United States v. Francis Schmitz , 717 F.3d 536 ( 2013 )


Menu:
  •                               In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 11-3269
    U NITED STATES OF A MERICA,
    Plaintiff-Appellee,
    v.
    F RANCIS A LAN SCHMITZ,
    Defendant-Appellant.
    Appeal from the United States District Court
    for the Northern District of Illinois, Eastern Division.
    No. 10 CR 361—Rebecca R. Pallmeyer, Judge.
    A RGUED JUNE 5, 2012—D ECIDED M AY 29, 2013
    Before B AUER, R OVNER, and H AMILTON, Circuit Judges.
    R OVNER, Circuit Judge. Defendant-Appellant Francis Alan
    Schmitz pleaded guilty to a charge of mail fraud and
    was ordered to serve 84 months in prison, a term
    slightly below the low end of the sentencing range
    advised by the Sentencing Guidelines. Schmitz con-
    tends that the district court committed two errors in
    sentencing him: (1) a procedural error, when it failed to
    address his contention that “factor creep” in the Guide-
    2                                                No. 11-3269
    lines has inflated beyond reason the sentencing range
    for white collar frauds, and particularly for someone
    of his age and health; and (2) relied on an erroneous
    understanding of the timespan of the fraud to which
    he pleaded guilty. Finding that the district court com-
    mitted no procedural or factual error in sentencing
    Schmitz, we affirm.
    I.
    Pursuant to a written plea agreement, Schmitz
    pleaded guilty to one count of a criminal information
    charging him with mail fraud affecting a financial in-
    stitution, in violation of 
    18 U.S.C. § 1341
    . (A second
    count charging him with committing bank fraud in viola-
    tion of 
    18 U.S.C. § 1344
     was dismissed on the govern-
    ment’s motion at sentencing.) Beginning in or about
    July 2003, Schmitz had convinced a series of financial
    institutions and others to lend him money, ostensibly
    to invest in real estate development, by telling these
    institutions that he was the beneficiary of a multi-million
    dollar trust fund whose assets were available as col-
    lateral for the loans. In fact, there was no trust and no
    trust assets. But Schmitz concocted a convincing trail
    of paper and digital documents (including trust account
    statements, tax returns, emails, and letters) making it
    appear as if there were, going so far as to create a
    phony financial services firm (with a website and
    virtual office space) that purportedly held assets of the
    fictitious trust, and then to file suit in state court against
    two (fictitious) employees of the (non-existent) firm
    No. 11-3269                                                3
    claiming that they had mishandled the (non-existent)
    trust. Ultimately, Schmitz was able to obtain more
    than $6 million from seven banks and two additional
    lenders. He used just under half of that total to pay off
    previous lenders, in Ponzi-like fashion. The rest—roughly
    $3.1 million—he used to benefit himself and his
    personal business ventures, and this amount marked
    the extent of the lenders’ collective loss.
    The plea agreement anticipated that Schmitz’s ad-
    justed offense level would be 28, after a three-level reduc-
    tion for acceptance of responsibility; that his criminal
    history category would be I; and that his Guidelines
    sentencing range would be 78 to 97 months. Despite
    a skirmish at sentencing as to whether Schmitz had
    forfeited his entitlement to credit for acceptance of re-
    sponsibility by submitting to the court a version of his
    offense that minimized his culpability, the court granted
    him the three-level reduction after he withdrew his
    statement and determined his adjusted offense level to
    be 28, as the parties had anticipated. However, be-
    cause Schmitz began the charged fraud in 2003, while
    he was still on supervised release in connection with
    a prior state conviction, see U.S.S.G. § 4A1.1(d) (specifying
    two additional criminal history points if the defendant
    committed the offense of conviction while under any
    criminal justice sentence), the parties agreed, and the
    court found, that his criminal history category should
    be II. The resulting advisory Guidelines range was 87 to
    108 months in prison.
    Schmitz sought a substantially below-Guidelines sen-
    tence of 36 months, and among his arguments in sup-
    4                                                   No. 11-3269
    port of a reduced sentence were two that are relevant
    to this appeal. He contended that the Guidelines speci-
    fied an excessive sentence for someone convicted of
    a white collar crime like fraud, and that because his
    age (60) combined with a variety of health conditions
    meant he had both a shorter life expectancy and a
    lower risk of re-offending, a sentence within the ad-
    visory range was greater than necessary to serve the
    statutory sentencing goals set forth in 
    18 U.S.C. § 3553
    (a)(2).
