United States v. David Lonich ( 2022 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, Nos. 18-10298
Plaintiff-Appellee, 18-10395
v. D.C. No.
3:17-cr-00139-SI-3
DAVID LONICH,
Defendant-Appellant.
UNITED STATES OF AMERICA, Nos. 18-10299
Plaintiff-Appellee, 18-10408
v. D.C. No.
3:17-cr-00139-SI-2
BRIAN SCOTT MELLAND,
Defendant-Appellant.
UNITED STATES OF AMERICA, Nos. 18-10300
Plaintiff-Appellee, 18-10394
v. D.C. No.
3:14-cr-00139-SI-2
DAVID LONICH,
Defendant-Appellant.
2 UNITED STATES V. LONICH
UNITED STATES OF AMERICA, Nos. 18-10301
Plaintiff-Appellee, 18-10407
v. D.C. No.
3:14-cr-00139-SI-4
BRIAN SCOTT MELLAND,
Defendant-Appellant.
UNITED STATES OF AMERICA, Nos. 18-10303
Plaintiff-Appellee, 18-10405
v. D.C. No.
3:14-cr-00139-SI-3
SEAN CLARK CUTTING,
Defendant-Appellant.
UNITED STATES OF AMERICA, Nos. 18-10304
Plaintiff-Appellee, 18-10390
v. D.C. No.
3:17-cr-00139-SI-1
SEAN CLARK CUTTING,
Defendant-Appellant. OPINION
Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding
Argued and Submitted February 10, 2021
San Francisco, California
Filed January 10, 2022
UNITED STATES V. LONICH 3
Before: Andrew D. Hurwitz and Daniel A. Bress, Circuit
Judges, and Clifton L. Corker, * District Judge.
Opinion by Judge Bress
SUMMARY **
Criminal
The panel affirmed Sean Cutting’s, Brian Melland’s, and
David Lonich’s convictions, but vacated their sentences and
remanded for resentencing, in a complex case arising from
fraudulent schemes concerning bank loans and real estate in
Sonoma County, California.
The panel held the Sixth Amendment’s Speedy Trial
Clause was not violated. Defendants claimed a Speedy Trial
Clause violation as to all charges first brought in the October
2016 superseding indictment. Defendants then argued this
court should reverse their convictions as to the charges in the
original March 2014 indictment because of “prejudicial
spillover” from evidence used to prove the charges in the
allegedly unconstitutional superseding indictment. The
panel had no occasion to consider defendants’ “prejudicial
spillover” theory because the panel held that the
government’s decision to file new charges in the superseding
indictment did not infringe defendants’ Speedy Trial Clause
*
The Honorable Clifton L. Corker, United States District Judge for
the Eastern District of Tennessee, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4 UNITED STATES V. LONICH
rights. As to the first factor in the balancing test set forth in
Barker v. Wingo, 407 U.S. 514 (1972), the length of the
delay, the parties disagreed on when defendants’ Speedy
Trial Clause rights attached for the new charges first brought
in the superseding indictment. Defendants argued the
original indictment should be used as the start date for the
new charges in the superseding indictment. The government
contended the date it filed the superseding indictment should
be used. The panel did not need to resolve that debate
because it concluded that, even assuming the clock started at
the time of the original indictment, there was no Speedy
Trial Clause violation because the delay caused no relevant
prejudice to defendants.
Defendants challenged the jury instructions on the
money laundering (18 U.S.C. § 1957) and misapplication of
bank funds (18 U.S.C. § 656) charges, contending that the
instructions’ overarching definition of “knowingly”
conflicted with the required mental states for the two
charged offenses. The panel held that the district court’s
general “knowingly” instruction was permissible and that
defendants in any event did not show prejudice from the
instruction.
Melland argued that there was insufficient evidence to
support his conviction for bribery by a bank employee
(18 U.S.C. § 215(a)(2)), which was based on his securing a
$50,000 investment in Melland’s energy-drink start-up. The
panel held that, as the parties effectively agree, the district
court appropriately stated the law when it instructed the jury
that, to find Melland “acted corruptly,” as required under
§ 215(a)(2), the jury must determine he “intend[ed] to be
influenced or rewarded in connection with any business or
transaction of” a financial institution. Noting that the
UNITED STATES V. LONICH 5
circumstantial evidence was plentiful, the panel held that
there was sufficient evidence to support the conviction.
Lonich argued that there was insufficient evidence to
support his conviction for attempted obstruction of justice
(18 U.S.C. § 1512(c)(2)) by encouraging a straw buyer to
mislead the grand jury about his role in a scheme to gain
control of a real estate development. The panel held that
§ 1512(c)(2) requires a showing of nexus to an official
proceeding, but rejected Lonich’s argument that no
reasonable jury could have found the required nexus here.
Noting that neither party disputes using a “consciousness of
wrongdoing” mens rea requirement for purposes of
evaluating the sufficiency of the evidence, the panel held that
a reasonable jury could find that the government met its
burden of proof in demonstrating Lonich’s criminal intent.
The panel held that defendants’ sentences must be
vacated. The district court applied several enhancements
that dramatically increased defendants’ recommended
Guidelines sentencing ranges. These enhancements were
premised on a critical factual finding: that defendants
caused Sonoma Valley Bank (SVB) to fail, making
defendants responsible for associated losses. Addressing the
standard of proof that the government was required to meet
to demonstrate whether defendants caused SVB to fail, the
panel focused on factors five and six of the non-exhaustive
factors set forth in United States v. Valencia, 222 F.3d 1173(9th Cir. 2000). Given the extremely disproportionate
sentences that the disputed enhancements produced, the
panel held that a clear and convincing evidence standard
applies to the factual underpinnings for these enhancements.
The panel concluded that the government did not
demonstrate by clear and convincing evidence that
defendants caused SVB to fail, where the district court made
6 UNITED STATES V. LONICH
no independent findings about the cause of the bank’s
collapse beyond adopting the Presentence Investigation
Reports (PSRs) and rejecting defendants’ objections without
explanation, and neither the PSRs nor the additional
materials the government now cites sufficiently show that
defendants were responsible for SVB failing, especially
given indications in the record that other factors internal and
external to the bank may have contributed to the bank’s
collapse. This meant that the government did not
sufficiently support defendants’ 20-level loss enhancement
under U.S.S.G. § 2B1.1(b)(1)(K). The panel wrote that its
determination that the government did not adequately prove
defendants caused SVB to fail means that enhancements
under U.S.S.G. § 2B1.1(b)(2)(A)(i) (ten or more victims)
and § 2B1.1(b)(17)(B)(i) (jeopardizing the safety and
soundness of a financial institution) are infirm as well. The
panel wrote that the same is true of defendants’
approximately $20 million restitution orders, which were
likewise premised on the government’s theory that
defendants caused the bank to fail. The panel vacated
defendants’ sentences and remanded for resentencing on an
open record.
The panel rejected defendants’ remaining challenges to
their convictions in a memorandum disposition.
UNITED STATES V. LONICH 7
COUNSEL
George C. Harris (argued), The Norton Law Firm PC,
Oakland, California, for Defendant-Appellant David
Lonich.
Juliana Drous (argued), Law Office of Juliana Drous, San
Francisco, California, for Defendant-Appellant Brian Scott
Melland.
Steven J. Keoninger (argued), Assistant Federal Public
Defender; Steven G. Kalar, Federal Public Defender; Office
of the Federal Public Defender, San Francisco, California;
for Defendant-Appellant Sean Clark Cutting.
Francesco Valentini (argued), Trial Attorney; Brian C.
Rabbitt, Acting Assistant Attorney General; United States
Department of Justice, Criminal Division, Appellate
Section, Washington, D.C.; Adam A. Reeves and Robert
David Rees, Assistant United States Attorneys; David L.
Anderson, United States Attorney; United States Attorney’s
Office, San Francisco, California; for Plaintiff-Appellee.
8 UNITED STATES V. LONICH
OPINION
BRESS, Circuit Judge:
This complex criminal appeal arises from fraudulent
schemes concerning bank loans and real estate in Sonoma
County, California. The three defendants, Sean Cutting,
Brian Melland, and David Lonich, appeal their convictions
and sentences, raising numerous issues for our review.
We affirm defendants’ convictions. Among other things,
we hold that the government did not infringe defendants’
rights under the Sixth Amendment’s Speedy Trial Clause;
that the district court’s jury instructions for money
laundering and misapplication of bank funds do not require
reversal; and that sufficient evidence supported Melland’s
conviction for bribery by a bank employee and Lonich’s
conviction for attempted obstruction of justice.
However, we vacate defendants’ sentences and remand
for resentencing. The defendants’ advisory Sentencing
Guidelines ranges increased substantially based on
sentencing enhancements that hinged on finding that
defendants caused the Sonoma Valley Bank to fail. We hold
that because the government has not sufficiently
demonstrated that defendants caused the bank’s failure, the
enhancements are not supported by the record. 1
1
In a concurrently filed opinion, we reject a third party’s ancillary
challenge to the district court’s criminal forfeiture order. See United
States v. 101 Houseco, LLC, No. 18-10305 (9th Cir. 2021).
UNITED STATES V. LONICH 9
I. Facts and Procedural History
A
This case involves two overarching fraudulent schemes
involving bank officers, a real estate developer, and the
developer’s lawyer. Defendants Sean Cutting and Brian
Melland were officers at Sonoma Valley Bank (SVB).
Cutting was SVB’s Chief Lending Officer between 2005 and
2011. He joined its board of directors in 2008 and became
its CEO in 2009. Melland was a commercial loan officer at
SVB. Bijan Madjlessi was a real estate developer who died
shortly after being indicted in this case. Defendant David
Lonich worked as Madjlessi’s in-house lawyer between
2009 and 2012.
Defendants’ extensive fraudulent schemes took place
over many years. In the first scheme, which we will call the
“legal lending limit scheme,” Cutting and Melland conspired
with Madjlessi and Lonich to induce SVB to approve, over
a period of years, millions of dollars in bank loans to
Madjlessi and entities he controlled. These loans exceeded
SVB’s legal lending limit—the maximum amount that
California law permits a bank to lend a borrower or his
affiliates.
Cutting and Melland recommended that SVB approve
these loans without disclosing to the bank’s loan committee
that Madjlessi was the beneficiary. Madjlessi then used the
fraudulently obtained loans to pay the interest on preexisting
SVB loans. In one instance, Melland secured a loan for
Madjlessi only after Madjlessi (through a $50,000 payment
from his wife) agreed to invest in Melland’s side business,
an energy drink start-up known as Magnus Innovations
Group.
10 UNITED STATES V. LONICH
In connection with this scheme to keep Madjlessi’s
businesses afloat through fraudulent loans, Cutting and
Melland also conspired to conceal from the Federal Deposit
Insurance Corporation (FDIC) SVB’s overall financial
exposure to Madjlessi. Ultimately, Cutting and Melland
enabled Madjlessi and his related entities to receive over
$35 million in loans from SVB (although the government
did not claim all these loans were fraudulent).
In the second scheme, which we will call the
“101 Houseco scheme,” Madjlessi and Lonich conspired
with Cutting and Melland to gain control of Park Lane Villas
East (PLV East), a Madjlessi real estate development in
Santa Rosa, California. By March 2009, Madjlessi had
defaulted on a separate $32 million loan from another bank,
IndyMac, secured by PLV East. IndyMac was in FDIC
conservatorship, and the FDIC scheduled a sale of
Madjlessi’s defaulted note at an auction.
FDIC rules prohibited Madjlessi and his related entities
from participating in the auction. Nevertheless, the
defendants used a straw buyer, James House, and a sham
entity, 101 Houseco, LLC, to buy the IndyMac note at the
auction and thereby secure control of PLV East. House, the
straw buyer, was a contractor to whom Madjlessi owed
around $200,000. House took part in the scheme so that
Madjlessi would pay the $200,000.
