United States v. Michael Alan Parish ( 2009 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 08-2794
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United States of America, *
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Appellee, *
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v. *
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Michael Alan Parish, *
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Appellant. *
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Appeals from the United States
No. 08-2795 District Court for the District
___________ of Minnesota.
United States of America, *
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Appellee, *
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v. *
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Christopher David Troup, *
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Appellant. *
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No. 08-2796
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United States of America, *
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Appellee, *
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v. *
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Ardith Ann Parish, *
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Appellant. *
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Submitted: March 13, 2009
Filed: May 19, 2009
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Before WOLLMAN, RILEY, and COLLOTON, Circuit Judges.
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RILEY, Circuit Judge.
On October 18, 2007, the government filed a four-count criminal information
in the District of Minnesota charging Michael Parish (Michael), Ardith Parish
(Ardith), Christopher Troup (Troup), and Parish Marketing and Development
Corporation (PMDC), with various offenses committed during the execution of a
mortgage fraud scheme. Count one charged Michael, Ardith, and Troup (collectively,
defendants) with conspiracy to commit mail fraud in violation of 18 U.S.C. § 371, and
counts two through four separately charged PMDC, Michael, and Troup with money
laundering in violation of 18 U.S.C. §§ 1956(a)(1)(A)(i) and 1957. On November 2,
2007, defendants pled guilty to the charged offenses. After a lengthy evidentiary
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hearing, the district court1 sentenced Michael to 156 months imprisonment, Ardith to
60 months imprisonment, and Troup to 120 months imprisonment. Defendants now
appeal their sentences. We affirm.
I. BACKGROUND
Michael and Ardith, husband and wife, were the owners and officers of PMDC,
a residential development corporation operating primarily in the southern suburbs of
Minneapolis and St. Paul, Minnesota. From 1980, when PMDC was incorporated,
until 2007, PMDC built thousands of homes. Michael served as PMDC’s president,
while Ardith worked as the company bookkeeper. Michael and Ardith also employed
their son-in-law, Troup, who worked as an agent of PMDC.
Beginning in 2004, PMDC began to encounter substantial financial problems.
When PMDC could not find buyers for the homes PMDC built, defendants began
applying for mortgage loans in the names of various straw buyers.2 Defendants
solicited family members and friends to act as straw buyers. Some of the straw buyers
were offered incentives, such as a payment of $2,000 for the use of their name and
credit information, which defendants would then use to obtain a fraudulent loan.
The straw buyers, except for Troup, did not view the homes they were
purchasing, they did not negotiate the purchase price of the homes, and they often did
not execute the required sale and loan documents. Instead, the documents were
typically signed by defendants pretending to be the straw buyers. To ensure the straw
buyers would be issued the loan proceeds, defendants often manufactured false
documentation and inflated the assets of the straw buyers. For example, defendants
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
2
A straw buyer is a person who obtains a loan for the purchase of property the
straw buyer never intends to own or occupy.
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would provide false documentation stating the straw buyers were employed by a
company owned by Troup, or the straw buyers had other assets which the straw buyers
did not actually possess.
In addition to inflating the assets of the straw buyers, Troup also provided false
information to appraisers, such as false rental agreements overstating the amount of
rent generated each month by the property. This resulted in appraisals which
exaggerated the market value of the homes, and permitted defendants to obtain
mortgage loans for an amount which exceeded the value of the homes.
In total, defendants used straw buyers to obtain mortgage loans fraudulently on
approximately 208 properties, chiefly in the cities of New Prague, New Market, and
Lonsdale, Minnesota. Defendants obtained nearly $100 million in fraudulent loan
proceeds, with PMDC receiving over $25 million from the scheme. The vast majority
of the loan proceeds obtained by PMDC were used to perpetuate the conspiracy.