    The first of these arguments was focused on the sub-
    stantial lengthening of the Guidelines sentencing
    range for fraud, larceny, and similar offenses that has
    occurred over the last two decades. The longer sentences
    for such offenses are in the main the result of a three-fold
    increase in the number of specific offense characteristics
    (from six to 18) incorporated into the fraud guideline,
    see U.S.S.G. § 2B1.1(b), a phenomenon that has been
    described as “factor creep,” see R. Barry Ruback &
    Jonathan Wroblewski, The Federal Sentencing Guidelines:
    Psychological and Policy Reasons for Simplification, 7 Psychol.
    Pub. Policy & L. 739, 752-53 (2001), coupled with a sub-
    stantial increase in the number of points imposed for
    the amount of the loss, a longstanding and central offense
    characteristic in fraud and theft cases, see § 2B1.1(b)(1).1
    1
    Schmitz’s fraud, for example, because it inflicted a loss in
    excess of $2.5 million, called for an 18-point increase in his
    offense level, see § 2B1.1(b)(1)(J) (Nov. 2009); under the 1987
    (continued...)
    No. 11-3269                                                   5
    Schmitz contended that the harsher penalties for fraud
    offenses represented a departure from the philosophy
    animating the original version of the Guidelines, namely
    that a short but definite period of incarceration would
    suffice as a deterrent to most white collar offenders.
    The sentencing range produced by Schmitz’s offense
    characteristics exemplified the new, more punitive phil-
    osophy: With a criminal history category of II, under
    the 1987 Guidelines, Schmitz’s sentencing range would
    have been 24 to 30 months.2 Under the 2000 Guidelines,
    it would have been 47 to 57 months.3 Under the 2009
    1
    (...continued)
    version of the Guidelines, the same loss amount would
    have demanded a 12-point increase in the offense level,
    see U.S.S.G. § 2B1.1(b)(1)(M) (Oct. 1987).
    2
    Under the 1987 Guidelines, the base offense level would
    have been 4, see § 2B1.1(a); 15 points would have been added
    for the amount of the loss, see § 2B1.1(b)(1)(M); and another
    two points would have been added because the offense
    involved more than minimal planning, see § 2B1.1(b)(4). As
    section 3E1.1 in 1987 capped the credit for acceptance of
    responsibility at two points rather than three, Schmitz’s final
    adjusted offense level would have been 16 points rather
    than 15, as Schmitz’s counsel assumed below. See R. 47 at 9.
    3
    Under the November 2000 Guidelines, the base offense
    level would have been 4, see § 2B1.1(a); 15 points would have
    been added for the amount of the loss, see § 2B1.1(b)(1)(P); two
    points would have been added because the offense involved
    more than minimal planning, see § 2B1.1(b)(4)(A); and an
    additional four points would have been added because
    (continued...)
    6                                                 No. 11-3269
    Guidelines, which were used to calculate Schmitz’s ad-
    visory sentencing range, the range was 87 to 108
    months. In short, the range increased by more than
    300 percent in the 24 years since the original version
    of the Guidelines was issued. Schmitz asserted that in
    adopting much longer sentences, the Sentencing Com-
    mission had failed to fulfill its institutional role by
    shifting sentencing policy to a more punitive model
    without the support of any empirical data demon-
    strating the value of such substantial increases. Like
    Schmitz, we shall refer to this argument as his “factor
    creep” argument.
    Schmitz secondarily argued that for a person of his
    age and with his health conditions, a within-Guidelines
    sentence would occupy virtually all of the remaining
    productive years of his life. Schmitz was 60 years old
    at time of sentencing, with an average remaining
    life expectancy of 20.6 years. However, Schmitz also
    had been diagnosed with high blood pressure, high
    cholesterol, coronary heart disease, and an enlarged
    prostate. Schmitz was taking medications for each of
    these conditions, including Lisinopril and hydrochloro-
    thiazide (for high blood pressure), Simvastatin (for
    high cholesterol), low-dose aspirin (for the heart), and
    3
    (...continued)
    Schmitz obtained more than $1 million in gross receipts from
    one financial institution, see § 2B1.1(b)(6)(B). Three levels
    would have been deducted for acceptance of responsibility
    pursuant to section 3E1.1 (which by this time provided for
    the third point), bringing Schmitz’s final offense level to 22.
