United States v. Brownell, Robert ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-2612
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
ROBERT BROWNELL,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 05-CR-013—Charles N. Clevert, Jr., Judge.
____________
ARGUED DECEMBER 5, 2006—DECIDED JULY 25, 2007
____________
Before FLAUM, WOOD, and EVANS, Circuit Judges.
WOOD, Circuit Judge. After Robert Brownell pleaded
guilty to charges of conspiracy to commit mail fraud and
wire fraud, the district court sentenced him to 240 months’
imprisonment and three years’ supervised release, and
ordered him to pay nearly $7 million in restitution.
Brownell appeals his sentence, arguing that the district
court erred in its calculation of intended loss and in
applying the “leader or organizer” enhancement for
sentencing purposes. The latter argument is easily re-
jected, but we conclude that the district court’s finding of
intended loss is not adequately supported by the record.
We therefore vacate the sentence and remand for
resentencing.
2 No. 06-2612
I
Bielinski Brothers is a residential construction business
owned by brothers Frank and Harry Bielinski. In 1995,
the Bielinskis hired Brownell to be the company’s Acquisi-
tion and Development Manager. In 2001, Brownell was
promoted to Chief Executive Officer, but three years later,
in July 2004, he was fired for exceedingly good cause.
It turned out that Brownell had been using his position
at Bielinski Brothers to authorize payment of numerous
fraudulent invoices and expenses. He obtained loans in
the name of the business and its owners by forging docu-
ments; he even fraudulently notarized the owners’ signa-
tures on loan documents. He procured four fraudulent
escrow agreements in Bielinski Brothers’s name, which
falsely represented that the business had deposited
funds with its law firm as security for payment for cer-
tain transactions. And Brownell caused Bielinski Brothers
to pay unnecessary assignment fees to third parties, with
which Brownell was secretly involved, to obtain the rights
to purchase real estate. The total loss to Bielinski Brothers
was in the millions of dollars.
One significant aspect of the conspiracy involved trans-
actions between Mann Brothers, Inc., an excavating
company owned by Robert Mann, and Bielinski Brothers.
Mann Brothers submitted inflated invoices to Bielinski,
and then Mann and Brownell split the excess proceeds.
Other invoices from Mann covered expenditures for
illegal campaign contributions and expenses personally
benefitting Mann and Brownell. Finally, Brownell and
Mann used one of the fraudulent escrow agreements to
help Mann’s company. The escrow agreement falsely
represented that Bielinski Brothers had deposited ap-
proximately $1.67 million with its law firm to secure
payment for services that Mann Brothers had performed
No. 06-2612 3
for it. The agreement allowed Mann Brothers to misrepre-
sent its financial stability to its bank.
II
Brownell’s only arguments on appeal relate to his
sentence. He claims first that the district court erred in its
calculation of intended loss for purposes of computing the
advisory range under the Sentencing Guidelines. Brownell
objects to three items on the ground that they do not
represent either actual or intended loss: (1) the fourth of
the four unfunded escrow agreements; (2) the part of the
credit line used to make a real estate purchase; and (3)
certain assignment fees that Bielinski Brothers paid. A
district court’s determination of loss under the Guidelines
is a question of fact that is reviewed for clear error. United
States v. Mantas, 274 F.3d 1127, 1131 (7th Cir. 2001). To
the extent that Brownell is also disputing how the term
“loss” under the Guidelines should be defined, he is raising
a question of law that we review de novo. United States v.
Sensmeier, 361 F.3d 982, 986 (7th Cir. 2004).
In United States v. Wasz, 450 F.3d 720 (7th Cir. 2006),
we held that “ ‘[l]oss’ is defined as either the actual or
intended loss, whichever is greater.” Id. at 727. The
Guidelines define “actual loss” as “the reasonably foresee-
able pecuniary harm that resulted from the offense,” and
“intended loss” as “the pecuniary harm that was intended
to result from the offense . . . [including] pecuniary harm
that would have been impossible or unlikely to occur.”
U.S.S.G § 2B1.1, Application Note 3(A). In a conspiracy
case, this court has held that a co-conspirator is responsi-
ble for the losses that were intended by the conspiracy and
that were reasonably foreseeable to him. United States v.
Sliman, 449 F.3d 797, 801-802 (7th Cir. 2006) (citing
Application Note 2 to U.S.S.G. § 1B1.3).
4 No. 06-2612
A
Applying these definitions, the district court decided
to include the $1.67 million that was pledged to the
fourth unfunded escrow agreement in its loss calculation.
Brownell argues that because the escrow agreement was
never funded and was ultimately closed, that amount
never became an “intended loss.”
