United States v. Robert Farrace ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 6 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 18-10234
Plaintiff-Appellee, D.C. No. 1:15-cr-160-LGO-SKO-1
v.
MEMORANDUM*
ROBERT FARRACE,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of California
Lawrence J. O’Neill, District Judge, Presiding
Argued and Submitted January 9, 2020
San Francisco, California
Before: WALLACE and FRIEDLAND, Circuit Judges, and LASNIK,** District
Judge.
We write primarily for the parties who are familiar with the facts. Robert
Farrace was convicted by a jury on three counts of wire fraud under 18 U.S.C.
§ 1343 in relation to the short sale of one of his properties to himself via a shell
company and the attempted short sale of a second property by the same method.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Robert S. Lasnik, United States District Judge for the
Western District of Washington, sitting by designation.
He was sentenced to twenty-four months’ imprisonment and ordered to pay a
judgment of forfeiture in the amount of $128,245. On appeal, Farrace argues that
the district court made several errors at trial, during sentencing, and in ordering the
forfeiture judgment.
I. Jury Instructions
Reviewing de novo, we conclude that the district court properly declined to
provide a jury instruction on fraud by omission pursuant to our decision in United
States v. Shields, 844 F.3d 819 (9th Cir. 2016).
In cases of wire fraud premised on a material omission, the district court
must instruct the jury that to convict the defendant, it must find the defendant had
an independent duty to the defrauded party to disclose the omitted information.
See Shields, 844 F.3d at 822-23. But in fraud cases premised on
misrepresentations, including those that involve half-truths, the government is not
required to prove such a duty. See, e.g., United States v. Lloyd, 807 F.3d 1128,
1153 (9th Cir. 2015) (concluding that fraud cases based on affirmative
misrepresentations, including affirmative “misleading half-truth[s],” do not require
the government to prove a duty to disclose (citation omitted)); United States v.
Benny, 786 F.2d 1410, 1418 (9th Cir. 1986) (recognizing that misrepresentation
fraud can be premised on “deceitful statements or half-truths” and emphasizing
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that “[p]roof of an affirmative, material misrepresentation supports a [fraud
conviction] without any additional proof of a fiduciary duty”).
We disagree with Farrace’s contention that the government tried his case as
both an affirmative misrepresentation and an omissions fraud case. While the
indictment contains language alluding to both misrepresentation and omissions
fraud, the government abandoned its theory of fraud by omission prior to trial and
the jury was never read the indictment. The government’s focus throughout trial
was not on Farrace’s silence, but on how he created a misleading impression. Cf.
Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989,
2000-01 (2016). The district court’s jury instructions therefore did not run afoul of
Shields or United States v. Spanier, which both involved omissions fraud. See
Shields, 844 F.3d at 822-23; United States v. Spanier, 744 F. App’x 351, 353-54
(9th Cir. 2018).
We also reject Farrace’s claim that the jury instructions constructively
amended the indictment. The government included both misrepresentation fraud
and omissions fraud in the indictment, and permissibly narrowed its fraud theory
before trial. “As long as the crime and the elements of the offense that sustain the
conviction are fully and clearly set out in the indictment, the right to a grand jury is
not normally violated by the fact that the indictment alleges more crimes or other
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means of committing the same crime.” United States v. Miller, 471 U.S. 130, 136
(1985) (citations omitted).
II. Exclusion of Evidence
“[W]e review the district court’s exclusion of evidence for abuse of
discretion, . . . [but] review de novo whether an evidentiary error rises to the level
of a constitutional violation.” United States v. Evans, 728 F.3d 953, 959 (9th Cir.
2013) (citations and internal quotation marks omitted).
Farrace argues that the district court violated his constitutional rights by
excluding evidence that he did not have the specific intent to defraud. See United
States v. Treadwell, 593 F.3d 990, 996 (9th Cir. 2010). But the evidence Farrace
highlights was irrelevant to this defense because it went to the question of the loss
his short sale caused to his mortgage lenders, which is a separate question from
whether the sale itself was fraudulent. Intent to cause loss is not an element of the
crime of wire fraud. See id. at 996 (“Section 1343 requires that one specifically
intend ‘to deprive’ the victim of money or property, but one can intend to ‘deprive’
a victim of property within the meaning of the statute without intending to cause
pecuniary loss.”); United States v. Oren, 893 F.2d 1057, 1061-62 (9th Cir. 1990)
(rejecting defendant’s argument that the Government “had to show that he intended
to cause actual loss”).
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Farrace also argues that the district court erred in excluding evidence that his
misrepresentations were not material to the lenders. See United States v. Lindsey,
850 F.3d 1009, 1011 (9th Cir. 2017). But the district court permitted Farrace to
present objective materiality evidence regarding the general lending industry,
which was admissible under Lindsey. Id. at 1014-16. The excluded evidence
Farrace identifies pertains to the individual lenders’ specific behavior and actual
reliance on Farrace’s statements, which are irrelevant to the materiality inquiry.
See id. at 1012 (“[E]vidence of the general lending standards applied in the
mortgage industry is admissible to disprove materiality, but evidence of individual
lender behavior is not admissible for that purpose.”).
The district court acted within its discretion to exclude the irrelevant
evidence Farrace highlights on appeal.
III. Sentencing Enhancements
a. Sophisticated Means
The district court made adequate findings to support its application of the
sophisticated means sentencing enhancement because it expressly adopted the
Presentence Report (“PSR”) in its statement of reasons. See United States v.
Romero-Rendon, 220 F.3d 1159, 1161 (9th Cir. 2000) (“[A] district court may rely
on an unchallenged PSR at sentencing to find by a preponderance of the evidence
that the facts underlying a sentencing enhancement have been established.”