    No. 11-3269                                               7
    Terazosin (for the prostate); and he presented no evi-
    dence that any of his conditions was life-threatening or
    life-shortening even with medication. He nonetheless
    argued that these conditions distinguished him from
    other persons convicted of fraud offenses for sentencing
    purposes in that they reduced his life expectancy as
    well as his likelihood of re-offending. In Schmitz’s view,
    there was no empirical data to suggest that for someone
    of his age and health, a within-guidelines sentence was
    no greater than necessary to achieve deterrence and
    the other sentencing goals set forth in 
    18 U.S.C. § 3553
    (a).
    The district court implicitly rejected the first of
    these arguments and expressly rejected the second.
    Judge Pallmeyer observed that she agreed with Schmitz’s
    contention that it is the fact rather than length of incar-
    ceration that matters for the purpose of deterring
    white collar criminals (R. 72 at 34-35), which suggests
    that she had taken note of his policy-based challenge to
    the fraud guideline. Beyond that one remark, however,
    she did not address the merits of the challenge. She
    did address Schmitz’s health issues, observing that
    these conditions were not uncommon for someone of
    his age, and expressed confidence that adequate treat-
    ment was available in prison for them. R. 72 at 33-34.
    In passing sentence, Judge Pallmeyer took note of
    the Guidelines range and indicated that the defense
    might be right when it contended that a criminal his-
    tory category of II overstated the extent of Schmitz’s
    criminal background. After addressing Schmitz’s health
    concerns, the judge noted the aggravating and miti-
    8                                               No. 11-3269
    gating factors that she found relevant. She remarked
    that Schmitz’s fraud had been “longstanding and very
    comprehensive” (R. 72 at 34); that it had been imple-
    mented in a sophisticated way; and that it had injured
    his family as well as the victims of the offense. On the
    plus side, she found that Schmitz’s remarks at sen-
    tencing reflected a genuine acknowledgment of respon-
    sibility for his crime. She also commended Schmitz’s
    efforts, during the period of his pre-sentence detention,
    to teach his fellow inmates how to read. Schmitz’s “posi-
    tive contribution” in the latter regard convinced her
    that a sentence just below the low end of the Guide-
    lines range was appropriate. As noted earlier, the
    judge ultimately ordered Schmitz to serve a term
    of 84 months.
    II.
    Schmitz’s first contention is that the district court
    committed procedural error by failing to address
    his argument that the court should abandon the fraud
    guideline in determining a reasonable sentence, in that
    the Sentencing Commission had neglected its institu-
    tional role and had allowed factor creep to substan-
    tially increase the penalties for fraud offenses without
    empirical data to suggest that harsher penalties
    were necessary.
    The district court’s ultimate obligation is to impose
    a sentence that is reasonable in light of the sentencing
    criteria set forth in 
    18 U.S.C. § 3553
    (a). See United States
    v. Booker, 
    543 U.S. 220
    , 260-61, 
    125 S. Ct. 738
    , 765
    No. 11-3269                                                   9
    (2005); United States v. Dean, 
    414 F.3d 725
    , 730-31 (7th
    Cir. 2005). The advisory Guidelines range, accurately de-
    termined, provides “ ‘the starting point and the initial
    benchmark’ ” for the court’s sentencing determination.
    Kimbrough v. United States, 
    552 U.S. 85
    , 108, 
    128 S. Ct. 558
    ,
    574 (2007) (quoting Gall v. United States, 
    552 U.S. 38
    , 49,
    
    128 S. Ct. 586
    , 596 (2007)); see also Rita v. United States,
    
    551 U.S. 338
    , 351, 
    127 S. Ct. 2456
    , 2465 (2007); United
    States v. Smith, 
    562 F.3d 866
    , 872 (7th Cir. 2009). The
    court must then look to the section 3553(a) factors in
    order to ascertain the appropriate length of the de-
    fendant’s sentence. See Gall, 
    552 U.S. at 49-50
    , 128 S. Ct.