It is unclear from the record whether Mann Brothers
performed any actual work for which Bielinski Brothers
owed it some or all of the $1.67 million pledged. Brownell
states that the escrow agreement was “to reflect work
performed by Mann Brothers on several Bielinski projects”
and “was used to procure loans for Bielinski Brothers
projects.” We question how earmarking $1.67 million to
pay another entity would help any business to secure loans
on its own behalf, but the plausibility of this claim does
not change our analysis. The government characterizes
the escrow agreement as a means of “deflect[ing] con-
cerns by [Mann Brothers’s] bank about the status of its
outstanding receivables from Bielinski Brothers.” The PSR
states that $1.28 million of the $1.67 million “was for work
Mann Brothers had purportedly done on a project known
as Grandview Plaza,” but it stops short of informing the
court whether Mann Brothers performed work in that
amount or more for Bielinski Brothers.
If, or to the extent that, the fourth escrow agreement
pledged Bielinski Brothers’s funds to pay non-fraudulent
receivables for services actually rendered by Mann Broth-
ers to Bielinski Brothers, it is not properly included in the
loss computation for sentencing purposes. To the extent,
however, that the agreement pledged Bielinski’s com-
pany funds to pay receivables for services that Mann
Brothers never rendered, or fees that exceeded the worth
of Mann’s work, that amount is properly included in the
No. 06-2612 5
calculation of intended loss. It is reasonably foreseeable
that this pledge could lead to a demand for payment by
Mann Brothers from Bielinski Brothers for the amount of
the unearned funds. This escrow agreement was the
subject of ongoing litigation at the time of the loss calcula-
tion. It is well within the realm of possibility that the court
may have ordered damages equal to the portion of the
$1.67 million that was based on fraudulent receivables.
The district court easily could have concluded that this
litigation was reasonably foreseeable to Brownell, a
member of the broader conspiracy. Sliman, 449 F.3d
at 801-02.
Because the record does not show whether any portion of
the $1.67 million represented legitimate receivables, and
if so, how much, we remand that question to the dis-
trict court, so that it can make the necessary finding of
fact. We note in this connection that loss calculations for
sentencing purposes do not require the same precision as
loss calculations to determine a defendant’s guilt. See
United States v. Sriram, 482 F.3d 956, 960 (7th Cir. 2007)
(“When guilt beyond a reasonable doubt is duly deter-
mined, picking a sentence within the statutory range
[based on the loss caused by the defendant] to punish the
defendant for his crime does not require as much precision
as the initial determination that he in fact committed
the crime.”).
B
Brownell next argues that the $1.56 million in credit
that he obtained to purchase the Harrison Lakes property
should not be counted as intended loss for sentencing
enhancement purposes. To respond to this point, we must
look at the provisions in the Guidelines that offer the
defendant some credits against loss. Application Note 3(E)
6 No. 06-2612
to U.S.S.G. § 2B1.1, entitled “Credits Against Loss,” states
that
[l]oss shall be reduced by the following: (i) The money
returned, and the fair market value of the property
returned and the services rendered, by the defendant or
other persons acting jointly with the defendant, to
the victim before the offense was detected. The time
of detection of the offense is the earlier of (I) the time
the offense was discovered by a victim or government
agency; or (II) the time the defendant knew or reason-
ably should have known that the offense was detected
or about to be detected by a victim or government
agency. (ii) In a case involving collateral pledged or
otherwise provided by the defendant, the amount the
victim has recovered at the time of sentencing from
disposition of the collateral, or if the collateral has not
been disposed of by that time, the fair market value of
the collateral at the time of sentencing.
(emphasis added).
In opposing any credit, the government relies on this
court’s decision in United States v. Lauer, 148 F.3d 766,
768 (7th Cir. 1998). In Lauer, we held that
the amount of the intended loss, for purposes of
sentencing, is the amount that the defendant placed at
risk by misappropriating money or other property.
That amount measures the gravity of his crime; that
he may have hoped or even expected a miracle that
would deliver his intended victim from harm is both
impossible to verify and peripheral to the danger that
the crime poses to the community. Maybe if he returns
part of the money or property to the victim before the
crime is detected (not after . . .) he should get a break in
sentencing in order to encourage such behavior. The
cases are divided on that question. . . . The disagree-
No. 06-2612 7
ment is immaterial here, because [the defendant] is
not arguing that the amount of the loss should be
reduced on the basis of money that he returned be-
fore he was caught. . . .
Id. (emphasis added). As we read this passage, it reaffirms
that intended loss can be measured by “the amount that
the defendant placed at risk,” but it does not extend this
holding to cases where the money was returned before the
crime was detected.
This court addressed the “credit against loss” provision
of § 2B1.1, Application Note 3(E)(i), in United States v.
