United States v. Minas Litos , 847 F.3d 906 ( 2017 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 16-1384, -1385, -2248, -2249, -2330
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
MINAS LITOS and ADRIAN and DANIELA TARTAREANU,
Defendants-Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Indiana, Hammond Division.
No. 2:12-cr-00175-PPS-APR—Philip P. Simon, Judge.
____________________
ARGUED JANUARY 18, 2017—DECIDED FEBRUARY 10, 2017
____________________
Before WOOD, Chief Judge, and POSNER and HAMILTON,
Circuit Judges.
POSNER, Circuit Judge. The three defendants were indicted
in 2012 on charges of having committed and conspired to
commit wire fraud, in violation of 18 U.S.C. §§ 1343 & 1349,
by extracting money from lenders (including Bank of Ameri-
ca) that had financed the sale of properties owned by the de-
fendants in Gary, Indiana. The fraud lay in the fact that the
2 Nos. 16-1384, -1385, -2248, -2249, -2330
defendants had represented to Bank of America (we can ig-
nore the other lenders, who are not affected by this litiga-
tion) that the buyers of the properties were the source of the
down payments on the houses, whereas in fact the defend-
ants were the source, having given the buyers the money to
enable them to make the down payments. They had also
helped the buyers provide, in their loan applications to Bank
of America, false claims of creditworthiness. In each of the
transactions the defendants walked away with the purchase
price of the property they had sold minus the down pay-
ment amount, since the “down payment” they received was
their own cash, which they’d surreptitiously transferred to
the impecunious buyer.
The defendants’ guilt of fraud is not at issue. The issue is
the propriety of the restitution, in the amount of $893,015,
that the district judge ordered the defendants to make to
Bank of America, on the ground that they had cheated the
bank by pretending that the buyers, not they, were the
source of the down-payment money for the sale of their
houses. The judge credited a written declaration by a Bank
of America representative that “had [the Bank] known the
true source of [the] down payment funds, [it] would not
have issued the subject loans” to the buyers of the proper-
ties. The district judge rejected the defendants’ argument
that the bank was not entitled to restitution because it had
been a coconspirator; he ruled that the bank “did not partic-
ipate in the kickbacks to buyers or provide false information
on loan applications.”
The judge was right about that, and right too that the
bank had lost $893,015 as a result of the buyers’ defaulting
on the loans that the bank issued to finance the purchase of
Nos. 16-1384, -1385, -2248, -2249, -2330 3
sixteen houses from the defendants. But he was wrong to
take the bank representative at her word; her affidavit pro-
vided no basis for determining that she knew that Bank of
America wouldn’t have made the loans had it not been for
the defendants’ fraudulent statements.
The order of restitution is questionable because Bank of
America, though not a coconspirator of the defendants, does
not have clean hands. It ignored clear signs that the loans
that it was financing at the behest of the defendants were
phony. Despite its bright-eyed beginning as an upstart
neighborhood bank for Italian-American workers, Bank of
America has a long history of blunders and shady practices;
it narrowly survived the Great Depression of the 1930s,
nosedived in the 1980s, and lost tens of billions of dollars in
the crash of 2008—including $16.65 billion in a settlement
with the U.S. Justice Department over charges of mortgage
fraud. See, e.g., Michael Corkery and Ben Protess, “Bank of
America Papers Show Conflict and Trickery in Mortgages,”
New York Times, Aug. 21, 2014, https://dealbook.
nytimes.com/2014/08/21/bank-of-america-papers-show-confl
ct-and-trickery-in-mortgages/ (visited Feb. 10, 2017, as were
the other websites cited in this opinion); Matt Taibbi, “Bank
of America: Too Crooked to Fail,” Rolling Stone, March 14,
2012, www.rollingstone.com/politics/news/bank-of-america-
too-crooked-to-fail-20120314; Moira Johnston, Roller Coaster:
The Bank of America and the Future of American Banking 6–11
(1990); Gary Hector, Breaking the Bank: The Decline of Bank
America 49–53, 302–07 (1988). And at the sentencing hearing
the judge said: “I think they [the defendants and Bank of
America] are equally culpable. Isn’t that a fair way to look at
this? … Bank of America knew [what] was going on. They’re
playing this dance and papering it. Everybody knows it is a
4 Nos. 16-1384, -1385, -2248, -2249, -2330
sham because no one is assuming any risk. So what’s wrong
with saying they’re [of] equal culpability?” Indeed; and we
are puzzled that after saying this the judge awarded Bank of
America restitution—and in the exact amount that the gov-
ernment had sought.
And there is worse. The judge remarked that “the loan
applications [submitted to Bank of America] were a joke on
their face. They are just, I think, laughable.” The bank had
issued 9 mortgages to a person named Julius Horton in a 3-
month period, based on his false claims to have $1 million in
assets and earn $10,000 a month; 8 mortgages to Glenn
McCue in a 2½ month period, who listed as assets homes he
didn’t own and rental income on those homes; 6 mortgages
in a 10-day period [!] to Melissa Hurtado, who claimed to
have a gross income of $3400 a month and $320,000 in a
banking account—she had no such money, nor had she the
two properties that she claimed to own; 3 mortgages to Jona-
than Sein, who listed ownership of homes that he didn’t own
and a nonexistent $150,000 bank account; and 2 mortgages to
Alberto Gonzalez, who listed a home he didn’t own and pre-
tended to have a bank account with $350,000 in it, though his
monthly income was estimated to be only between $1000
and $2000. Bank of America approved them all! The transac-
tions with all these mortgage applicants took place in 2007
and the first few months of 2008, 2007 being the last full year
of the housing bubble and 2008 the first year of the crash.