The defendants created 101 Houseco, LLC solely for
bidding on the note, naming House as its owner on paper.
Lonich also had House fax to DebtX, the company managing
the FDIC auction, an eligibility certification in which House
falsely certified that he was not using the auction to “benefit
directly or indirectly” anyone “who otherwise would be
ineligible to purchase assets from the FDIC.” To fund the
deposit on the sale, Lonich had Melland transfer $100,000
UNITED STATES V. LONICH 11
from Madjlessi’s daughter’s account into House’s business
account, further concealing Madjlessi’s role from DebtX.
To finance the rest of the purchase of the note, Melland and
Cutting fraudulently secured for 101 Houseco a $5.4 million
loan from SVB. Using the loan proceeds, 101 Houseco
successfully bid $4.2 million to obtain Madjlessi’s defaulted
IndyMac note, which had a face value exceeding
$27 million.
After the auction, SVB’s loans to House continued under
the guise of allowing House to construct the Park Lane
Villas. SVB continued to increase the loan amount until it
reached $9.4 million. Of this $9.4 million, about
$4.5 million was passed to Madjlessi through one of his
construction companies. Madjlessi kept his side of the
bargain with House, paying him the $200,000 owed for past
contracting work. In line with the plan, Lonich later
transferred effective control of 101 Houseco to Madjlessi.
Lonich became 101 Houseco’s sole manager. Madjlessi’s
wife became the beneficiary of the trust that held a 99%
interest in 101 Houseco.
Madjlessi and Lonich wanted to refinance PLV East
through Fannie Mae or Freddie Mac programs for multi-
family housing. In the meantime, however, Fannie Mae had
repossessed several condos in PLV East and was selling
them at auction. Fannie Mae preferred buyers who would
occupy the condos over outside investors. To get around
Fannie Mae’s preferences, Madjlessi and Lonich used straw
buyers—including House, Madjlessi’s personal assistant,
and the assistant’s two sons—to purchase the condos. The
straw buyers then transferred the units to 101 Houseco.
12 UNITED STATES V. LONICH
Madjlessi and Lonich arranged the financing for these
straw purchases through Cutting and Melland. Lonich
drafted asset verification letters falsely stating that the
buyers had sufficient assets with SVB to fund the purchases
in full. Cutting and Melland then gave these letters back to
Lonich on SVB letterhead with Cutting’s signature.
After the FDIC and the California Division of Financial
Institutions (DFI) examined SVB, DFI gave SVB the lowest
rating it could give a bank without closing it. In August
2010, California’s Commissioner of Financial Institutions
seized control of SVB, ordering that the bank be liquidated
and its assets turned over to the FDIC.
When federal agents interviewed House, he admitted
wrongdoing and agreed to cooperate. In subsequent secretly
recorded meetings, Lonich advised House on how he should
testify before a grand jury. House later pleaded guilty to
bank and wire fraud charges for making false statements in
connection with the 101 Houseco application for the SVB
loan and the bid on the FDIC-owned note.
B
In March 2014, a federal grand jury returned a 29-count
indictment against Cutting, Melland, Lonich, and Madjlessi
for the 101 Houseco scheme (Madjlessi died soon after). In
October 2016, the grand jury returned a superseding
indictment adding charges for defendants’ legal lending
limit scheme and their concealing from the FDIC SVB’s risk
exposure to Madjlessi.
In the fall of 2017, and after a 31-day jury trial, the jury
convicted defendants on nearly all counts. This chart
summarizes the convictions:
UNITED STATES V. LONICH 13
Count 18 Offense Defendants
U.S.C. §
1 371 Conspiracy to commit Cutting,
bank fraud Lonich, and
Melland
2 1344 Bank Fraud Cutting,
Lonich, and
Melland
3–4 1005 Making a false bank Melland
entry for certain (Cutting
Madjlessi-related acquitted)
loans
5 1005 Making a false bank Cutting and
entry for certain other Melland
Madjlessi-related
loans
6 371 Conspiracy to make Cutting and
false statements to the Melland
FDIC
7 656 Misapplication of Cutting and
bank funds Melland
8 1007 Making a false Cutting and
statement to the FDIC Melland
9 215 Receiving a gift for Melland
procuring loans
10 1349, Conspiracy to commit Cutting,
1343 wire fraud Lonich, and
Melland
14 UNITED STATES V. LONICH
11–15 1343 Wire Fraud for the Cutting,
101 Houseco scheme Lonich, and
Melland
19–30 1957 Money laundering for Cutting,
transferring loan Lonich, and
proceeds House Melland
controlled to
Madjlessi
32–36 1005 Making a false bank Cutting,
entry for Cutting’s Lonich, and
false asset- Melland
verification letters
relating to purchases
of PLV East condos
37 1512(c) Attempted obstruction Lonich
of justice
All three defendants were acquitted of Count 16, a wire fraud
charge. The government withdrew Counts 17, 18, and 31.
The advisory Sentencing Guidelines range adopted by
the district court for both Cutting and Melland was 235–293
months. The Guidelines range for Lonich was 292–365
months. The district court sentenced Cutting and Melland
each to 100 months in prison, and Lonich to 80 months. The
district court also ordered approximately $20 million in
restitution and the forfeiture of PLV East.
In this appeal, the defendants raise many challenges to
their convictions and sentences. We review the district
court’s legal conclusions de novo. See United States v.
Gregory, 322 F.3d 1157, 1160 (9th Cir. 2003). And we
UNITED STATES V. LONICH 15
review its factual determinations for clear error. See id.
at 1161.
II. The Speedy Trial Clause
Defendants’ lead argument is that their convictions are
invalid under the Sixth Amendment’s Speedy Trial Clause.
Defendants claim a Speedy Trial Clause violation as to all
charges first brought in the October 2016 superseding
indictment. Defendants then argue we should reverse their
convictions as to the charges in the original March 2014
indictment because of “prejudicial spillover” from evidence
used to prove the charges in the allegedly unconstitutional
superseding indictment.
We have no occasion to consider defendants’
“prejudicial spillover” theory because we hold that the
government’s decision to file new charges in the superseding
indictment did not infringe defendants’ Speedy Trial Clause
rights.
A
Some additional background on the proceedings below
is necessary to understand our resolution of the Speedy Trial
Clause issue. In March 2014, the grand jury indicted
defendants on 29 charges related to the 101 Houseco
scheme. In May 2016, the district court ordered the
government to file any superseding indictment by October
28, 2016, and set a trial date of March 2017.
On October 27, 2016, the day before the court’s deadline,
the grand jury returned the superseding indictment. Besides
the charges for the 101 Houseco scheme from the original
indictment, the superseding indictment included new
allegations for the legal lending limit scheme and
16 UNITED STATES V. LONICH
defendants’ related fraud on the FDIC regarding SVB’s
financial exposure to Madjlessi.
Criminal defendants enjoy certain protections from post-
indictment delays. Some are statutory, codified in the
Speedy Trial Act. See 18 U.S.C. § 3161; see also, e.g.,
United States v. Murillo, 288 F.3d 1126, 1131 (9th Cir.
2002). Others are constitutional, rooted in the Sixth
Amendment’s Speedy Trial Clause. See, e.g., Barker v.
Wingo, 407 U.S. 514, 530–33 (1972); Murillo, 288 F.3d at
1131. “The specific time limits set by the Speedy Trial Act
are . . . different from the broader limits of the [S]ixth
[A]mendment” because the constitutional analysis “is
governed by the more flexible consideration of prejudice
caused by delay.” Murillo, 288 F.3d at 1131 (quoting United
States v. Pollock, 726 F.2d 1456, 1460 n.5 (9th Cir. 1984)).
Defendants did not assert either below or on appeal an
independent Speedy Trial Clause or Speedy Trial Act
violation for the 101 Houseco scheme charges that were in
the original indictment. The defendants had instead long
agreed to the approximately 3-year period between the
original March 2014 indictment and the original March 2017
trial date, based on their need to prepare a defense against
the indictment’s complex allegations. See United States v.
Aguirre, 994 F.2d 1454, 1457 (9th Cir. 1993) (“The Speedy
Trial Clause primarily protects those who assert their rights,
not those who acquiesce in the delay—perhaps hoping the
government will change its mind or lose critical evidence.”).
Defendants contended below, however, that there was a
Speedy Trial Clause violation based on the new charges first
brought in the October 2016 superseding indictment
UNITED STATES V. LONICH 17
associated with the legal lending limit scheme and the
related fraud on the FDIC. 2
The district court initially granted defendants’ motion
asserting a Speedy Trial Clause violation and dismissed the
superseding indictment without prejudice. The court
calculated the period of delay using the March 2014 original
indictment date as the starting point and March 2017 (the
original trial date) as the end date. This three-year delay, the
district court held, presumptively prejudiced the defendants.
The district court also found that “[t]he government
could have filed all of the charges contained in the
superseding indictment when it filed the original indictment,
and the government has not adequately explained why it did
not do so.” According to the district court:
This is not a case where new evidence has
come to light that prompted the need to
supersede. Rather, the government simply
chose to seek indictment on some of the
charges of which it was aware, while holding
back on others. Then later—much later,
some 31 months later—it decided to
supersede to add the charges it had been
holding back, including a new conspiracy and
new substantive charges. Although the Court
does not find bad faith on the part of the
government, the Court does find that the
2
Defendants do not argue there was excessive pre-indictment delay
under the Fifth Amendment. See United States v. Corona-Verbera,
509 F.3d 1105, 1112 (9th Cir. 2007) (“The Fifth Amendment guarantees
that defendants will not be denied due process as a result of excessive
pre-indictment delay.” (quoting United States v. Sherlock, 962 F.2d
1349, 1353 (9th Cir. 1989))).
18 UNITED STATES V. LONICH
government acted deliberately and
intentionally with regard to charging the new
crimes added in the superseding indictment.
The district court further found that the government’s
delay had prejudiced the defendants. Citing the
government’s production of millions of pages of additional
documents, the poor quality of its electronic document
production, its general discovery delays, and the fact that the
broadened charges would require defendants to re-review
documents previously produced, the district court found that
the government had put defendants in an “untenable
position.” If the new charges remained in this case, “the
[March 2017] trial date would almost certainly need to be
continued in order to allow the defense time to prepare.” The
district court dismissed the superseding indictment without
prejudice, allowing the government to refile the new charges
in a new case.
The government moved for reconsideration, noting that
Speedy Trial Clause violations require dismissals with
prejudice. See, e.g., Strunk v. United States, 412 U.S. 434,
440 (1973); United States v. Saavedra, 684 F.2d 1293, 1297
(9th Cir. 1982). The government therefore suggested that
the district court’s order would more properly be grounded
in Federal Rule of Criminal Procedure 48, which allows
dismissals without prejudice. See United States v. Yuan
Qing Jiang, 214 F.3d 1099, 1103 (9th Cir. 2000). Rule 48
permits a court to dismiss an indictment “if unnecessary
delay occurs in: (1) presenting a charge to a grand jury;
(2) filing an information against a defendant; or (3) bringing
a defendant to trial.” Fed. R. Crim. P. 48.
The district court granted the government’s motion for
reconsideration, explaining that it had “clearly intended that
UNITED STATES V. LONICH 19
the dismissal be without prejudice, and the Court erred by
not grounding its order in Rule 48.” The court reiterated its
previous finding that “the government had unnecessarily
delayed in seeking the superseding indictment.” And it
again noted “the prejudice defendants would experience if
forced to proceed to trial in March 2017 on the new charges,
given the technical problems with the government’s
discovery production as well as the new discovery produced
regarding the new charges.” The court then dismissed the
superseding indictment without prejudice under Rule 48.