Because the straw buyers did not intend to have any financial responsibility over the
homes, PMDC was responsible for making mortgage payments on all of the properties
obtained with fraudulent loans. In order to pay on one loan, defendants would simply
take out another loan. Proceeds from one fraudulent sale were used to make payments
to lenders from previous fraudulent sales. The scheme collapsed, and almost all of the
properties went into foreclosure. At least four other individuals pled guilty to various
charges stemming from the conspiracy.
The losses which resulted from the conspiracy were widespread and significant.
Lenders lost millions of dollars on the mortgage loans which were given to straw
buyers. Many of the properties were rented to individuals who were forced to vacate
upon foreclosure. Other properties were sold to individuals on a contract-for-deed
basis. These buyers were not informed of the circumstances, and many of them made
large down payments on the contract or made extensive improvements to the property
and were unable to recover their losses.
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The cities of New Prague, New Market, and Lonsdale, Minnesota, also suffered
large losses as a result of the conspiracy. Many new homes are currently sitting
vacant, and this has required the communities to expend resources addressing issues
such as lawn maintenance, vacant home maintenance, erosion control, drainage,
flooding, deteriorating neighborhoods, vandalism, increased police patrols, and code
enforcement. Additionally, several subcontractors and suppliers suffered losses when
PMDC failed to compensate the subcontractors for their services or the suppliers for
their goods. While others were losing money, defendants personally were able to
obtain millions of dollars from the scheme in salaries and commissions.
Defendants were charged with conspiracy to commit mail fraud. Michael and
Troup were also charged with money laundering. Defendants pled guilty to the
charged offenses pursuant to a plea agreement, and acknowledged their involvement
in a mortgage fraud scheme in which the mortgages were fraudulently obtained for the
sale of over 200 properties to straw buyers. Under the plea agreements, the parties
agreed to litigate several contested sentencing issues, including the amount of loss, the
number of victims, and the appropriate role adjustments under the advisory United
States Sentencing Guidelines (U.S.S.G. or Guidelines).
The district court held an evidentiary hearing on July 1, 2008, during which the
government called eighteen witnesses and introduced numerous exhibits. Following
the hearing, the parties submitted memoranda setting forth their respective arguments
regarding the contested sentencing issues. On July 31, 2008, at defendants’
sentencing hearing, the district court sentenced Michael to 156 months imprisonment,
Ardith to 60 months imprisonment, and Troup to 120 months imprisonment. Each
defendant was also sentenced to 3 years supervised release. Following an October 9,
2008 restitution hearing, the district court amended its previous judgment by ordering
defendants to pay $5,467,705 in restitution.
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Defendants now appeal their sentences alleging the district court erred in
finding the amount of loss caused by defendants was between $20-50 million and in
imposing a twenty-two level increase to defendants’ advisory Guidelines range. Troup
also complains the district court erred in concluding Troup was an organizer or
manager in the conspiracy and in imposing a two level enhancement to Troup’s
sentence.
II. DISCUSSION
A. Troup’s Role in the Conspiracy
Because the district court concluded Ardith was a minor participant in the
conspiracy, the district court imposed a two level reduction to Ardith’s base offense
level under U.S.S.G. § 3B1.2(b). In contrast, the district court concluded Troup was
an organizer or manager of the conspiracy, and imposed a two level enhancement to
Troup’s base offense level pursuant to U.S.S.G. § 3B1.1(c). Troup asserts his role in
the conspiracy was comparable to Ardith’s role in the conspiracy. Therefore, Troup
contends the district court erred in enhancing Troup’s base offense level while
reducing Ardith’s base offense level.
“‘We review the district court’s decision to assess a sentencing enhancement
based upon a defendant’s role in the offense for clear error.’” United States v.
Guzman-Tlaseca, 546 F.3d 571, 579-80 (8th Cir. 2008) (quoting United States v.
Johnson, 278 F.3d 749, 752 (8th Cir. 2002)). “For a two-level managerial role
enhancement to apply, it is only necessary that the defendant supervise or manage one
other participant.” United States v. Jiminez-Gutierrez, 425 F.3d 1123, 1124 (8th Cir.
