces us to conclude that the
district court never made a finding about
how much loss Higgins actually intended
to inflict on ONB. In explaining its
decision to sentence Higgins on the basis
of the full $420,000, the court stated
only that Higgins’s motivation for
depositing the check was to "obtain a
deposit slip for that amount of money to
make Kenny Kent feel that Mr. Higgins was
a legitimate businessman or a man of
means having almost a half a million
dollars in a checking account." Then,
instead of going on to make a finding of
intended loss, the court said only "So I
do find that the intended level was to be
higher than the $69,990 figure. The
higher amount was to establish his
legitimacy and his substantial bank
account for the purpose of obtaining the
car."
These findings are too vague to support
a conclusion that Higgins intended to
inflict loss in the full amount of the
$420,000 check. There is no indication
that the district court believed that
Higgins intended to actually deprive ONB
of the full $420,000 he purported to be
depositing, as opposed to merely
impressing the bank with his importance
and then using some smaller sum as he did
with the Lexus purchases. If anything,
the district court’s statement leaves the
impression that Higgins intended to
impose $69,990 of loss on ONB and that
the primary purpose of the $420,000
figure was simply to deceive Kenny Kent
Lexus. Although a second remand is
regrettable, we believe that it is
unavoidable on this record. Whether the
loss was $69,990 or as much as $420,000
makes a substantial difference for the
sentence: the Guidelines require a 5-
level upward adjustment for losses
between $40,000 and $70,000, and a 9-
level upward adjustment for losses
between $350,000 and $500,000. See
U.S.S.G. sec. 2F1.1(b)(1)(F), (J).
(Indeed, even on his own account Higgins
is only $10 away from a 6-level upward
adjustment, but even this must be
supported by evidence.)
The remand is, we stress, a very limited
one: it is not an invitation for Higgins
once again to raise other issues. On
remand, the district court must determine
whether the government proved by a
preponderance of the evidence that
Higgins actually intended to impose a
$420,000 loss on ONB. The original
deposit of the Civitas check is some evi
dence of this intent, as is Higgins’s use
of the temporary ONB check. If, however,
all the government’s evidence proves is
that Higgins’s intent was to use only
$69,990 of the $420,000, or some other
amount between those two numbers,
Higgins’s sentence must be computed
accordingly.
IV
For these reasons, we Affirm Higgins’s
conviction for bank fraud and Remand for
resentencing in accordance with this
opinion.