In March 2017, in response to the district court’s order,
the government filed a new action against defendants based
on an entirely new indictment concerning the legal lending
limit scheme. Not wanting two trials, defendants requested
that the district court consolidate the two cases. Defendants
also requested that the district court vacate the March 2017
trial date so they would have sufficient time to prepare for a
consolidated trial. The district court granted defendants’
request and re-set the trial for October 2017.
B
1
The Sixth Amendment provides that “[i]n all criminal
prosecutions, the accused shall enjoy the right to a speedy
and public trial, by an impartial jury . . . .” U.S. Const.
amend. VI. The Speedy Trial Clause limits the
government’s ability to delay criminal trials once it has
“arrested or formally accused” a defendant of a crime.
Betterman v. Montana, 578 U.S. 437, 441 (2016). The
purpose of the Clause is to “prevent[] undue and oppressive
incarceration prior to trial, minimiz[e] anxiety and concern
accompanying public accusation, and limit[] the possibilities
that long delay will impair the ability of an accused to defend
20 UNITED STATES V. LONICH
himself.” Id. at 1614 (quoting United States v. Marion,
404 U.S. 307, 320–21 (1971)).
To assess whether the Speedy Trial Clause was violated,
we apply the four-part balancing test from Barker v. Wingo,
407 U.S. 514 (1972), considering (1) the length of the delay,
(2) the reason for the delay, (3) whether the defendant
asserted his rights, and (4) the prejudice to the defendant. Id.at 530–33; see also Doggett v. United States, 505 U.S. 647,
651 (1992) (explaining that “[o]ur cases . . . have qualified
the literal sweep of the [Speedy Trial Clause] provision by
specifically recognizing the relevance of four separate
enquiries” set forth in Barker); United States v. King,
483 F.3d 969, 976 (9th Cir. 2007).
Importantly, “none of the four [Barker] factors . . . [i]s
either a necessary or sufficient condition to the finding of a
deprivation of the right of speedy trial. Rather, they are
related factors and must be considered together with such
other circumstances as may be relevant,” as part of “a
difficult and sensitive balancing process.” Barker, 407 U.S.
at 533; see also United States v. Mendoza, 530 F.3d 758, 762
(9th Cir. 2008) (“None of [the Barker] factors are either
necessary or sufficient, individually, to support a finding that
a defendant’s speed[y] trial right has been violated.”);
Gregory, 322 F.3d at 1161–65 (discussing the Barker
factors).
The first Barker factor, the length of delay, is “a double
enquiry,” serving both as a triggering mechanism for the rest
of the Speedy Trial Clause evaluation and a factor in that
analysis. Doggett, 505 U.S. at 651–52. The “general
consensus” is that an eight-month delay “constitutes the
threshold minimum” to initiate the full Barker inquiry.
Gregory, 322 F.3d at 1162 n.3. If the delay crosses that
threshold, we generally proceed to the four-factor Barker
UNITED STATES V. LONICH 21
test. Id. at 1161. “Although there is no bright-line rule,
courts generally have found that delays approaching one
year are presumptively prejudicial.” Id. at 1161–62.
The parties spend considerable effort dueling over the
first Barker factor. They agree that the relevant end date for
our analysis is the original trial date in March 2017. But they
disagree on when defendants’ Speedy Trial Clause rights
attached for the new charges first brought in the superseding
indictment. Defendants argue we should use the original
indictment as the start date for the new charges in the
superseding indictment. The government contends we
should use the date it filed the superseding indictment
because, in its view, the Speedy Trial Clause is “offense
specific” and the new charges involved different offenses
under Blockburger v. United States, 284 U.S. 299 (1932), the
seminal precedent in the Double Jeopardy context.
Essentially, the government argues that its superseding
indictment reset the Speedy Trial Clause clock here because
the new charges were not barred under Blockburger’s
Double Jeopardy test.
We need not resolve that debate today because we
conclude that, even assuming the clock started at the time of
the original indictment, there was no Speedy Trial Clause
violation because the delay caused no relevant prejudice to
the defendants.
2
If we assume that the Speedy Trial Clause clock on the
charges in the superseding indictment started to run when the
initial indictment was filed, the delay from that point to the
original trial date was three years. That is a substantial delay.
But under Barker, it is not conclusively a Speedy Trial
Clause violation. It is not nearly as egregious as other cases
22 UNITED STATES V. LONICH
in which courts have found Speedy Trial Clause violations.
See, e.g., Doggett, 505 U.S. at 657 (8.5-year delay); United
States v. Black, 918 F.3d 243, 248–49 (2d Cir. 2019) (5.75-
year delay); United States v. Handa, 892 F.3d 95, 107 (1st
Cir. 2018) (6.5-year delay); United States v. Shell, 974 F.2d
1035, 1036 (9th Cir. 1992) (5-year delay).
Indeed, when considering the other Barker factors,
courts have held much longer delays than the one here
permissible under the Speedy Trial Clause. See, e.g., United
States v. Loud Hawk, 474 U.S. 302, 314–17 (1986) (more
than 7-year delay); Barker, 407 U.S. at 533–34 (“well over
five year[]” delay); United States v. Alexander, 817 F.3d
1178, 1183 (9th Cir. 2016) (per curiam) (5-year delay);
Corona-Verbera, 509 F.3d at 1116 (“nearly eight-year
delay”); Aguirre, 994 F.2d at 1456–58 (5-year delay);
Rayborn v. Scully, 858 F.2d 84, 89 (2d Cir. 1988) (over 7-
year delay). The three-year delay that we assume occurred
here was thus not dispositively unconstitutional, but instead
“presumptively prejudicial.” Gregory, 322 F.3d at 1162.
This means it is “sufficient to trigger inquiry into the other
three [Barker] factors.” Corona-Verbera, 509 F.3d at 1114.
The defendants argue that, combined with the
government’s intentional decision to delay the superseding
indictment, the 3-year delay requires the government to
show that defendants were not prejudiced by the delay. We
assume defendants are correct on that point. See Shell,
974 F.2d at 1036. But as we have explained, “presumptive
prejudice is simply ‘part of the mix of relevant facts, and its
importance increases with the length of the delay,’”
Gregory, 322 F.3d at 1162 (quoting United States v.
Beamon, 992 F.2d 1009, 1013 (9th Cir. 1993)), as well as the
reason for the delay, see Alexander, 817 F.3d at 1182. Here
the delay, while notable, was not on the high end of the range
UNITED STATES V. LONICH 23
where Speedy Trial Clause violations typically lie. And
most critically, regardless of who bears the burden to show
prejudice (or lack thereof), there is simply no basis to find
any Speedy Trial Clause prejudice on the facts of this case.
See Doggett, 505 U.S. at 658 n.4 (noting that the government
may “affirmatively prove[] that the delay left [the
defendant’s] ability to defend himself unimpaired”).
The critical feature of this case is that the trial on the
charges in the original March 2014 indictment was already
set for March 2017. Defendants had no Speedy Trial Clause
(or Speedy Trial Act) objection to trying the charges in the
original indictment on that date. Indeed, they agreed to the
March 2017 trial date based on their need to prepare for trial
in a complex case, the amount of anticipated discovery, and
defendants’ counsel’s schedules.
Thus, even if the government had brought all the charges
in the original indictment, there is no reason to believe the
trial date would have been set any earlier than March 2017.
So, the government’s filing of the superseding indictment at
most added seven months of delay, from March 2017 to the
eventual trial date in October 2017—a date to which all
parties agreed after the two cases were joined for trial at the
defendants’ request.
The government has sufficiently demonstrated that the
extra seven-month delay did not cause defendants any
identifiable prejudice. Defendants were not incarcerated
pending trial. See Betterman, 578 U.S. at 442. And while
defendants presumably experienced some anxiety during the
entire pretrial period, there is no suggestion that the added
seven-month delay resulting from the new charges in the
superseding indictment created any material increase in
anxiety. See id.
24 UNITED STATES V. LONICH
Nor did the incremental delay “impair the ability” of
defendants to defend themselves. Id. Defendants did have
to defend against a broader set of charges involving a
broader body of evidence. But the “prejudice with which we
are concerned is prejudice caused by the delay that triggered
the Barker inquiry, not simply any prejudice that may have
occurred before the trial date but unrelated to the fact of the
delay itself.” Gregory, 322 F.3d at 1163.
The prejudice associated with defending against the
broader charges here is unrelated to the fact of the delay
itself. Gregory is relevant on that point. There, we held that
there was no Speedy Trial Clause violation when the
government filed a third superseding indictment after the
defendant had already pleaded guilty and served a prison
sentence on earlier related charges. Id. at 1159–65. As we
explained, even if the sequencing of the government’s
charging decisions was “unusual,” the government’s filing
of additional charges “is not in and of itself a constitutional
violation.” Id. at 1161.
That was because, as here, “[t]he government was free to
file a new indictment, rather than a superseding indictment,”
which “would have presented no constitutional speedy trial
problems.” Id. Indeed, that was so in Gregory even though
there (unlike here) the new charges in the superseding
indictment arose “out of the same course of conduct” as that
charged in the original indictments, and there (unlike here)
the defendant had even served time in prison on the earlier
charges. Id.As in Gregory, any prejudice to the defendants here
“results solely from the government’s choice not to bring”
the different charges together initially, which “has nothing
to do with the delay itself from the time of the indictment
until the time of trial.” Id. at 1164. If the government had
UNITED STATES V. LONICH 25
merely filed a second action in October 2016 instead of a
superseding indictment, defendants would have no basis to
complain under the Speedy Trial Clause. It should not
matter that the government initially joined the charges
together in one case through a superseding indictment, broke
them out to comply with the district court’s Rule 48 order,
and then rejoined them for trial upon the defendants’ request.
In response, defendants lean heavily on the district
court’s prejudice analysis. But that analysis shows why the
district court was correct in concluding that dismissal with
prejudice was not warranted. The district court found that
the superseding indictment caused prejudice because it
would require defendants to prepare a defense against a
whole new set of allegations in time for a March 2017 trial.
That was indeed prejudicial, justifying the district court’s
decision to order the government to file the new charges in a
new case. See Fed. R. Crim. P. 48(b). But that is not the
type of prejudice the Speedy Trial Clause protects against:
the Speedy Trial Clause relates to trial delay, not being
rushed into a trial. Cf. Loud Hawk, 474 U.S. at 311 (“The
Speedy Trial Clause does not purport to protect a defendant
from all effects flowing from a delay before trial.”); United
States v. MacDonald, 435 U.S. 850, 861 (1978) (“It is the
delay before trial, not the trial itself, that offends against the
constitutional guarantee of a speedy trial.”).
When defendants focus on areas of prejudice that could
implicate the Speedy Trial Clause, the weakness of their
prejudice theory becomes further apparent. Defendants note
that two SVB directors suffered from memory issues and
that a box of FDIC records from the May 2008 SVB
examination had gone missing. But these assertions of
prejudice are speculative, especially in view of the overall
scope of the government’s prosecution and the
26 UNITED STATES V. LONICH
overwhelming evidence that defendants participated in
fraudulent schemes. See Loud Hawk, 474 U.S. at 315(“[T]he possibility of ‘impairment of a fair trial that may
well result from the absence or loss of memory of witnesses’
. . . is not sufficient to support respondents’ position that
their speedy trial rights were violated.” (quoting United
States v. Loud Hawk, 741 F.2d 1184, 1193 (9th Cir. 1984)).
Even if defendants had known to contact the two SVB
directors earlier, it is unclear if the witnesses’ memories
would have been better then, since the events in question
were already somewhat dated. The same is true of other
witnesses who could not recall certain details at trial. As to
the box of documents, it is unclear when it went missing.
Plus, defendants had already extensively cross-examined the
government’s investigator about the 2008 FDIC
examination. In short, there is no “non-speculative proof as
to how [defendants’] defense was prejudiced by the”
additional seven-month delay. Alexander, 817 F.3d at 1183.