Hausmann, 345 F.3d 952, 960 (7th Cir. 2003). After
quoting Application Note 3(E)(i), Hausmann notes that
“this Circuit has adopted a ‘credit against loss’ approach to
the calculation of fraud victim loss amounts for sentencing
guideline purposes” because the Sentencing Guidelines
“ ‘call for the court to determine the net detriment to the
victim, rather than the gross amount of money that
changes hands.’ ” Hausmann, 345 F.3d at 960 (citing
United States v. Jackson, 95 F.3d 500, 506 (7th Cir. 2000)).
Several other circuits have also found that Application
Note 3(E)(i) permits a credit against intended loss for
“money returned.” See United States v. Geeslin, 447 F.3d
408, 410-11 (5th Cir. 2006) (permitting such a credit based
on Application Note 3(E)(i)); United States v. Nichols, 416
F.3d 811, 819 (8th Cir. 2005) (same); United States v.
Rothwell, 387 F.3d 579, 584-85 (6th Cir. 2004) (same).
This is not to say that a credit is always required when
a loss is partially repaid. The defendant must make her
repayment before the crime is uncovered. See United
States v. Rettenberger, 344 F.3d 702, 708-09 (7th Cir. 2003)
(calculating intended loss based on entire fraudulent
scheme had it continued rather than the loss suffered by
the date of the scheme’s discovery); see also United States
v. Swanson, 360 F.3d 1155, 1169 (10th Cir. 2004) (holding
8 No. 06-2612
that unlike repayment of loss before the crime is detected,
repayment of loss after the crime is detected does not
discount loss calculation for sentencing purposes).
In this case, if it were clear that Brownell repaid the
$1.56 million in full before he was caught, then that
amount would not properly have been included in the loss
calculation. The record, however, does not allow us to
resolve the question one way or the other. The timing does
look suspicious. Brownell repaid the loan by personally
buying the property purchased with the loan from
Bielinski Brothers and then (it appears) authorizing
repayment of the bank by Bielinski Brothers. This oc-
curred in July 2004, around the same time Brownell was
fired; Brownell was indicted shortly thereafter, in October
2004. The timing suggests that he realized that his
fraud was about to be discovered; if so, then he is not
entitled to use the repayment as a “credit against loss.”
Rather than attempt to resolve the factual question
whether the government proved by a preponderance of the
evidence that Brownell knew or should have known that
his fraud had been or was about to be discovered, however,
we prefer to remand this question to the district court for
its assessment of the whole record.
The district court was correct, however, insofar as it
concluded that at least some of the $1.56 million belonged
in the loss calculation. Brownell’s lawyer told the district
court at sentencing that “all but a few thousand [dollars of
the loan] was paid back.” Therefore, at least a small,
undetermined amount of the loan is properly part of the
loss calculation, even if the repayment offsets the bulk of
it. In addition, if at the proper time of loss calculation
Brownell had not yet purchased the property from
Bielinski Brothers, then the district court would need to
determine the value of the collateral that Bielinski Broth-
No. 06-2612 9
ers held to secure the loan and to award a credit for that
amount.
C
Brownell also challenges the district court’s inclusion in
the loss calculation of the $ 1.8 million in assignment fees,
but we see no error in that decision. Brownell argues that
“the Government did not submit proof that but for defen-
dant’s involvement the assignment fees would never have
been paid.” He admits, however, that he “had a side
agreement, unknown to Bielinski Brothers, with Redmond
Construction.” Bielinski Brothers ultimately acquired
three properties after paying significant assignment fees
to entities in which Brownell had a financial stake. Yet
Bielinski Brothers appears to have had the opportunity
to buy those properties directly. Based on Brownell’s posi-
tion at Bielinski Brothers, the timing of the three deals,
and Brownell’s financial gain as a result of the assignment
fees, the district court was entitled to conclude that
Bielinski Brothers would not have had to pay these fees
had it not been for Brownell’s fraudulent schemes.
III
Brownell also finds fault with the district court’s applica-
tion of the organizer/leader enhancement to his sentence.
Whether a district court properly determined a defendant’s
level of involvement in a particular scheme is reviewed for
clear error. United States v. Hogan, 54 F.3d 336, 339 (7th
Cir. 1995).
Under U.S.S.G. § 3B1.1, a defendant’s advisory Guide-
lines sentence can be increased based on the significance
of her involvement in a criminal scheme. U.S.S.G. § 3B1.1
prescribes a four-level enhancement when a defendant is
10 No. 06-2612
the leader or organizer of a criminal scheme involving
five or more participants, and a three-level enhancement
when a defendant is the manager or supervisor of a
criminal scheme involving five or more participants. The
district court concluded, based on the PSR, that Brownell
was a leader/organizer under § 3B1.1(a), and gave him a
four-level enhancement. Brownell argues that he should
have been assessed only a three-level enhancement
under § 3B1.1(b) because his role was only that of a
manager/supervisor. He disputes only the significance of
his involvement, not the fact that the number of partici-
pants exceeded five.