    at 596-97; see also, e.g., United States v. Vallone, 
    698 F.3d 416
    , 497 (7th Cir. 2012), pet’n for cert. filed, No. 12-1056,
    
    2013 WL 703419
     (U.S. Feb. 25, 2013). After making its de-
    termination, the court must articulate the reasons for
    its choice of sentence. United States v. Patrick, 
    707 F.3d 815
    ,
    818 (7th Cir. 2013). The explanation need not be exhaus-
    tive, see Rita, 
    551 U.S. at 356
    , 
    127 S. Ct. at 2468
    , but it must
    be sufficient to satisfy this court that the sentencing
    judge has given meaningful consideration to the sec-
    tion 3553(a) factors and the parties’ arguments in deter-
    mining how long the defendant’s sentence should
    be, see ibid.; Patrick, 707 F.3d at 818-19. This will entail
    some discussion of any significant argument the de-
    fendant has made with respect to his characteristics
    that might bear on the length of the sentence. Id. at 819.
    Rote and frivolous arguments may be left unmentioned;
    “ ‘[i]f anyone acquainted with the facts would have
    known without being told why the judge had not
    accepted the argument,’ then the judge need not specifi-
    10                                             No. 11-3269
    cally address that point.” Id. (quoting United States v.
    Cunningham, 
    429 F.3d 673
    , 679 (7th Cir. 2005)); see also
    United States v. Young, 
    590 F.3d 467
    , 474 (7th Cir. 2009).
    If, on the other hand, a defendant’s argument in mitiga-
    tion has sufficient merit as to cause one to wonder, in
    the absence of an explanation, why the court rejected
    it, then the court must address it explicitly. See Patrick,
    707 F.3d at 819; United States v. Vidal, 
    705 F.3d 742
    , 744
    (7th Cir. 2013).
    The court did not commit procedural error in failing
    to address Schmitz’s factor creep argument. That was
    Schmitz’s principal argument for a below-Guidelines
    sentence, and we often observe that a sentencing judge
    is obliged to address a defendant’s principal argument
    in mitigation. See, e.g., Vidal, 705 F.3d at 744; United
    States v. Garthus, 
    652 F.3d 715
    , 718 (7th Cir. 2011) (coll.
    cases), cert. denied, 
    132 S. Ct. 2373
     (2012). But Schmitz’s
    argument was not one addressed to his own charac-
    teristics and circumstances. Cf. Patrick, 707 F.3d at 819-
    20 (remanding where district court failed to address
    defendant’s cooperation with authorities, which gov-
    ernment itself cited as a basis for below-Guidelines sen-
    tence); Vidal, 705 F.3d at 744-45 (remanding where
    district court failed to address defendant’s argu-
    ment that his documented psychiatric issues war-
    ranted a below-Guidelines sentence). Rather, his was a
    categorical challenge to the validity of the fraud guide-
    line, on the ground that the severity of sentences called
    for by the current incarnation of that guideline is unsup-
    ported by any empirical data demonstrating the need
    for sentences far longer than those called for by the
    No. 11-3269                                               11
    original 1987 version of the guideline, and that the Sen-
    tencing Commission had thus failed its institutional
    role in adopting the current guideline. Once “Booker
    unbound the sentencing judges from the guidelines,”
    United States v. Aguilar-Huerta, 
    576 F.3d 365
    , 366 (7th
    Cir. 2009) (coll. cases), they became empowered to sub-
    stitute their own views as to the appropriate sentence
    for a particular crime (and defendant) for the penal theo-
    ries that inform the pertinent provisions of the Guide-
    lines, see 
    id. at 366-67
     (coll. cases); see United States v.
    Corner, 
    598 F.3d 411
    , 414-15 (7th Cir. 2010) (en banc).
    Consequently, an argument along the lines of the one
    Schmitz made is a proper appeal to the judge’s discretion
    to reject a sentence within the Guidelines range. United
    States v. Moreno-Padilla, 
    602 F.3d 802
    , 814 (7th Cir. 2010)
    (citing Aguilar-Huerta, 
    576 F.3d at 367
    ). But because an
    argument like Schmitz’s is a blanket challenge to the
    guideline rather than one tailored to his unique charac-
    teristics and circumstances, it is not one that the dis-
    trict judge must explicitly address. See United States v.