3
Defendants also point to the district court’s findings that
the government “deliberately and intentionally” delayed
pursuing the new charges in the superseding indictment.
This argument resonates most centrally in Barker’s second
factor—the reason for the delay—which we have described
as “the focal inquiry” of the Barker analysis. Alexander,
817 F.3d at 1182 (quoting United States v. Sears, Roebuck
& Co., Inc., 877 F.2d 734, 739 (9th Cir. 1989)).
We agree with defendants that the government’s reasons
for delay augment the presumed prejudice that we must
infer. See Doggett, 505 U.S. at 656–58; Shell, 974 F.2d at
1036. But defendants overstate the significance of this
Barker factor on the particular facts of this case. The
UNITED STATES V. LONICH 27
government did not act with reasonable diligence here, but
the district court also emphasized that it did not find any bad
faith. While “prejudice may be presumed” when the
government “intentionally delayed or negligently pursued
the proceedings,” Alexander, 817 F.3d at 1182, prejudice
does not somehow drop out of the analysis altogether simply
because the government may have acted strategically.
Instead, “the amount of prejudice” required to trigger a
Speedy Trial Clause violation “is inversely proportional to
the length and reason for the delay.” Id. at 1183. And
ultimately, and even if prejudice is presumed, the Speedy
Trial Clause and Barker inquiry seek to ensure that
defendants are not unduly harmed by excessive post-
indictment delay. See MacDonald, 456 U.S. at 8 (“The
speedy trial guarantee is designed to minimize the possibility
of lengthy incarceration prior to trial, to reduce the lesser,
but nevertheless substantial, impairment of liberty imposed
on an accused while released on bail, and to shorten the
disruption of life caused by arrest and the presence of
unresolved criminal charges.”).
Here, the problem for defendants remains the same: the
trial was already going to happen at least three years after the
original indictment. In this case, there is no basis to
conclude that the added delay resulting from the superseding
indictment worked any relevant prejudice to the defendants.
That is especially so when the government could have filed
these new charges in an entirely separate case, see Gregory,
322 F.3d at 1161—as the government in fact did in response
to the district court’s Rule 48 dismissal. We may not abstract
one Barker factor from the others without considering the
28 UNITED STATES V. LONICH
overall facts and circumstances associated with the delay.
See Barker, 407 U.S. at 533. 3
We do not minimize the district court’s concerns with the
timing of the government’s charging decisions. The
government’s answering brief admits that it “takes the
district court’s criticism seriously and is committed to
avoid[ing] such situations in the future.” We fully expect the
government to abide by that representation. And, the result
might well be different if meaningful Speedy Trial prejudice
resulted from the government’s actions.
But the issue here is whether the defendants should
effectively reap a windfall when the timing of the
superseding indictment worked no meaningful Speedy Trial
Clause prejudice. Neither the Sixth Amendment nor Barker
support, much less require, that result. Given the effective
seven-month delay and the lack of material prejudice, we
hold that the Speedy Trial Clause was not violated.
III. Jury Instructions for Money Laundering and
Misapplication of Bank Funds
Defendants next challenge the jury instructions on the
money laundering and misapplication of bank funds charges.
Specifically, defendants contend that the instructions’
overarching definition of “knowingly” conflicted with the
required mental states for the two charged offenses. We
hold, however, that the district court’s general “knowingly”
3
The Third Circuit’s decision in United States v. Battis, 589 F.3d
673 (3d Cir. 2009), on which defendants rely, is distinguishable. That
case involved a 45-month delay, at least 35 months of which were
attributable to the government. Id. at 683. Battis also did not involve a
defendant who had already agreed to a substantial delay in the trial, as
here.
UNITED STATES V. LONICH 29
instruction was permissible and that defendants in any event
have not shown prejudice from the instruction.
A
Defendants were charged with twelve counts of money
laundering under 18 U.S.C. § 1957. These counts were
based on the 101 Houseco scheme for defendants
transferring the loan proceeds from House’s construction
company and 101 Houseco to Masma Construction, a
Madjlessi construction company. Cutting and Melland were
also charged with one count of misapplication of bank funds
under 18 U.S.C. § 656 for arranging the fraudulent loans.
The district court proposed count-specific instructions
for the money laundering and misapplication of bank funds
charges that followed the Ninth Circuit’s model jury
instructions. See Manual of Model Criminal Jury
Instructions for the Ninth Circuit § 8.41 (misapplication of
bank funds); id. § 8.150 (money laundering). The district
court also proposed defining “knowingly” for all charges in
a manner that tracked the model instruction. See id. § 5.7.
The defendants objected to part of this proposed
“knowingly” instruction, arguing that a phrase in the general
instruction—“[t]he government is not required to prove that
a defendant knew that his or her acts or omissions were
unlawful”—conflicted with the mens rea requirements in the
instruction specific to misapplication of bank funds. To
address that concern, the district court modified the general
“knowingly” instruction to clarify, with the language
underlined below, that the challenged sentence only applied
to commission of the act itself:
An act is done knowingly if the defendant is
aware of the act and does not act through
30 UNITED STATES V. LONICH
ignorance, mistake or accident. To prove that
an act is done knowingly, the government is
not required to prove that the defendant knew
that his or her acts were unlawful.
The government agreed with the revised instruction and
defendants did not object further. The district court used this
revised definition for “knowingly” to instruct the jury. 4
B
“We review the formulation of jury instructions for
abuse of discretion, but review de novo whether those
instructions correctly state the elements of the offense and
adequately cover the defendant’s theory of the case.” United
States v. Liew, 856 F.3d 585, 595–96 (9th Cir. 2017). “We
must determine whether the instructions, viewed as a whole,
‘were misleading or inadequate to guide the jury’s
deliberation.’” United States v. Kaplan, 836 F.3d 1199,
1215 (9th Cir. 2016) (quoting United States v. Moore,
109 F.3d 1456, 1465 (9th Cir. 1997) (en banc)). Absent
contemporaneous objection, we review for plain error.
United States v. Soto, 519 F.3d 927, 930 (9th Cir. 2008).
“Jury instructions, even if imperfect, are not a basis for
overturning a conviction absent a showing that they
prejudiced the defendant.” Kaplan, 836 F.3d at 1215
(quoting United States v. Christensen, 828 F.3d 763, 786
(9th Cir. 2015)). If an instruction is erroneous, “[w]e apply
harmless error analysis to determine whether an improper
4
In the final instructions, the underlined language was revised to
replace the word “done” with “committed.”
UNITED STATES V. LONICH 31
instruction constitutes reversible error.” United States v.
Munguia, 704 F.3d 596, 598 (9th Cir. 2012).
Although defendants did not object anew after the
district court revised its general “knowingly” instruction, the
government concedes that defendants adequately preserved
their objection as to the misapplication of bank funds
instructions. Thus, we review this claim for abuse of
discretion. Liew, 856 F.3d at 595–96. Although it is less
clear that the defendants preserved their arguments for the
money laundering instructions, we assume for purposes of
this appeal that they did. But even under abuse of discretion
review, defendants’ claims fail.
1
We discern no error in the general “knowingly”
instruction as applied to the specific money laundering
instructions. Defendants do not contest that the district court
correctly stated the mens rea for money laundering, see
18 U.S.C. § 1957, when it instructed the jury that as to that
offense, the government must prove (as relevant here):
First, the defendants knowingly engaged or
attempted to engage in a monetary
transaction; [and]
Second, the defendants knew the transaction
involved criminally derived property.
Defendants contend, however, that the second sentence of
the overarching “knowingly” instruction—“[t]o prove that
an act is committed knowingly, the government is not
required to prove that a defendant knew that his or her acts
or omissions were unlawful”—contravened the requirement
that, for money laundering, the government must prove that
32 UNITED STATES V. LONICH
defendants “knew the transactions involved criminally
derived property.” United States v. Turman, 122 F.3d 1167,
1169 (9th Cir. 1997), abrogated on other grounds by
Henderson v. United States, 568 U.S. 266 (2013).
We disagree. The general “knowingly” definition, as the
district court revised it, only applied to whether “an act is
committed knowingly.” By the terms of that instruction,
“[a]n act is done knowingly if the defendant is aware of the
act and does not act through ignorance, mistake or accident.”
That provides the set-up for the key language as the district
court revised it: “To prove that an act is committed
knowingly, the government is not required to prove that the
defendant knew that his or her acts were unlawful.”
This general definition of “knowingly” did not extend to
the money laundering charge’s second element, which
required the jury to find that defendants “knew the
transaction involved criminally derived property.” Rather,
the general “knowingly” instruction only applied to the
money laundering charge’s first element, whether
defendants “knowingly engaged or attempted to engage” in
a monetary transaction. In other words, these instructions
“are substantively different because they address two
distinct types of subjective knowledge.” United States v.
Greer, 640 F.3d 1011, 1019–20 (9th Cir. 2011).
The district court also elsewhere reinforced that the
government must prove that defendants knew their
underlying conduct was illegal to convict them for money
laundering. After reciting the elements for money
laundering, the court instructed the jury that the
“government must prove that the defendants knew that the
property involved in the monetary transaction constituted, or
was derived from, proceeds obtained by some criminal
offense.” This dispelled “the possibility that the jury could
UNITED STATES V. LONICH 33
have omitted the second element of money laundering and
convicted without finding [defendants] knew the money
represented illegal . . . proceeds.” United States v. Knapp,
120 F.3d 928, 932 (9th Cir. 1997).
This case thus differs from United States v. Stein, 37 F.3d
1407 (9th Cir. 1994), on which defendants principally rely.
In Stein, we reversed the defendant’s money laundering
convictions because the general jury instructions defined
“knowingly” in a way that conflicted with the jury
instruction specific to money laundering, which required that
the government prove defendant knew the money
represented illegal proceeds. Id. at 1410. There, the district
court’s “knowingly” instruction broadly specified that “[t]he
Government is not required to prove that the defendant knew
that his acts or omissions were unlawful.” Id. We thus held
that the instruction was impermissible because the general
definition for “knowingly” “conflict[ed] with the district
court’s previous specific instruction on money laundering,”
meaning that “a jury could convict Stein without finding that
he knew his predicate acts of fraud were unlawful.” Id.The problematic unqualified instruction in Stein is
different than the more tailored “knowingly” instruction that
the district court gave here. Unlike this case, the district
court in Stein did not limit the general “knowingly”
definition to whether an act was committed knowingly. See
id..
This case more closely resembles Knapp, 120 F.3d at
931, in which we found no conflict between a general
“knowingly” definition and the money laundering
instructions. In Knapp, the district court provided a general
“knowingly” definition that:
34 UNITED STATES V. LONICH
An act is done knowingly if the defendant is
aware of the act and does not act or fail to act
through ignorance, mistake or accident. As to
money laundering, the government is not
required to prove that the defendant knew
that his acts or omissions were unlawful.
Id. at 931. We held that this instruction was
“distinguish[able] . . . from the one given in Stein.” Id.
at 932. It created no impermissible dissonance with the
money laundering mens rea requirements because the
“added phrase ‘as to money laundering’ made sufficiently
clear that the corresponding sentence applied only to the
crime itself.” Id.If anything, Knapp presented a closer case than this one.
Here, the jury instruction explicitly stated that knowledge of
unlawfulness is unnecessary only when the question is
whether “an act is committed knowingly.” By focusing
specifically on the “act,” the added language was sufficient
to avoid interference with the specific mens rea requirements
for money laundering. See United States v. Golb, 69 F.3d
1417, 1428 (9th Cir. 1995) (holding that “general knowledge
instructions” did not “negate[] the scienter element of the
money-laundering offense”).