2005) (citation omitted). “We construe the term ‘manager’ broadly under U.S.S.G.
§ 3B1.1.” Guzman-Tlaseca, 546 F.3d at 580 (citations omitted).
When determining whether a defendant played a managerial role in an
offense, application note four to section 3B1.1 directs the sentencing
court to consider such factors as: the exercise of decision making
authority, the nature of participation in the commission of the offense,
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the recruitment of accomplices, the claimed right to a larger share of the
fruits of the crime, the degree of participation in planning or organizing
the offense, the nature and scope of the illegal activity, and the degree of
control and authority exercised over others.
Id. (internal marks omitted).
While Troup contests his sentence, Troup does not contest the facts as stated
in his presentence investigation report (PSR) and adopted by the district court. Those
facts demonstrate Michael and Ardith owned PMDC and Troup was an agent of
PMDC. When PMDC began having trouble selling the houses PMDC built, Troup
and the other defendants began selling the homes to straw buyers. Defendants,
including Troup, forged the loan documents and provided false information to banks,
substantially overstating the assets of the straw buyers. Troup was the principal straw
buyer, and he personally purchased over 70 properties by providing false information
in his loan applications. Troup also recruited several other people, including
subcontractors and family members, to serve as straw buyers. When funding from the
loans did not cover the conspiracy’s expenses, Troup began providing false
information to appraisers so PMDC could get loans on residential properties which
were higher than the value of the homes. The vast majority of proceeds obtained in
the conspiracy were used to further the fraud by building more homes to be sold
through more fraudulent transactions. Proceeds from fraudulent sales were used to
make payments to lenders on previous fraudulent transactions. The defendants,
including Troup, personally received “a few million dollars from the scheme in
salaries, commissions, and the payment by PMDC of personal expenses.” In fact,
Troup used some of the proceeds obtained through the mortgage fraud to purchase
expensive vehicles and write personal checks.
During the evidentiary hearing, co-conspirators testified as to Troup’s important
role in almost every aspect of the conspiracy. Subcontractors testified Troup was
consistently their main point of contact and supervised their work. Others testified
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Troup solicited their participation in the scheme. Many of the victims dealt almost
exclusively with Troup.
This evidence is sufficient to support the district court’s conclusion Troup had
a managerial role in the conspiracy. Based upon the evidence in the record, the
district court reasonably could have concluded Troup (1) exercised decision making
authority, (2) extensively participated in the offense, (3) recruited accomplices,
(4) claimed the right to a larger share of the fruits of the crime than many other co-
conspirators, (5) participated in planning and organizing the offense, (6) repeatedly
participated in almost 200 fraudulent transactions in at least three separate cities, and
(7) exercised control and authority over other co-conspirators. The district court’s
conclusion that Troup had a managerial role in the conspiracy warranting a two-level
increase in Troup’s base offense level was not clearly erroneous.
B. Loss Calculation
The district court concluded the amount of loss resulting from the mortgage
scheme was between $20-50 million. On appeal, defendants argue the district court
erred in calculating the amount of loss because the court failed to consider market
conditions. Defendants insist the amount of loss would not have been as high had it
not been for the downturn in the economy in general and the housing market in
particular, and defendants should not be responsible for losses “arising from external
factors.”3
“As recognized by the Guidelines, the damage wrought by fraud is sometimes
difficult to calculate.” United States v. Agboola, 417 F.3d 860, 870 (8th Cir. 2005).
3
Troup also contends “the calculation in the PSR, even if taken on its own
terms, does not accurately estimate loss.” Contrary to Troup’s assertion, the district
court did not adopt the loss calculation in the PSR. The district court explained it
“went carefully over the evidence from the evidentiary hearing [and] counsel’s
memorandum.” As a result, this argument does not warrant further discussion.
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For this reason, a district court is charged only with making “a reasonable estimate of
the loss.” United States v. Scott, 448 F.3d 1040, 1044 (8th Cir. 2006) (citations
omitted). A court should base its loss estimate upon a preponderance of the evidence.