    Ramirez, 
    675 F.3d 634
    , 640 (7th Cir. 2011) (per curiam);
    Garthus, 
    652 F.3d at 721
    ; Moreno-Padilla, 
    602 F.3d at 814
    ;
    United States v. Pape, 
    601 F.3d 743
    , 749 (7th Cir. 2010);
    Aguilar-Huerta, 
    576 F.3d at 367-68
    . Arguments urging
    a reexamination of a particular guideline are more natu-
    rally addressed to the Sentencing Commission, as we
    pointed out in Garthus. 
    652 F.3d at 721
    . Certainly a
    district court may address such an argument (and must
    do so, if it chooses to reject the guideline, see Gall, 
    552 U.S. at 51
    , 128 S. Ct. at 597; Kimbrough, 
    552 U.S. at 109
    ,
    128 S. Ct. at 575; Rita, 
    551 U.S. at 357
    , 
    127 S. Ct. at 2468
    ;
    12                                              No. 11-3269
    Corner, 
    598 F.3d at 415
    ; United States v. Bradley, 
    675 F.3d 1021
    , 1025 (7th Cir. 2012) (per curiam)), but if it is
    not persuaded by the argument it may pass over it in
    silence. See, e.g., Moreno-Padilla, 
    602 F.3d at 814
     (“a
    district court is not required to delve into the history of
    a guideline so that it can satisfy itself that the process
    that produced it was adequate to produce a good guide-
    line”) (internal quotation marks and brackets omit-
    ted). As we have said, it is clear from the record that
    Judge Pallmeyer considered the argument but im-
    plicitly concluded that the fraud guideline should be
    applied to Schmitz’s conduct. She was perfectly en-
    titled to accept the penal philosophy embodied in the
    current fraud guideline and was not obligated to
    explain why she chose to do so. E.g., Garthus, 
    652 F.3d at 721
    .
    Nor do we think that the court committed any error,
    procedural or otherwise, with respect to Schmitz’s
    health and age. As we have noted, the district judge
    expressly addressed this argument, but found that none
    of Schmitz’s conditions was out of the ordinary for a
    person of his age and that all could be appropriately
    treated during his incarceration. Schmitz contends that
    the judge’s statement is insufficient to explain why the
    judge thought that a term of seven years was no greater
    than necessary to deter him from future crimes given
    his age and health. We disagree. None of the conditions
    that Schmitz has identified (high blood pressure, high
    cholesterol, etc.) is out of the ordinary for a 60-year-old.
    All are amenable to treatment by medication, and
    Schmitz is in fact taking medications for these condi-
    No. 11-3269                                             13
    tions. He has presented no evidence that any of his condi-
    tions, alone or in combination, is unusual in kind or
    degree and/or cannot be controlled with medication.
    Schmitz broadly contends that the prison term ordered
    by the district court will consume most of the remaining
    productive years of his life. The record gives us no reason
    to believe that this is true. Schmitz has been incarcerated
    since he was arrested in May 2010; thus, by the time he
    completes his term, he will only be in his mid-60s, which
    by today’s standards does not represent the end of one’s
    active years. On this record, the district court was not
    required to address Schmitz’s argument in any greater
    detail than it did.
    Finally, we do not think that the district court com-
    mitted a material factual error as to the duration of the
    charged fraud offense that requires correction. Schmitz’s
    argument in this regard stems from a remark about
    his “fraud scheme” that the judge made in assessing
    the gravity of the offense. In context, what the judge said
    is this:
    I am aware that [Schmitz’s] fraud was long-standing
    and very comprehensive.
    Apart from—it appears that since 1996, when
    Mr. Schmitz left his position with the bank, he
    really has not been employed in any legitimate, lawful
    way. He got a severance payment from the bank, as
    I understand it. He received some social security
    money via his brother. But essentially his life since
    1996 has been given over to this fraud scheme in ways
    that are a mystery to people that—I think were con-
    cealed to the people who love him and know him well.
    14                                            No. 11-3269
    The fact that it was long-standing and comprehen-
    sive as it was justifies a substantial prison term,
    it seems to me. . . .
    ***
    So Mr. Schmitz’s offense conduct is very serious.
    It was long-standing. It victimized not only the fi-
    nancial victims but certainly victimized his family.