Our holding here is also consistent with cases in which
we have found no conflict between two mens rea instructions
that, like here, are “thematically similar” but “substantively
different.” Greer, 640 F.3d at 1019–20. For example, we
have held that an instruction that the government must prove
“the defendant knew that the firearm [he possessed] was a
machine gun,” did not conflict with a general knowledge
instruction stating that “[t]he government is not required to
prove that the defendant knew that his acts . . . were
UNITED STATES V. LONICH 35
unlawful.” United States v. Gravenmeir, 121 F.3d 526, 529–
30 (9th Cir. 1997). We reasoned that “a general instruction
that requires a defendant’s awareness of his acts” did not
negate the requirement that the defendant “knew that the
firearm was a machine gun” because they dealt with two
different requirements. Id. at 530 (emphasis added); see also
Greer, 640 F.3d at 1020 (no conflict when general
“knowingly” instruction dealt with “knowledge of unlawful
activity,” while specific instruction dealt with “knowledge of
legal entitlement to the property the alleged extortionist tried
to obtain”).
Defendants point to a comment in the Manual of Model
Criminal Jury Instructions that, in discussing a different
money laundering provision, noted that “it is reversible error
to give [the model ‘knowingly’ instruction] in a money
laundering case” because “it is a specific intent crime.”
Ninth Circuit Manual of Model Criminal Jury Instructions
§ 8.146. But the district court did not give the model
“knowingly” instruction. Rather, it modified the definition
to limit it only to “acts” committed knowingly, negating the
concerns the Model Jury Instructions comment addressed.
2
For substantially the same reasons, we reject defendants’
contention that the general “knowingly” instruction conflicts
with the willfulness requirement for the misapplication of
bank funds offense.
The district court correctly instructed the jury that under
the misapplication of bank funds statute, 18 U.S.C. § 656,
the government had to prove that “defendants knowingly and
willfully stole, embezzled, or misapplied funds or credits
belonging to the bank or entrusted to its care in excess of
$1,000.” The district court also properly instructed the jury
36 UNITED STATES V. LONICH
that “‘[w]illfully’ as used in this instruction means
undertaking an act with a bad purpose,” so that “in order to
establish a willful violation of a statute, the government must
prove that the defendant acted with knowledge that his
conduct was unlawful.” Once again, nothing in the general
“knowingly” instruction—relating to whether “an act is
committed knowingly”—undermined the specific mens rea
requirements applicable to misapplication of bank funds.
See, e.g., Knapp, 120 F.3d at 931–32.
3
Even assuming the jury instructions were incorrect, the
error did not prejudice defendants. There was overwhelming
evidence that defendants had the required mens rea for both
sets of offenses: defendants clearly knew that the
101 Houseco disbursements were based on the proceeds of a
fraudulent loan to 101 Houseco, LLC.
We can see this most directly in defendants’ convictions
for wire fraud and conspiracy to commit wire fraud (Counts
10 to 15). Those convictions were based on fraudulent
communications surrounding the 101 Houseco scheme. To
find defendants guilty of these wire fraud charges, the jury
had to conclude that defendants knowingly misrepresented
House as 101 Houseco’s legitimate owner when they knew
that Madjlessi was the real buyer. Put differently, the jury
must have found that defendants knew House was a straw
purchaser.
Defendants do not contest this conclusion. They instead
note that knowing House was a straw buyer did not mean
that the defendants also “knew the proceeds of the HouseCo
loan were unlawful.” This argument is not tenable. It is
“clear beyond a reasonable doubt that a rational jury” would
find that defendants—members of the legal and banking
UNITED STATES V. LONICH 37
professions—knew it was illegal knowingly to help a straw
buyer secure a $10 million loan. See Munguia, 704 F.3d
at 603–04.
IV. Sufficiency of the Evidence on Bribery and
Obstruction of Justice Charges
Melland argues that there was insufficient evidence to
support his conviction for bribery by a bank employee
(Count 9). See 18 U.S.C. § 215(a)(2). Lonich contends that
there was insufficient evidence to sustain his conviction for
attempted obstruction of justice (Count 37). See 18 U.S.C.
§ 1512(c)(2). We must “determine whether ‘after viewing
the evidence in the light most favorable to the prosecution,
any rational trier of fact could have found the essential
elements of the crime beyond a reasonable doubt.’” United
States v. Nevils, 598 F.3d 1158, 1163–64 (9th Cir. 2010) (en
banc) (quoting Jackson v. Virginia, 443 U.S. 307, 319
(1979)). We hold that sufficient evidence supported the
convictions for bribery and attempted obstruction of justice.
A
Melland’s bribery charge was based on his securing from
Madjlessi a $50,000 investment in Magnus Innovations,
Melland’s energy-drink start-up. Madjlessi wired Magnus
Innovations $50,000 using an overdraft check from
Madjlessi’s wife, drawn from a Madjlessi entity’s business
account. The very next day, Melland sought approval from
SVB’s loan committee for the third pair of $1.86 million
Greenbriar loans (loans for another Madjlessi development).
In doing so, Melland misrepresented the borrower’s liability
and hid Madjlessi’s interest in the loans. After the jury
returned a guilty verdict on this charge, Melland moved for
a judgment of acquittal, arguing that the evidence against
38 UNITED STATES V. LONICH
him was insufficient. The district court did not err in
denying that motion.
Under 18 U.S.C. § 215(a)(2), whoever “as an officer,
director, employee, agent, or attorney of a financial
institution, corruptly solicits or demands for the benefit of
any person, or corruptly accepts or agrees to accept, anything
of value from any person, intending to be influenced or
rewarded in connection with any business or transaction of
such institution,” is subject to punishment. This offense—
specific to banking officials, employees, and agents—is not
one we have had much previous occasion to consider. But
as we remarked in the context of § 215’s predecessor
provision, “[t]here can be no doubt that Congress intended,
by the enactment of this statute, to remove from the path of
bank officials the temptation to enrich themselves at the
expense of the borrowers or the bank, and also to prevent
improvident loans.” Ryan v. United States, 278 F.2d 836,
838 (9th Cir. 1960); see also United States v. Brunson,
882 F.2d 151, 155 (5th Cir. 1989) (identifying the elements
of a § 215(a)(2) violation).
Melland’s challenge to his conviction centers on only
one aspect of the government’s required § 215(a)(2)
showing: the requirement that Melland acted “corruptly,”
i.e., with corrupt intent. The mens rea “corruptly” has a
lengthy historical lineage. While the Model Penal Code
seems to resist it, see Model Penal Code §§ 240.1–7
Explanatory Note, the term “corruptly” still appears with
some frequency in the federal criminal code. See Eric
Tamashasky, The Lewis Carroll Offense: The Ever-
Changing Meaning of ‘Corruptly’ Within the Federal
Criminal Law, 31 J. Legis. 129, 130–33 (2004). We
encounter it most commonly in criminal statutes involving
bribery, obstruction of justice, and tampering with
UNITED STATES V. LONICH 39
witnesses. See, e.g., 18 U.S.C. § 201 (bribery of public
officials and witnesses); id. § 226 (bribery affecting port
security); id. § 666 (theft or bribery concerning programs
receiving federal funds); id. § 1505 (obstruction of
proceedings before departments, agencies, and committees);
id. §§ 1512(b)–(c) (obstructing official proceedings); id.
§ 1517 (obstructing examination of a financial institution).
The district court instructed the jury that, to find Melland
“acted corruptly,” it must determine he “intend[ed] to be
influenced or rewarded in connection with any business or
transaction of” a financial institution. While we have not
specifically defined “corruptly” in the context of
§ 215(a)(2), we conclude that the district court’s instruction
appropriately stated the law, as the parties effectively agree.
“As used in criminal-law” statutes, the term “corruptly”
usually “indicates a wrongful desire for pecuniary gain or
other advantage.” Black’s Law Dictionary 435 (11th ed.
2019). In United States v. Rodrigues, 159 F.3d 439 (9th Cir.
1998), we commented—in the case of § 215(a)(2) in
particular—that “‘[t]o corrupt’ is a standard synonym for ‘to
bribe,’” so that “[t]o accept corruptly something of value as
a reward is to accept a payoff or bribe.” Id. at 450.
That is essentially how we have interpreted “corruptly”
in the context of similar federal criminal statutes. See, e.g.,
Martinez-de Ryan v. Whitaker, 909 F.3d 247, 250 (9th Cir.
2018) (explaining that for purposes of 18 U.S.C. § 666,
which prohibits bribery in connection with programs
receiving federal funds, “‘[a]n act is done ‘corruptly’ if it is
performed voluntarily, deliberately, and dishonestly, for the
purpose of either accomplishing an unlawful end or result or
of accomplishing some otherwise lawful end or lawful result
by an unlawful method or means’”) (quoting United States
v. McNair, 605 F.3d 1152, 1193 (11th Cir. 2010)); United
40 UNITED STATES V. LONICH
States v. Leyva, 282 F.3d 623, 626 (9th Cir. 2002)
(explaining for purposes of 18 U.S.C. § 201, which prohibits
bribery of public officials, that “corruptly” “refers to the
defendant’s intent to be influenced to perform an act in
return for financial gain”). The district court’s instruction
thus appropriately captured the plain meaning of “corruptly”
that we have set forth in our prior cases.
We now turn to whether the evidence was sufficient to
show that Melland acted “corruptly” in procuring
Madjlessi’s $50,000 investment in Melland’s energy-drink
enterprise. The government did not need a “smoking gun”
document or admission to show that Melland acted
“corruptly” through an apparent quid pro quo arrangement
with Madjlessi. Instead, it could prove Melland’s criminal
intent through circumstantial evidence. See, e.g., United
States v. Kincaid-Chauncey, 556 F.3d 923, 937 (9th Cir.
2009), abrogated in part on other grounds, Skilling v. United
States, 561 U.S. 358 (2010).
The circumstantial evidence here was plentiful. Earlier,
and while Melland was pushing for SVB to approve the first
two pairs of Greenbriar loans that exceeded the legal lending
limit, Madjlessi hosted Melland and his business partner on
his yacht to discuss Magnus Innovations. Later, on March
25, 2008, Melland emailed Madjlessi with an “URGENT!!!”
solicitation to invest in that business. The very next day after
Madjlessi wired Melland a $50,000 investment in Magnus
Innovations, Melland presented the third pair of Greenbriar
loans (that exceeded the legal lending limit) to SVB’s loan
committee. The timing of events strongly suggests that
Melland sought and accepted $50,000 from Madjlessi for
Melland’s energy drink side business in return for helping
Madjlessi secure a large loan from SVB.
UNITED STATES V. LONICH 41
The government also showed that Melland and Madjlessi
each needed what the other could provide. Melland needed
seed money for his drink company. Melland knew that
Madjlessi needed the SVB loans because of Madjlessi’s own
cash-flow issues. Melland also knew that Madjlessi could
pay for the Magnus Innovations investment using an
overdraft check because Melland could approve the
overdraft, which he evidently did.
Melland nonetheless contends it would be unreasonable
to infer any corrupt intent on his part because SVB had
previously approved several loans for Madjlessi. But a
properly instructed jury could certainly conclude otherwise.
Indeed, that SVB approved previous loans for Madjlessi
above the legal lending limit meant, if anything, that
Madjlessi had an even greater reliance on Melland. Melland,
as noted, had helped lock down the first two pairs of
Greenbriar loans while he negotiated with Madjlessi for an
investment in his start-up. Melland also knew that Madjlessi
needed him to recommend the third pair of loans to SVB’s
loan committee, even though it far exceeded SVB’s legal
lending limits for Madjlessi.
Melland responds that it was merely coincidental that he
took $50,000 from an investor whose loan requests Melland
was actively pressing before his bank. But in a sufficiency
of the evidence challenge it is immaterial that “there is an
equally plausible innocent explanation.” Nevils, 598 F.3d
at 1169. We thus hold that sufficient evidence supported
Melland’s conviction for bribery by a bank employee.