Application Note 4 to U.S.S.G. § 3B1.1 directs the
district court to consider “the exercise of decision making
authority, the nature of [the defendant’s] participation in
the commission of the offense, the recruitment of ac-
complices, a claimed right to a larger share of the fruits of
the crime, the degree of participation in the planning or
organizing of the offense, the nature and scope of the
illegal activity, and the degree of control and authority
exercised over other participants.” In United States v.
Wasz, supra, this court held that “[n]o one of these factors
is considered a prerequisite to the enhancement, and, at
the same time, the factors are not necessarily entitled to
equal weight.” 450 F.3d at 729. In affirming the district
court’s application of the four-level leader/organizer
enhancement in that case, Wasz highlighted the authority
that the defendants exercised and concluded that they
“b[ore] a greater degree of responsibility for the overall
effort” and that “[t]heir actions reflect[ed] the exercise of
planning and decisionmaking authority, a culpable involve-
ment in all aspects of the crime, and a guiding influence
over the other participants in the offense.” Id. at 732. The
Wasz court also noted that
No. 06-2612 11
[a] finding that the defendant functioned as an orga-
nizer or leader does not necessarily mean that he
directly controlled other individuals. Rather, the
defendant must have exercised some degree of control
over others involved in the commission of the offense
or he must have been responsible for organizing others
for the purpose of carrying out the crime.
450 F.3d at 730 (internal quotation marks and citations
omitted).
Brownell relies on a Tenth Circuit decision, United
States v. Johnson, 4 F.3d 904 (10th Cir. 1993), to show
that he belongs on the lower “manager/supervisor” side of
the line, but Johnson does not require that outcome.
Neither this court nor the Tenth Circuit has held that a
leader/organizer must have complete control over all the
participants. In United States v. Melendez, we upheld a
leader/organizer enhancement for a drug distributor
involved in a drug organization’s scheme, where the
defendant “instructed and supervised” at least six specific
participants in the scheme (out of more than twenty
participants). 467 F.3d 606, 609 (7th Cir. 2006). The court
viewed this “mountain of evidence . . . more than adequate
to affirm the district court’s finding that [the defendant]
was a leader or organizer.” Id.After acknowledging Johnson and the factors found in
Application Note 4 to § 3B1.1, Brownell admits that he
was “at the center of the various schemes.” That alone, he
urges is not enough. He claims that “it is not clear that he
was directing all of the other participants,” and that
“several of [the other participants] profited much more
from the various schemes than Defendant.” This miscon-
strues both the nature of the crime to which he pleaded
guilty and the strength of the government’s evidence.
Brownell pleaded guilty to participating in a single,
overarching conspiracy to defraud. Within that conspiracy,
12 No. 06-2612
a connected series of transactions took place. One individ-
ual had control over the whole scheme: Brownell.
The district court, accepting the conclusions of the PSR,
found that Brownell had direct or indirect financial control
over all of the participants. Brownell colluded with Mann
to approve inflated invoices submitted to Bielinski Broth-
ers by Mann’s company. Brownell instructed Mann for
“which projects Mr. Mann should submit inflated invoices
and the amount by which Mr. Mann should inflate the
invoices.” Brownell “agreed to supplement [alleged co-
conspirator] Mr. [Brian] Carney’s official salary at
Bielinski Brothers.” Brownell authorized funds from
Bielinski Brothers to pay Carney and another employee to
leave Bielinski Brothers and work with another real estate
company for the purposes of various frauds against
Bielinski Brothers. Brownell set up another agreement
with alleged co-conspirator Norman Hanson, under which
Hanson would bill Bielinski Brothers for work that his
company performed for Brownell’s private projects (i.e.,
those unrelated to Bielinski Brothers) and Brownell
approved the payments. Brownell set up a similar arrange-
ment with Bielinski Brothers employee Jack Broughton.
Brownell worked with Bielinski Brothers’s outside counsel,
another alleged co-conspirator, to purchase privately a
condominium in Florida and used Bielinski Brothers
funds to make the first two installments on the down
payment. Brownell also set up a series of fraudulent
transactions on his own using Bielinski Brothers funds or
collateral. And this was only a portion of Brownell’s
fraudulent activity. The district court was certainly
entitled to find, based on this record, that Brownell’s role,
as well as his location, was so central that he was prop-
erly treated as a leader of the scheme.
No. 06-2612 13
IV
Although we reject Brownell’s challenge to the district
court’s use of the “leader/organizer” enhancement under
the Sentencing Guidelines, we REMAND to the district
court so that it can make the factual determinations
we have identified for the computation of the intended
loss, and, based on the new computations, select an
appropriate sentence.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-25-07