Had the bank done any investigating at all, rather than
accept at face value obviously questionable claims that the
mortgagors were solvent, it would have discovered that
none of them could make the required down payments, let
alone pay back the mortgages. These people were just fronts
Nos. 16-1384, -1385, -2248, -2249, -2330 5
for the defendants, who made the down payments required
by the bank, pocketed the mortgage loans (which were of
course much larger than the down payments) that the bank
made, and left it to the nominal mortgagors to default since
they hadn’t the resources to repay the bank. All this was
transparent.
To say the bank was merely negligent would be wrong.
Recklessness is closer to the mark. Negligence is merely fail-
ure to exercise due care; often it is unconscious. Recklessness
is knowing involvement in potentially harmful activity. The
bank was reckless. It had to know that it would receive ap-
plications for mortgage loans from people who knowing or
doubting their ability ever to repay them would misrepre-
sent their assets and earning power in order to obtain the
loans, their thinking taking the form of “sufficient unto the
day is the evil thereof,” a biblical maxim (meaning “live in
the present”) that is better applied to spiritual life than to in-
vestment decisions. And the bank knew that in a bubble pe-
riod it would have no difficulty selling the mortgages it had
issued—even mortgages doomed to default; the bank’s fail-
ure to demand evidence of the financial sufficiency of the
mortgagees constituted deliberate indifference to a palpable
risk that the bank’s executives must have been aware of. The
bank had every incentive to close its eyes to how phony
these loan applications were, because it expected to turn
around and sell the mortgages to a hapless Fannie Mae. (It
was foiled in this scheme, regarding the sixteen properties at
issue, only because Fannie Mae noticed just how “irregular”
the transactions were and forced Bank of America to take the
mortgages back.)
6 Nos. 16-1384, -1385, -2248, -2249, -2330
Restitution for a reckless bank? A dubious remedy in-
deed—which is not to say that the defendants should be al-
lowed to retain the $893,015. That is stolen money. We don’t
understand why the district judge, given his skepticism con-
cerning the entitlement of Bank of America to an award for
its facilitating a massive fraud, did not levy on the defend-
ants a fine of $893,015. 18 U.S.C. § 3571(d) authorizes a fine
of not more than the greater of twice the gross gain or the
gross loss caused by an offense from which any person ei-
ther derives pecuniary gain or suffers pecuniary loss.
Had the amount of the fraud been made the basis of a fi-
ne rather than restitution, the $893,015 would have gone to
the federal Treasury, a far worthier recipient of it than Bank
of America in this case. At least that is an issue that deserves
the further scrutiny of the district court, and we are therefore
vacating the order of restitution and remanding for a full re-
sentencing as to the Tartareanus (more as to Litos later). Be-
cause a criminal sentence is a package composed of several
parts, “when one part of the package is disturbed, we prefer
to give the district court the opportunity to reconsider the
sentence as a whole so as to ‘effectuate its sentencing in-
tent.’” United States v. Mobley, 833 F.3d 797, 801 (7th Cir.
2016). Our remand for the imposition of a new sentence for
the Tartareanus will allow the district court to “reconfigure
the sentencing plan” to “satisfy the sentencing factors in 18
U.S.C. § 3553(a).” Pepper v. United States, 562 U.S. 476, 507
(2011), quoting Greenlaw v. United States, 554 U.S. 237, 253
(2008).
We ask the district judge to give serious consideration on
the remand to the possible alternative remedy of a heavy fi-
ne on the defendants. With regard to such a possibility the
Nos. 16-1384, -1385, -2248, -2249, -2330 7
judge may wish to ask either the Board of Governors of the
Federal Reserve System or the Office of the Comptroller of
the Currency (or both, perhaps in collaboration) to submit an
amicus curiae brief addressed to the issue of the appropri-
ateness of an order of restitution in a case such as this.
We are mindful that the federal criminal code requires
“mandatory restitution to victims of certain crimes,” 18
U.S.C. § 3663A (the Mandatory Victim Restitution Act of
1996, usually referred to as the MVRA), including fraud, see
§ 3663A(c)(1)(A)(ii), but only for “an offense resulting in
damage to or loss or destruction of property of a victim of
the offense.” § 3663A(b)(1). That doesn’t seem to describe the
loss suffered by Bank of America as a result of its improvi-
dent loans, especially when we consider its complicity in the
loss—its reckless decision to make the loans without verify-
ing the solvency of the would-be borrowers, despite the pal-
pable risk involved in, for example, providing mortgage
loans to a person who applies for six mortgages in ten days.