42 UNITED STATES V. LONICH
B
1
We turn next to Lonich’s claim that insufficient evidence
supported his conviction for attempted obstruction of justice
by encouraging House to mislead the grand jury about his
role in the 101 Houseco scheme. See 18 U.S.C.
§ 1512(c)(2). Lonich’s conviction on this charge arose out
of two meetings involving Lonich, House, and Madjlessi.
Working with the government, House secretly recorded
these meetings. During trial, the government played the
video recordings for the jury.
At the first meeting, House handed Lonich and Madjlessi
a subpoena House had received commanding him “to appear
and testify before the Grand Jury” in the Northern District of
California. The subpoena also required House to produce
documents about a condominium he bought through
Madjlessi in Reno, Nevada.
House told Lonich and Madjlessi that the subpoena had
made him “a fucking wreck.” Lonich and Madjlessi then
tried to downplay the subpoena’s significance. Lonich told
House that because the subpoena only referenced the Reno
condominium, House would not need to discuss
101 Houseco. But House responded that the agents “want to
talk about 101 Houseco to me.” This pattern repeated
throughout the conversation: Lonich returned to the
subpoena’s Reno-related document request, while House
stressed that the agents wanted to talk about 101 Houseco.
House also informed Lonich that when he told the agents he
could not discuss 101 Houseco, they told him to “go tell it to
the Grand Jury.”
UNITED STATES V. LONICH 43
The next day, the three resumed their discussion. This
time, Lonich provided guidance to House on what he should
tell the grand jury. Among other things, Lonich instructed
House: “I think it’s good for you to be able to say, I had a
guy running [101 Houseco]. I’m running my business. And
this was an investment that I made.” Later in the meeting
House asked: “What about a straw buyer for [101 Houseco]?
. . . I received money that was owed me.” Lonich again
instructed: “I think you are better off to say you received
money, not money that was owed you. You made an
investment. You know—you know, I don’t care.” Lonich
reiterated: “My sense is I think it’s much better that you got
paid. . . . Not that it was an old debt, but that you got paid.”
2
18 U.S.C. § 1512(c)(2) punishes anyone who “corruptly
. . . obstructs, influences, or impedes any official proceeding,
or attempts to do so.” Section 1512(f)(1) clarifies that “an
official proceeding need not be pending or about to be
instituted at the time of the offense.” An “official
proceeding” includes “a proceeding before . . . a Federal
grand jury.” 18 U.S.C. § 1515(a)(1)(A).
Lonich first contends that the government did not prove
a nexus between his actions and the grand jury proceeding.
We agree that § 1512(c)(2) has a nexus requirement.
Namely, § 1512(c)(2) “require[s] that (1) the obstructive
conduct be connected to a specific official proceeding . . .
that was (2) either pending or was reasonably foreseeable to
[the defendant] when he engaged in the conduct . . . .”
United States v. Young, 916 F.3d 368, 385 (4th Cir. 2019).
That nexus requirement is firmly rooted in law. The
Supreme Court has identified a nexus requirement in two
related obstruction provisions that employ similar statutory
44 UNITED STATES V. LONICH
language. See Arthur Andersen LLP v. United States,
544 U.S. 696, 707–08 (2005); United States v. Aguilar,
515 U.S. 593, 598–99 (1995). In Aguilar, the Court
considered the catchall provision in 18 U.S.C. § 1503, a
grand jury tampering statute. See 515 U.S. at 599. Section
1503 provides that a person may not “corruptly or by threats
or force . . . influence[], obstruct[], or impede[] . . . the due
administration of justice.” The only evidence the
government had shown to support the conviction in Aguilar
was that the defendant made false statements to an
investigating agent “who might or might not testify before a
grand jury.” 544 U.S. at 600. In reversing the conviction,
the Court held that § 1503 required a nexus showing,
namely, “that the act [had] a relationship in time, causation,
or logic with the judicial proceedings.” Id. at 599.
In Arthur Andersen, the Supreme Court applied Aguilar
to a related provision of the obstruction statute. See 544 U.S.
at 707–08. Arthur Andersen held that 18 U.S.C.
§ 1512(b)(2)(A), which prohibits tampering with documents
that would be used in an official proceeding, requires proof
of a “nexus between the ‘persuasion’ to destroy documents”
and the official proceeding. Id. at 707 (alterations omitted).
The Court thus held that a jury cannot convict a defendant
under § 1512(b)(2)(A) “when he does not have in
contemplation any particular official proceeding in which
those documents might be material.” Id. at 708.
Every other circuit to have considered the issue has
found that § 1512(c) requires a showing that the obstruction
was connected to a pending or reasonably foreseeable
official proceeding. See Young, 916 F.3d at 386 (citing, e.g.,
United States v. Martinez, 862 F.3d 223, 237 (2d Cir. 2017);
United States v. Petruk, 781 F.3d 438, 445 (8th Cir. 2015);
United States v. Tyler, 732 F.3d 241, 249–50 (3d Cir. 2013);
UNITED STATES V. LONICH 45
United States v. Friske, 640 F.3d 1288, 1292 (11th Cir.
2011); United States v. Phillips, 583 F.3d 1261, 1263–64
(10th Cir. 2009)). And United States v. Ermoian, 752 F.3d
1165 (9th Cir. 2013), although not directly resolving the
issue, we noted in construing § 1512(c)(2) that “Supreme
Court precedent requir[es] a nexus between the obstructive
act and criminal proceedings in court.” Id. at 1172 (citing
Arthur Andersen, 544 U.S. at 708).
We thus hold that § 1512(c)(2) requires a showing of
nexus. Nevertheless, we reject Lonich’s argument that no
reasonable jury could have found the required nexus here.
Lonich asserts he did not contemplate an official proceeding
concerning 101 Houseco because he thought the grand jury
was investigating a separate issue about the purchase of a
condominium in Reno. Lonich’s comments at the first
meeting with House and Madjlessi did focus on the Reno
property. But a jury need not accept his version of what he
allegedly believed.
In the meetings, House stressed to Lonich and Madjlessi
that federal agents wanted to talk to him about 101 Houseco
before the grand jury. And Lonich provided House with
specific guidance about what House should say to the grand
jury about the 101 Houseco arrangement. Given the explicit
discussions at the meetings about 101 Houseco and what
House should say on that topic, a reasonable jury could
easily conclude that when Lonich sought to frame the
subpoena as focused on a Reno property, he was seeking to
calm House and minimize both the significance of the
federal proceeding and the likelihood that House would offer
testimony adverse to Lonich and Madjlessi.
46 UNITED STATES V. LONICH
3
Lonich also maintains that the government did not prove
the statute’s mens rea requirement that a defendant
“corruptly . . . obstructs, influences, or impedes any official
proceeding, or attempts to do so.” We have not yet defined
“corruptly” in § 1512(c). See United States v. Watters,
717 F.3d 733, 735 (9th Cir. 2013) (reserving the issue). We
have, however, affirmed an instruction stating that
“‘corruptly’ meant acting with ‘consciousness of
wrongdoing’” because it, “if anything, . . . placed a higher
burden of proof on the government than section 1512(c)
demands.” Id. The district court provided an analogous
instruction to the jury, and neither party disputes using a
“consciousness of wrongdoing” mens rea requirement for
purposes of evaluating the sufficiency of the evidence.
Under that articulation, a reasonable jury could find that
the government met its burden of proof in demonstrating
Lonich’s criminal intent. We focus on two exchanges on the
second day of meetings. The first involved Lonich
instructing House on “the story” he should tell the grand
jury. Lonich said he thought it was “good for [House] to be
able to say, [House] had a guy running [101 Houseco]” and
that House should say he entered the 101 Houseco
arrangement as “an investment.” Yet at trial, House
repeatedly testified that he only agreed to take part in the
101 Houseco scheme to get the $200,000 Madjlessi owed
him, and that House would only be the owner “on paper.”
In the second exchange, House asked Madjlessi and
Lonich how he should testify about being a “straw buyer.”
Madjlessi told House to say that he “made money,” but
House countered: “I received money that was owed me.” To
this Lonich said: “I think you are better off to say you
received money, not money that was owed you. You made
UNITED STATES V. LONICH 47
an investment.” Lonich soon after reiterated, “My sense is I
think it’s much better that you got paid. . . . Not that it was
an old debt, but that you got paid.”
A reasonable jury could draw from these exchanges that
Lonich instructed House to deceive the grand jury. It is more
than reasonable to think, based on all the evidence presented
at trial, that Lonich knew House only took part in the scheme
to get the $200,000 Madjlessi already owed him. House
testified that Lonich knew about the arrangement. And that
Madjlessi and Lonich only “permitted [House] to retain”
approximately $200,000 reflected Madjlessi’s existing debt
to House. A rational jury could conclude that House did not
make an “investment” to buy a property he knew would net
him only money already owed him. And that same jury
could also think it was deceitful for Lonich to tell House to
testify this was “not money that was owed to you.”
Lonich points to other aspects of the taped conversations
potentially more favorable to him, including his repeated
assertions to House that Lonich’s version of the facts was the
“truth.” But a jury could focus on the parts of Lonich’s
guidance that are more problematic. And Lonich
representing his advice as “truthful” does not make it so.
Lonich also argues that he was Houseco’s lawyer and
that, under 18 U.S.C. § 1515(c), the prohibition on
obstructing an official proceeding “does not prohibit or
punish the providing of lawful, bona fide, legal
representation services in connection with or anticipation of
an official proceeding.” This argument is unavailing.
Lawyers of course have some latitude in helping clients
frame their anticipated testimony in a light most favorable to
them, consistent with the truth. The problem for Lonich is
that even assuming he had an attorney-client relationship
with House or a legal relationship with 101 Houseco (an
48 UNITED STATES V. LONICH
entity created to perpetuate a fraud), a rational jury could
find that Lonich’s recorded conversations with House go far
beyond “lawful, bona fide” legal advice. Lonich urged
House to testify that he made an “investment” while
avoiding saying that money was owed to House—advice that
invited House to give grand jury testimony that was either
outright false, seriously misleading, or both.
Lonich also errs in relying on United States v. Liew,
856 F.3d 585, 604 (9th Cir. 2017), in which we reversed an
obstruction of justice conviction. In Liew, the only evidence
that the defendant tried to influence testimony was that he
told a potential witness not to discuss an issue with anyone
“because doing so would not be good for” the witness or his
family. Id. We found this insufficient to convict because it
was “the same advice that many criminal attorneys would
[give] in that situation[.] . . . Sometimes the best advice for
a potential criminal defendant is not to talk to anyone about
anything.” Id. But Lonich did not tell House to avoid
discussing 101 Houseco. He instead counseled House on
how to testify about 101 Houseco in ways that a jury could
find reflected a “consciousness of wrongdoing.” Arthur
Andersen, 544 U.S. at 706. 5
V. Sentencing and Restitution
The principal issue we consider concerning sentencing is
the district court’s adoption of several enhancements that
dramatically increased defendants’ recommended
Guidelines sentencing ranges. These enhancements were
5
In a separate unpublished memorandum disposition, we reject
defendants’ other challenges to their convictions. And because none of
defendants’ arguments demonstrate error, the cumulative error doctrine
does not apply. See United States v. Lindsey, 634 F.3d 541, 555 (9th Cir.
2011).
UNITED STATES V. LONICH 49
premised on a critical factual finding: that defendants caused
SVB to fail, making defendants responsible for associated
losses. Most prominently, in calculating the financial loss
that defendants caused, the Presentence Investigation
Reports (PSRs) and the district court did not calculate loss
simply based on the amounts of the defaulted Madjlessi-
related loans, but instead based on the total amount of loss
the federal government allegedly sustained because of
SVB’s collapse.
We hold that defendants’ sentences must be vacated.