    His wife, we learned, was unaware of what was
    going on and has only been discovering a lot of it
    over the months since Mr. Schmitz has been in cus-
    tody. And now his family—his marriage is crumbling
    and his family is among the victims as well.
    R. 72 at 34-35 (emphasis ours). Schmitz interprets the
    highlighted remarks as an erroneous finding by the
    judge that the charged scheme to defraud the banks
    dated back to 1996, some seven-plus years before it
    actually began. But what prompted the judge’s remark
    was the shroud of mystery that enveloped Schmitz’s
    employment history from 1996 onward. The probation
    officer had been largely unable to verify Schmitz’s re-
    ported work as a consultant in those years (see R. 73
    PSR at 20-21); the limited, available information as to
    Schmitz’s income during those years (including what he
    had reported to Pretrial Services, and what his wife
    had believed he was earning) was inconsistent (see R. 73
    PSR at 21); and Schmitz’s wife, in her own effort to sort
    out the couple’s finances, “ha[d] discovered an over-
    whelming abundance of information indicative of the
    defendant’s deception throughout the last 15 years” (R. 73
    PSR at 18). In context, it is apparent to us that what the
    No. 11-3269                                                   15
    judge meant to say was that since 1996, Schmitz’s life
    had been given over to deception and fraud—a pattern
    that included the charged offense but was not limited to
    it. That is a reasonable inference given the inability to
    pin down what precisely Schmitz was doing, how
    much money he was earning, and where that money
    was coming from. The judge’s use of the term “fraud
    scheme” was merely an unfortunate slip of the tongue.
    The judge could not have been laboring under a misun-
    derstanding that the charged scheme to defraud had
    begun as early as 1996. The criminal information (R. 9 at
    2), the plea agreement (R. 21 at 3), the remarks by both
    the prosecutor and Schmitz at the change of plea
    hearing (R. 71 at 16-17, 28), and the parties’ pre-sentencing
    memoranda (R. 23 at 3-4; R. 27 at 1; R. 52 at 2) all
    indicated to the court that the charged scheme began
    in or about 2004. In her presentence report, the proba-
    tion officer advocated pushing that date back to
    July 2003, so as to take account of a bank loan that
    Schmitz had fraudulently obtained at that time
    from CitiFinancial (and which he later paid off). R. 73
    PSR at 4-5.4 It was because Schmitz committed that
    4
    The probation officer’s view was consistent with the
    probable cause affidavit that a postal inspector had prepared
    in support of the original criminal complaint that resulted in
    Schmitz’s arrest. See R. 1 at 3 ¶ 5 (“The investigation to date
    has focused on allegations that since at least in or about 2003,
    [Schmitz] has fraudulently attempted to obtain millions of
    (continued...)
    16                                                No. 11-3269
    fraud while he was still on supervision from a 2001 con-
    viction for credit card fraud that the probation officer
    added points to Schmitz’s criminal history which
    placed him in category II and not I. U.S.S.G. § 4A1.1(d);
    R. 73 PSR at 16. This was a matter that the parties ad-
    dressed in their pre-sentencing memoranda and that
    the court resolved (in favor of the probation officer’s
    view) at the sentencing hearing. R. 72 at 5, 6, 13, 16-17.
    In sum, the district court’s mistake (if any) lay in its
    word choice rather than any misapprehension as to the
    beginning and duration of the charged scheme. We there-
    fore discern no need to remand the case for clarifica-
    tion on this point. It was a plausible inference that
    Schmitz’s history of fraud began well before the charged
    scheme did; and we do not think there is any real possi-
    bility that the sentencing judge blurred the distinc-
    tion between the two in evaluating the pertinent sen-
    tencing factors. For example, standing alone, the
    charged scheme, which lasted well over six years, was
    both serious and lengthy, as the court said it was. In
    short, there is no real possibility that the court was mis-
    taken about the duration of the charged crime, let alone
    that such an error affected the court’s evaluation of
    the Guidelines and statutory factors and its choice
    of sentence.
    4
    (...continued)
    dollars of loan proceeds from at least seven different lenders,
    including financial institutions. . . .”).
    No. 11-3269                                       17
    III.
    Having concluded that the district court committed
    no procedural or factual error in sentencing Schmitz,
    we A FFIRM his sentence.
    5-29-13