We need to consider, however, the possible bearing on
the issue of restitution in this case of United States v. Soto, 799
F.3d 68 (1st Cir. 2015), a case in which one of the defendants
challenged a restitution order on the ground that “because
the losses stemmed not only from her conduct but also from
the lenders’ own greed and market practices at the time, her
actions did not proximately cause the entire loss.” Id. at 97.
The court of appeals rejected the argument on the ground
that the fact “that the lenders’ own greed and market prac-
tices at the time may have contributed to the loss has noth-
ing to do with whether the entire loss amount was foreseea-
ble to [the defendant].” Id. at 98. But the defendant in Soto
had argued that the lenders were “greedy,” not that they
8 Nos. 16-1384, -1385, -2248, -2249, -2330
had engaged in wrongdoing but only that the general “mar-
ket practices” at the time had influenced their behavior. This
case is different because of the palpably phony nature of the
loan applications and the fact that Bank of America ap-
proved all of them without investigation of the manifold
suspicious circumstances—such conduct of a major bank is
indicative of deliberate indifference rather than of mere neg-
ligence. That difference also distinguishes this case from
United States v. Ojeikere, 545 F.3d 220, 223 (2d Cir. 2008),
which held that “restitution under the MVRA may not be
denied simply because the victim had greedy or dishonest
motives, where those intentions were not in pari materia with
those of the defendant.” The court reasoned that the victims
had not been involved in a scheme to lose their own money.
Here, in contrast, Bank of America was deliberately indiffer-
ent to the risk of losing its own money, because it intended
to sell the mortgages and transfer the risk of loss to Fannie
Mae for a profit.
It remains to consider defendant Litos’s appellate waiver.
He pleaded guilty and in his guilty plea agreement he
“agree[d] to make restitution to the victims of my offense in
an amount to be determined by the sentencing court” and
waived his right to appeal or otherwise contest his convic-
tion or sentence. Yet like the Tartareanus, who were convict-
ed by a jury, Litos appealed—despite his waiver—thus pre-
senting us with a dilemma. If we enforce his appellate waiv-
er, Litos will be left on the hook for the full $893,015 in resti-
tution to Bank of America, because the district judge’s order
made the three defendants jointly and severally liable. But if
we vacate the restitution portion of all three sentences, we
must ignore Litos’s appellate waiver. Because our doubts
about the propriety of ordering restitution to Bank of Ameri-
Nos. 16-1384, -1385, -2248, -2249, -2330 9
ca apply as much to Litos as to the other defendants, howev-
er, and because it would be unjust to make Litos alone owe
the full amount of restitution to the undeserving bank, we’ve
decided to ignore the appellate waiver.
A number of the other federal courts of appeals have said
they won’t enforce even voluntary and knowing waivers in
plea agreements if enforcing them would result in a “miscar-
riage of justice.” See, e.g., United States v. Vélez-Luciano, 814
F.3d 553 (1st Cir. 2016); United States v. Adams, 814 F.3d 178,
182 (4th Cir. 2016); United States v. Hahn, 359 F.3d 1315, 1327
(10th Cir. 2004); United States v. Andis, 333 F.3d 886, 891 (8th
Cir. 2003); United States v. Khattak, 273 F.3d 557, 562 (3d Cir.
2001); United States v. Teeter, 257 F.3d 14, 25–26 (1st Cir.
2001). In Vélez-Luciano, for example, the First Circuit refused
to enforce an appeal waiver with respect to a condition of
supervised release because the government had indicated
that it no longer thought the defendant ought to be subject to
the condition and the court had expressed its own reserva-
tions about the utility of the condition. 844 F.3d at 564–65.
And in this case too the government and the district judge
both expressed reservations about the propriety of awarding
restitution to Bank of America.
Further with reference to Litos’s appeal waiver, we’ve
held that there are exceptional situations in which waiver
does not foreclose appellate review—for example if an ap-
peal waiver is part of a plea agreement that was involuntary,
or if the district court relied on a constitutionally impermis-
sible factor, or if the defendant received ineffective assis-
tance of counsel in regard to the negotiation of a plea agree-
ment, or if the sentence exceeded the statutory maximum.
Jones v. United States, 167 F.3d 1142, 1144 (7th Cir. 1999). And,
10 Nos. 16-1384, -1385, -2248, -2249, -2330
coming closer to the facts of this case, in United States v. An-
dis, supra, 333 F.3d at 892, the Eighth Circuit said it would
not enforce an appellate waiver if “the sentence is ‘in excess
of a statutory provision or otherwise contrary to the applicable
statute’” (emphasis added). Likewise, Bank of America was
not a proper victim for the purposes of restitution under 18
U.S.C. § 3663A, and so the order of restitution was contrary
to the applicable statute and therefore illegal—just as a pris-
on term that exceeded a statutory maximum would be ille-
gal.
We therefore decline to enforce Litos’s appellate waiver
as to restitution, but, because the exceptions to waiver are
narrow, uphold it as to the rest of his sentence. So while we
reverse the order of restitution against Litos as well, we re-
mand only for limited resentencing on the issue of restitu-
tion (with direction to consider whether a fine is possible).
In all other respects the judgment of the district court is
affirmed.