The jury did not determine whether defendants caused
SVB’s failure. And the government at sentencing did not
sufficiently prove that point. It may be that, on remand, the
government will be able to justify its requested
enhancements. But on this record, it has not done so.
A
Not only did the jury through its verdict never decide
whether defendants caused SVB’s failure, the district court
prohibited the government from implying that causal
relationship when presenting its case. A pretrial order
provided that “[t]he government may not argue that
defendants’ offense conduct caused the failure of SVB,”
“agree[ing] with defendants that because the government
need not prove causation for any of the charged crimes, the
probative value of evidence and arguments about what
caused the bank’s failure is substantially outweighed by the
risk of undue prejudice and waste of time.” The
government’s witnesses were thus not permitted to draw any
causal connection between the Madjlessi loans and the
bank’s later collapse because, the court explained, “there
were other loans out there and other issues out there. This is
the biggest recession since the Great Depression. It would
be very complicated to prove what caused what.”
50 UNITED STATES V. LONICH
Nevertheless, after the jury returned its verdict, the
government’s theory that defendants caused the bank’s
failure resurfaced. The PSRs assigned each defendant a base
offense level of 7. But the PSRs recommended much higher
total offense levels for each defendant: 38 for Cutting and
Melland, and 40 for Lonich.
What accounted for the dramatic increases was the
PSRs’ recommended sentencing enhancements. The PSRs
recommended a 20-level enhancement for each defendant
under U.S.S.G. § 2B1.1(b)(1)(K), asserting they were
responsible for a loss between $9.5 million and $25 million,
which the PSRs estimated at upwards of $20 million. The
PSRs also recommended a 2-level enhancement for each
defendant because the offenses involved ten or more victims,
see id. § 2B1.1(b)(2)(A)(i), and a 4-level enhancement for
each defendant for substantially jeopardizing the safety and
soundness of a financial institution, see id.
§ 2B1.1(b)(17)(B)(i).
The PSR did not base the 20-level loss enhancement on
amounts owed SVB on the Madjlessi-related loans. Instead,
the estimated losses were premised on the theory that
defendants “caused the eventual failure and closure of SVB,
which resulted in a loss totaling $20,120,000.” That figure
represented amounts the federal government allegedly lost
because SVB failed.
The PSRs rejected defendants’ arguments that “events
independent of the offense conduct,” including a
“cataclysmic financial crisis,” caused SVB’s demise.
Instead, the PSRs attributed the bank’s downfall—and the
government’s resulting losses—to defendants’ schemes.
The critical paragraph in each of the PSRs stated:
UNITED STATES V. LONICH 51
In total, loans provided to Bijan Madjlessi,
directly to himself or through straw buyers,
totaled approximately $35,000,000, which
was approximately $24,700,000 over the
bank’s lending limit in 2010. According to
the FDIC report, on December 21, 2009, they
were forced to downgrade SVB’s capital due
to the relationship between the bank and
Bijan Madjlessi. The report specifically
notes that “Prior to the loss classification
[i.e., the FDIC downgrade], the $27,195,000
Bijan Madjlessi relationship represented 74%
of Total Risk Based capital. Several large
borrower concentrations (Brian Madjlessi
and [another borrower]) expose the
institution to significant risk.” After this
downgrade from the FDIC, the bank failed as
it was unable to provide the necessary
funding to stay afloat because 74% of their
risks were taken up by Bijan Madjlessi.
The “FDIC report” referred to in the above paragraph in
the PSRs downgraded SVB to the lowest possible rating and
was issued before SVB failed. While the FDIC report noted
that SVB had concentrated too much capital in Madjlessi-
related loans, it also mentioned a host of other problems that
SVB faced. These included liquidity issues, “deteriorating
market conditions,” and concentrated capital with another
large borrower.
Lonich also objected to the PSR’s recommended loss
enhancement for reasons more specific to him. He argued
that he had not caused any loss to SVB because he was only
involved with the 101 Houseco loan, and that loan was
repaid in full. Lonich also maintained that he “should not be
52 UNITED STATES V. LONICH
held accountable for any loans prior to his involvement in
the conspiracy.”
The PSR disagreed, responding that “Lonich’s
significant role within the conspiracy negatively impacted
the safety and soundness of the bank.” The PSR concluded
that Lonich was still responsible for the bank’s collapse
because the bank failed after Lonich had joined the
conspiracy, and Lonich “is responsible for all acts of the
conspiracy.”
After determining that defendants were responsible for
SVB’s failure, the PSRs calculated the total loss amount—
approximately $20 million—based on amounts the federal
government lost because of the bank’s failure. This loss fell
into two categories: $8.65 million that SVB was unable to
repay to the federal Troubled Asset Relief Program (TARP),
and $11.47 million that the FDIC paid out of its Deposit
Insurance Fund after SVB was forced to write off various
Madjlessi-related loans. The PSRs adopted the same losses
for restitution purposes as had “been determined by the
Government,” but did not specify the calculation method.
Before the sentencing hearing, the government filed a
sentencing memorandum. While maintaining that
defendants caused SVB’s collapse, the memorandum did not
rely on the FDIC report referenced in the PSRs. Instead, it
attached law enforcement investigative reports summarizing
interviews of three witnesses bolstering the theory that
defendants were responsible for SVB’s failure.
The government also argued for a much larger loss
amount than the PSRs originally recommended.
Specifically, it argued that because of SVB’s failure, the
FDIC lost $39.18 million—meaning that, combined with the
TARP losses, defendants caused $47.84 million in losses to
UNITED STATES V. LONICH 53
the federal government. Despite the overall larger loss
estimation, the government claimed that the FDIC’s
insurance fund experienced only $10.54 million in loss, a
discrepancy from the PSRs’ calculation of $11.47 million.
At the sentencing hearing, the district court agreed with
the sentencing recommendations in the PSRs, rejecting the
government’s request to increase the total loss amount to
$47.84 million. (Several months later in its restitution order,
the court explained why it had not adopted the government’s
larger number. The court recounted how the government
had not objected to the PSRs’ loss calculations, and how the
government had provided “no explanation” about why it did
not provide its much larger numbers sooner.)
At the sentencing hearing, the district court overruled all
objections to the PSRs, including defendants’ objections to
loss-causation. The court stated that “losses to FDIC and
TARP [were] caused by the ultimate failure of the bank,” but
did not explain its rationale for that finding. At sentencing,
Lonich’s counsel pressed for an explanation as to how
Lonich could be responsible for SVB failing when he did not
work at SVB and was involved in only the 101 Houseco
loan, which was repaid in full. The district court declined to
offer its reasoning.
Based on defendants’ offense levels in light of the
proposed sentencing enhancements, the recommended
Guidelines ranges were 235–293 months each for Cutting
and Melland, and 292–365 months for Lonich. The district
court departed downward, sentencing Cutting and Melland
each to 100 months in prison, and Lonich to 80 months.
Even though the district court departed below the
recommended Guidelines ranges, it accepted those ranges as
the starting point because it agreed with the enhancements
54 UNITED STATES V. LONICH
used in the PSRs and rejected defendants’ objections to
them. We thus must consider whether the government
sufficiently demonstrated that defendants should receive
certain enhancements—most centrally a 20-level loss
amount enhancement—based on their alleged role in causing
SVB to fail.
B
“[T]he government bears the burden of proof on the facts
underlying a sentence enhancement.” United States v. Zolp,
479 F.3d 715, 718 (9th Cir. 2007). We review de novo the
district court “selecting and properly interpreting the right
Guidelines provision.” United States v. Gasca-Ruiz,
852 F.3d 1167, 1170 (9th Cir. 2017) (en banc). We review
the district court’s application of the Guidelines to the facts
for abuse of discretion, and its factual findings for clear
error. Id.Before we examine the government’s evidence that
defendants caused SVB to fail, we address the standard of
proof that the government was required to meet to
demonstrate this factual point. We hold that the clear and
convincing standard applies.
1
“As ‘a general rule,’ factual findings underlying a
sentencing enhancement need only be found by a
preponderance of the evidence.” United States v. Parlor,
2 F.4th 807, 816 (9th Cir. 2021) (quoting United States v.
Valle, 940 F.3d 473, 479 (9th Cir. 2019)). But in some
instances, a sentencing enhancement has an “an extremely
disproportionate impact on the sentence.” Valle, 940 F.3d at
479 (quoting United States v. Jordan, 256 F.3d 922, 930 (9th
Cir. 2001)). In those circumstances, we have held that due
UNITED STATES V. LONICH 55
process may require the government to demonstrate facts
underlying disputed enhancements by clear and convincing
evidence. Parlor, 2 F.4th at 816–17; Valle, 940 F.3d at 479. 6
In determining when the government must meet a clear
and convincing standard of proof, we have said that “[w]e
look to the totality of the circumstances.” Valle, 940 F.3d
at 479 (citing United States v. Pike, 473 F.3d 1053, 1057 (9th
Cir. 2007)). In United States v. Valensia, 222 F.3d 1173,
1182 (9th Cir. 2000), and United States v. Jordan, 256 F.3d
922, 928 (9th Cir. 2001), we condensed the circumstances
requiring a heightened standard into six non-exhaustive
factors:
(1) whether “the enhanced sentence fall[s]
within the maximum sentence for the crime
alleged in the indictment;” (2) whether “the
enhanced sentence negate[s] the presumption
of innocence or the prosecution’s burden of
proof for the crime alleged in the
indictment;” (3) whether “the facts offered in
support of the enhancement create new
offenses requiring separate punishment;”
(4) whether “the increase in sentence [is]
based on the extent of a conspiracy;”
(5) whether “the increase in the number of
offense levels [is] less than or equal to four;”
6
We recognize that other circuits have held that “due process does
not require sentencing courts to employ a standard higher than
preponderance-of-the-evidence, even in cases dealing with large
enhancements.” United States v. Jones, 829 F.3d 476, 477 (6th Cir.
2016) (per curiam) (quoting United States v. Brika, 487 F.3d 450, 462
(6th Cir. 2007)); see also United States v. Grubbs, 585 F.3d 793, 802–
03 & n.5 (4th Cir. 2009). But we are bound by our precedent, which
clearly requires a heightened standard in some circumstances.
56 UNITED STATES V. LONICH
and (6) whether “the length of the enhanced
sentence more than double[s] the length of
the sentence authorized by the initial
sentencing guideline range in a case where
the defendant would otherwise have received
a relatively short sentence.”
Jordan, 256 F.3d at 928 (alterations in original) (quoting
Valensia, 222 F.3d at 1182); see also Parlor, 2 F.4th at 817;
Valle, 940 F.3d at 479–80. In evaluating these factors, “we
consider only the cumulative effect of ‘disputed
enhancements.’” Parlor, 2 F.4th at 817 (quoting Jordan,
265 F.3d at 927).
Even after our articulation of the six Valensia factors, we
have frequently commented that in this area, “[o]ur case law
has ‘not been a model of clarity.’” Parlor, 2 F.4th at 817
(quoting Valle, 940 F.3d at 479 n.6); see also United States
v. Hymas, 780 F.3d 1285, 1289 (9th Cir. 2015) (same);
United States v. Berger, 587 F.3d 1038, 1048 (9th Cir. 2009)
(same). But some clarity can be found in how our cases
apply the factors.
The first two factors—whether the enhanced sentence
falls within the maximum sentence allowed and whether it
negates the presumption of innocence, Valensia, 222 F.3d
at 1182—are to some extent eclipsed by subsequent
developments in Sixth Amendment case law, including that
the Sentencing Guidelines are now merely advisory in
nature. See United States v. Booker, 543 U.S. 220 (2005);
Blakely v. Washington, 542 U.S. 296 (2004); Apprendi v.