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(citation omitted)). Farrace’s objections to the sentencing enhancement were really
claims of innocence as to the crime, which were already disposed of by the jury’s
verdict.
Further, the district court did not abuse its discretion in applying the
sophisticated means enhancement. We routinely emphasize that “[c]onduct need
not involve highly complex schemes or exhibit exceptional brilliance to justify a
sophisticated means enhancement.” See, e.g., United States v. Jennings, 711 F.3d
1144, 1145 (9th Cir. 2013). The commentary to the Sentencing Guidelines
specifically contemplates conduct like Farrace’s in discussing the applicability of
the enhancement. See U.S.S.G. § 2B1.1 cmt. n.9(B) (“Conduct such as hiding
assets or transactions, or both, through the use of fictitious entities [or] corporate
shells . . . ordinarily indicates sophisticated means.”).
b. Abuse of Trust or Use of a Special Skill
As with the sophisticated means sentencing enhancement, we affirm the
district court’s findings as to the abuse of trust or special skill enhancement based
on its adoption of the PSR. See Romero-Rendon, 220 F.3d at 1161. The district
court did not abuse its discretion in applying the enhancement because Farrace
used his special skills as a real estate attorney and former real estate broker to
facilitate his fraud. See U.S.S.G. § 3B1.3 (contemplating imposition of the
enhancement “based solely on the use of a special skill”).
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c. Double Counting
The district court’s imposition of both the sophisticated means and abuse of
trust or special skill enhancements did not constitute improper double-counting
under the Sentencing Guidelines, because “[e]ach of these enhancements
accounted for a different aspect of [Farrace’s] offense and were separately
authorized and intended by the Guidelines.” See United States v. Stoterau, 524
F.3d 988, 1001 (9th Cir. 2008). The sophisticated means enhancement accounted
for Farrace’s utilization of Dignitas, a shell company, to obscure the fact that he
was selling his homes to himself. See U.S.S.G. § 2B1.1 cmt. n.9(B). On the other
hand, the abuse of trust or special skills enhancement was imposed based on
Farrace’s utilization of his skills as a real estate lawyer and former broker to
conduct the fraud and navigate the fraudulent real estate transactions. See U.S.S.G.
§ 3B1.3 cmt. background.
d. Intended Loss
The district court imposed an 8-level sentencing enhancement for a
$128,245 “intended loss” based on Farrace’s short sale of the Roseburg property.
Farrace first contends that the district court erroneously relied on his “gain”
as a measure for loss under U.S.S.G. § 2B1.1(b)(1). We disagree. The district
court properly couched its loss finding in terms of “intended loss,” and while it
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referenced actual and intended loss numerous times during Farrace’s sentencing
hearings, it never referenced “gain.”
We agree with Farrace, however, that the district court clearly erred in
finding the “intended loss” amount to be $128,245—the difference between the
outstanding mortgage Farrace owed to the lenders on the Roseburg property and
the short sale price. See United States v. Thomsen, 830 F.3d 1049, 1071 (9th Cir.
2016). Farrace was aware in 2010 that California’s anti-deficiency laws prevented
lenders from recovering any “deficiency” in either a short sale or a nonjudicial
foreclosure. See Cal. Code Civ. Proc. §§ 580d, 580e(a), 726(a) (2010). Because
the value of the Roseburg property had fallen substantially since Farrace obtained
his mortgage, Farrace was already in default, and foreclosure was imminent, it is
undisputed that the lenders would not have recovered the full amount of the
existing mortgage, even if they had rejected the Dignitas short sale offer and
instead proceeded with a foreclosure sale or a short sale with a different buyer.
Accordingly, all parties understood that the most the lenders could have
theoretically recovered in this instance was the amount from an arm’s-length short
sale or from a foreclosure sale. We hold that the expected amount from such an
arm’s-length transaction—rather than the existing mortgage value—should have
served as the baseline for the district court’s intended loss calculation. We
therefore vacate Farrace’s sentence, and remand for resentencing to allow the
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district court to make specific findings as to the intended loss enhancement using
the correct baseline.
IV. Order of Forfeiture
The district court’s order of forfeiture in the amount of $128,245 does not
reflect proceeds Farrace obtained as a result of his criminal conduct. See 28 U.S.C.
§ 2461; 18 U.S.C. § 981(a)(1)(C) (authorizing forfeiture of “property, real or
personal, which constitutes or is derived from proceeds traceable to a violation of”
certain enumerated offenses (including wire fraud)). We have limited criminal
forfeiture “to that portion of [the defendant’s] property that the government proved
by a preponderance of the evidence was the proceeds obtained as a result of the
activities for which he was convicted.” United States v. Garcia-Guizar, 160 F.3d
511, 519 (9th Cir. 1998). The district court concluded that any actual loss suffered
by the lenders was caused by the nationwide economic and housing downturn. Cf.
id. at 519. Accordingly, the district court improperly ordered Farrace to pay a
forfeiture judgment.
V. Conclusion
For all the foregoing reasons, we AFFIRM Farrace’s conviction. Although
we affirm the district court’s imposition of the sophisticated means and abuse of
trust or special skills sentencing enhancements, we VACATE and REMAND for
resentencing, to give the district court the opportunity to make specific findings
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regarding the intended loss enhancement in accordance with the proper baseline set
forth above. Finally, we REVERSE the district court’s forfeiture order.
AFFIRMED IN PART; REVERSED IN PART; VACATED IN PART;
REMANDED FOR RESENTENCING
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