See United States v. Boesen, 541 F.3d 838, 850 (8th Cir. 2008) (citations omitted).
Because “[t]he sentencing judge is in a unique position to assess the evidence and
estimate the loss based upon that evidence . . . [t]he court’s loss determination is
entitled to appropriate deference.” U.S.S.G. § 2B1.1 app. n.3(C). Thus, we review
a district court’s loss calculation for clear error. Boesen, 541 F.3d at 850 (citations
omitted).
As a general rule, the amount of loss is the greater of actual loss or intended
loss. U.S.S.G. § 2B1.1 app. n.3(A); Agboola, 417 F.3d at 868. “‘Actual loss’ means
the reasonably foreseeable pecuniary harm that resulted from the offense.” U.S.S.G.
§ 2B1.1 app. n.3(A)(i). “‘[R]easonably foreseeable pecuniary harm’ means pecuniary
harm that the defendant knew or, under the circumstances, reasonably should have
known, was a potential result of the offense.” Id. § 2B1.1 app. n.3(A)(iv). In contrast,
intended loss is “the pecuniary harm that was intended to result from the offense.” Id.
§ 2B1.1 app. n.3(A)(ii). If the loss cannot reasonably be determined, a “court shall
use the gain that resulted from the offense as an alternative measure of loss.” Id.
§ 2B1.1 app. n.3(B). The Guidelines suggest several different factors courts may
consider when estimating loss, including, among other factors, (1) “[t]he fair market
value of the property taken,” (2) “[t]he approximate number of victims multiplied by
the average loss to each victim,” and (3) “the scope and duration of the offense and
revenues generated by similar operations.” Id. § 2B1.1 app. n.3(C).
At the sentencing hearing, the district court found the amount of loss could
reasonably be determined, and held the resulting loss was more than $20 million and
less than $50 million. The court then added twenty-two levels to the base offense
level for each defendant as directed under U.S.S.G. § 2B1.1(b)(1)(L). The district
court did not explain how it was conducting its calculation, or upon what facts the
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court was basing its finding. The court stated it was relying on the facts in the PSR
and the evidence received during the evidentiary hearing. When Michael’s counsel
objected to the court’s calculation of loss, the district court stated, “I just want to make
clear to you I didn’t adopt that finding based on something said in the presentence
investigation. I went carefully over the evidence from the evidentiary hearing [and]
counsel’s memorandum.” The district court added, “[T]he plea agreement itself
admits that PMDC received in excess of $25 million in fraudulently obtained
mortgage proceeds.” This admission alone is sufficient to demonstrate loss in an
amount over $20 million and would support the twenty-two level increase in
defendants’ Guidelines range.
The district court also concluded there were fifty or more victims of the fraud
and increased each defendant’s base offense level an additional four levels as required
under U.S.S.G. § 2B1.1(b)(2)(B). While the parties do not appeal this finding, this
finding is important for purposes of calculating loss. The government describes the
various classes of victims as follows: “(1) the current mortgage holders; (2) the
municipal entities in which the properties are located (New Prague; Elko/New Market;
Lonsdale); (3) unpaid subcontractors; (4) individuals who purchased residences from
straw buyers pursuant to a contract for deed[;] and (5) renters.”
In order to determine the amount of loss suffered by the lending institutions, the
Guidelines direct courts to reduce the amount of loss by “the fair market value of the
collateral at the time of sentencing.” U.S.S.G. § 2B1.1 app. n.3(E)(ii) (emphasis
added). Other courts considering similar mortgage fraud cases have adopted this
method of loss calculation. See, e.g., United States v. Goss, 549 F.3d 1013, 1017-20
(5th Cir. 2008); United States v. Greene, 279 Fed.Appx. 902, 908-09 (11th Cir. 2008)
(unpublished); United States v. Abbey, 288 F.3d 515, 518-19 (2d Cir. 2002) (per
curiam). Defendants argue this method of calculating loss is insufficient because it
fails to take into consideration market factors which can impact loss. The appropriate
test is not whether market factors impacted the amount of loss, but whether the market
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factors and the resulting loss were reasonably foreseeable. See U.S.S.G. § 2B1.1 app.
n.3(A)(i).
Defendants built approximately 200 houses, knowing most, if not all, of those
houses could not be sold on the market. Instead of listing the homes for sale,
defendants fraudulently obtained almost $100 million in mortgage loans to pay for the
homes. Defendants knew, or at the very least, should have known, the conspiracy
would eventually unravel leaving as many as 200 homes vacant and pending
foreclosure. Defendants reasonably could foresee the depressing impact such an
occurrence would have on the local markets and on these property values. The
“reasonably foreseeable pecuniary harm” which resulted from defendants’ conduct is
defined as actual loss under the Guidelines. See U.S.S.G. § 2B1.1 app. n.3(A)(i).
Because the government did not present any evidence on intended loss, the only
proper estimate of loss is actual loss.
Pursuant to U.S.S.G. § 2B1.1, the equation used to calculate actual loss to the
lenders is the amount of the fraudulently obtained mortgage loans minus any
payments made on the loan principal and the value of the collateral at the time of
sentencing. See U.S.S.G. § 2B1.1 app. n.3 (E)(i) and (E)(ii). The government
submitted evidence to the district court that defendants fraudulently obtained 195
mortgage loans4 from twenty-four separate lending institutions, resulting in defendants
receiving approximately $85,020,128 in loan proceeds. Therefore, we take the
amount of the loan proceeds—$85,020,128—and subtract the value of the 195 homes
built by PMDC and used as collateral.
4
While the facts demonstrate defendants fraudulently obtained 208 mortgage
loans, a few of the properties upon which those loans were based were eventually
sold. At the evidentiary hearing, the government submitted evidence on only 195 of
the properties.
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During the evidentiary hearing, the government submitted Exhibit 9, which
provided an analysis of the market value of homes comparable to those built by
PMDC. Using this exhibit, the government submitted evidence that the average
current market value of the average comparable home totaled approximately
$230,000. After multiplying the market value of a comparable home ($230,000) by
the total number of properties (195), the approximate value of the collateral at the time
of sentencing would have been $44,850,000. To obtain our loss estimate, we subtract
the value of the collateral at the time of sentencing ($44,850,000) from the amount of
the loan proceeds ($85,020,128). This results in a total loss estimate of $40,170,128.
The district court did not engage in such an analysis. The district court also did
not discuss the amount of loss attributed to the remaining classes of victims. The
financial injuries to subcontractors, suppliers, buyers, renters, other home owners, the
affected cities, and others were real and considerable. While a detailed analysis of
loss would have been beneficial for our review, the Guidelines make clear the district
court was not required to calculate an exact amount of loss. Instead, the court was
only required to estimate the loss. See United States v. McIntosh, 492 F.3d 956, 960-
61 (8th Cir. 2007) (“‘The district court’s method for calculating the amount of loss
must be reasonable, but the loss need not be determined with precision.’” (quoting
United States v. Craiglow, 432 F.3d 816, 820 (8th Cir. 2005) (internal marks and
citation omitted))).
When the district court made its findings, the court referenced the evidence it
received during defendants’ evidentiary hearing. The evidence presented at the
evidentiary hearing was more than sufficient to support the district court’s estimate
of actual loss between $20-50 million. Even if the district court had used the amount
gained by defendants as an alternative measure of loss as defendants suggest, the
evidence was sufficient for the district court to determine the amount of gain to
defendants exceeded $20 million, thus still requiring the twenty-two level increase to
defendants’ Guidelines range. Defendants gained and benefited from the millions of
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dollars garnered to perpetuate their fraudulent scheme, further expanding the losses
and the number of victims. The district court did not clearly err in its loss calculation.
III. CONCLUSION
We affirm the judgment of the district court.
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