New Jersey, 530 U.S. 466 (2000). In fact, in articulating its
first factor, Valensia itself noted the Supreme Court’s then-
recent holding in Apprendi that “other than the fact of a prior
conviction, any fact that increases the penalty for a crime
UNITED STATES V. LONICH 57
beyond the prescribed statutory maximum must be
submitted to a jury, and proved beyond a reasonable doubt.”
Valensia, 222 F.3d at 1182 n.4 (quoting Apprendi, 530 U.S.
at 490).
We have further commented that “it is not entirely clear
how the first three Valensia factors were derived from our
decision in United States v. Restrepo, 946 F.3d 654 (9th Cir.
1991) (en banc), which Valensia cited as their source.”
Valle, 940 F.3d at 479 n.6. As a three-judge panel, we cannot
eliminate certain parts of a six-part test. See Miller v.
Gammie, 335 F.3d 889, 899–900 (9th Cir. 2003) (en banc).
But at the same time, it is appropriate to recognize that in
practice, and as our case law has developed, the first two
Valensia factors appear to do little independent work in
driving the analysis.
With an important caveat about the fourth Valensia
factor relating to conspiracies—which we will discuss in a
moment—the real action is in Valensia factors five and six.
We have repeatedly recognized that our cases commonly
turn on the last two factors: whether the enhanced sentence
is four or more offense levels higher (factor 5) and more than
double the initial sentencing range (factor 6). See, e.g.,
Parlor, 2 F.4th at 817 (“Later cases . . . have focused
specifically on the last two factors.”); Valle, 940 F.3d at 479
(explaining that Jordan and Valensia themselves
“disregarded the first four factors” and that “more recent
cases have also relied on only the[] last two factors”).
Focusing on factors five and six makes sense when one
considers why under our cases a clear and convincing
standard of proof is sometimes required. In the typical case,
the last two Valensia factors best capture the principle
underlying our precedents, which is that when disputed
sentencing enhancements significantly increase the sentence
58 UNITED STATES V. LONICH
that would otherwise apply, due process can require the
government to make a stronger showing. See Valle,
940 F.3d at 480.
Most commonly, the fifth and six factors will coincide:
when the offense levels go up substantially, this will at some
point generate a sentence that is more than twice the length
of the “relatively short sentence” that would have otherwise
applied. See, e.g., id. (holding that the clear and convincing
standard applied when disputed enhancements led to an 11-
level increase in offense level and “far more than doubled
[defendant’s] sentencing range”); United States v. Gonzalez,
492 F.3d 1031, 1039–40 (9th Cir. 2007) (requiring clear and
convincing evidence when disputed enhancements resulted
in a 9-level increase in offense level and raised Guidelines
range “more than four times”); United States v. Mezas de
Jesus, 217 F.3d 638, 643 (9th Cir. 2000) (applying the clear
and convincing standard when challenged enhancements
resulted in a 9-level increase and more than doubled original
Guidelines range).
What happens when the fifth Valensia factor is met, but
the sixth is not? Consistent with the objective of applying a
heightened standard of proof only when “the combined
effect of contested enhancements would have ‘an extremely
disproportionate effect on the sentence imposed,’” United
States v. Garro, 517 F.3d 1163, 1168–69 (9th Cir. 2008)
(quoting United States v. Staten, 466 F.3d 708, 718 (9th Cir.
2006)), we have recognized that district courts may apply a
preponderance of the evidence standard, notwithstanding an
increase in the offense level of four or more, when the
sentence did not otherwise double. See Parlor, 2 F.4th at
817 (holding that district court did not plainly err when the
disputed enhancements “did increase [defendant’s] offense
level by more than four points,” but when they “did not more
UNITED STATES V. LONICH 59
than double his recommended Guidelines range”); United
States v. Riley, 335 F.3d 919, 927 (9th Cir. 2003) (same).
If we consider only the fifth and six factors, the result for
defendants here is obvious: the clear and convincing
standard must apply. All defendants challenge the 20-level
enhancement for losses between $9.5 and $25 million, see
U.S.S.G. § 2B1.1(b)(1)(K), and the 2-level enhancement for
10 or more victims, see id. § 2B1.1(b)(2)(A)(i). Lonich (but
not Cutting and Melland) also challenges his 4-level
enhancement for substantially jeopardizing the safety and
soundness of SVB. See id. § 2B1.1(b)(17)(B)(i). For two
defendants, the disputed enhancements increased their
Guidelines offense level by 22 levels. For Lonich, it was a
26-level increase.
Unsurprisingly, these substantial total offense-level
increases produced advisory Guidelines ranges for all three
defendants that were far more than double what they would
have obtained absent the SVB-related enhancements.
Absent just the 20-level enhancement for causing
$9.5 million or more in loss, U.S.S.G. § 2B1.1(b)(1)(K),
Cutting and Melland’s recommended sentencing ranges
would have dropped from 235–293 months to 27–33
months. See U.S.S.G. Ch. 5, Pt. A (table). And Lonich’s
recommended sentencing range would have plummeted
from 292–365 months to 33–41 months. See id. Valensia
factors five and six thus strongly counsel in favor of applying
a clear and convincing standard to factual findings
underlying defendants’ disputed enhancements.
2
But what if the conduct that produced the monetary loss
is conduct for which the jury convicted the defendants? This
60 UNITED STATES V. LONICH
is where we encounter the government’s principal argument,
and where the fourth Valensia factor comes into play.
The fourth factor is whether “the increase in sentence [is]
based on the extent of a conspiracy.” Valensia, 222 F.3d
at 1182. Although this factor is focused on conspiracy
charges, it is important to appreciate that it is framed in that
manner only because conspiracy convictions can present
borderline cases about whether certain conduct was within
the scope of convicted conduct. Ultimately, the fourth
Valensia factor is just an example of another broader
principle: if a defendant has already been convicted of
certain conduct (whether through a jury verdict or a guilty
plea), enhancements that are based on the conduct of
conviction do not require proof by clear and convincing
evidence. This is essentially what the third Valensia
factor—whether the facts offered in support of the
enhancement create new offenses—addresses in the non-
conspiracy context. See Valensia, 222 F.3d at 1182; see also
United States v. Barragan, 871 F.3d 689, 718 (9th Cir. 2017)
(discussing third Valensia factor); United States v.
Johansson, 249 F.3d 848, 854–55 (9th Cir. 2001) (same).
The justification for the broader principle, of which the
fourth Valensia factor is an example, is that when an
enhancement is based on conduct for which the jury found
the defendant guilty beyond a reasonable doubt (or to which
defendant pleaded guilty), any due process concerns
associated with imposing enhancements based on this same
conduct are correspondingly lower. “[T]he defendants had
the opportunity at trial to challenge [the] evidence,” Hymas,
780 F.3d at 1292, and so a clear and convincing standard of
proof is not warranted.
Our decision in United States v. Garro, 517 F.3d 1163(9th Cir. 2008), is instructive. In Garro, the defendant was
UNITED STATES V. LONICH 61
convicted of wire fraud and other offenses and sentenced to
135 months in prison. Id. at 1165. Applying the Guidelines
enhancements in place at the time, the district court imposed
a 16-level increase for the defendant causing losses that
exceeded $20 million. Id. at 1167. This enhancement had a
dramatic effect on defendant’s sentence because his crime
had a base offense level of just six. Id. On appeal, the
defendant argued that the government was required to prove
the loss amount by clear and convincing evidence, rather
than by a preponderance. Id. at 1168.
We disagreed, explaining that “[i]n identifying the
appropriate standard of proof, we have distinguished
between enhancements based upon charged conduct for
which the defendant has been convicted, and enhancements
based upon uncharged conduct.” Id. at 1169.
Notwithstanding the substantial effect of a 16-level loss
enhancement on defendant’s sentence, we held that because
defendant’s “sentence for loss exceeding $20 million was
based on conduct for which [defendant] was charged and
convicted,” the government only had to prove the amount of
the loss at sentencing by a preponderance of the evidence.
Id.Garro presented a straightforward case. Under our
precedents, another classically straightforward case would
arise if the conduct that forms the basis for the enhancement
is clearly not the conduct for which defendant was charged
and convicted. Our decision in United States v. Mezas de
Jesus, 217 F.3d 638 (9th Cir. 2000), provides an example of
this type of situation. There, the defendant was convicted of
being an undocumented immigrant in possession of a
firearm. Id. at 639. But at sentencing, the government
argued that the defendant had committed this offense during
a kidnapping, which was uncharged conduct. Id. The
62 UNITED STATES V. LONICH
district court found that the defendant possessed the firearm
in connection with the uncharged kidnapping. This resulted
in a 9-level upward adjustment and an increase in the
defendant’s sentencing range from 21–27 months to 57–71
months. Id. at 643. This, we held, satisfied the “extremely
disproportionate” impact test, such that the kidnapping
would need to be established by clear and convincing
evidence. Id. at 645.
Decisions like Garro and Mezas de Jesus show that in
considering whether the clear and convincing or
preponderance standard should apply, it is not enough
simply to examine the effect on the sentence of the disputed
enhancements. Many of our cases apply the preponderance
standard to very large enhancements. See United States v.
Treadwell, 593 F.3d 990, 1001 (9th Cir. 2010) (22-level
increase), rev’d on other grounds by United States v. Miller,
953 F.3d 1095 (9th Cir. 2020); Garro, 517 F.3d at 1167 (9th
Cir. 2008) (16-level increase); United States v. Sanchez,
967 F.2d 1383, 1384, 1385–87 (9th Cir. 1992) (14-level
increase). Others have held that smaller enhancements
nonetheless required the higher clear and convincing
standard. See, e.g., Mezas de Jesus, 217 F.3d at 643 (9-level
increase); United States v. Hopper, 177 F.3d 824, 833 (9th
Cir. 1999) (7-level increase).
These holdings are consistent because the critical issue
in these cases was whether the enhancements were based on
the conduct of conviction. If they are based on such conduct,
the preponderance of the evidence standard applies. See
Garro, 517 F.3d at 1168–69. But if they are based on
conduct for which the defendant was not convicted, the clear
and convincing standard may apply. See Mezas de Jesus,
217 F.3d at 642–43.
UNITED STATES V. LONICH 63
Our conspiracy cases—and our application of Valensia
factor four—turn on this very same dichotomy, but often
present difficult questions in more complicated factual
scenarios about whether certain conduct is, in fact, based on
the conduct of conviction. We have “declined to apply the
clear and convincing standard of proof [when] the
enhancement at issue was ‘based entirely on the extent of the
conspiracy.’” Garro, 517 F.3d at 1169 (quoting Riley,
335 F.3d at 926); see also, e.g., Valle, 940 F.3d at 480 n.8
(summarizing this line of cases). That is true regardless of
whether the disputed sentencing enhancements resulted in an
increase of the offense level by more than four points or
whether it resulted in a Guidelines range that more than
doubled. See, e.g., Barragan, 871 F.3d at 718 (holding that
the preponderance of the evidence standard applied when
enhancement was based on the scope of conspiracy, even
though it resulted in a 17-level increase in the offense level
and quadrupled the length of the sentencing range);
Treadwell, 593 F.3d at 1001–02 (holding that the
preponderance of the evidence standard applied when
enhancement was based on the scope of the conspiracy, even
though it resulted in a 22-level increase that multiplied the
sentencing range tenfold); Berger, 587 F.3d at 1041, 1048–
49 (holding that the preponderance of the evidence standard
applied, even though enhancement resulted in 14-level
increase in the offense level and more than quadrupled the
length of the sentencing range).
The rationale for our approach in the conspiracy context
once again lies in the distinction between those
enhancements that are based on convicted conduct and those
that are not. “Enhancements based on the extent of a
conspiracy,” we have reasoned, “are ‘on a fundamentally
different plane than’ enhancements based on uncharged or
acquitted conduct.” United States v. Armstead, 552 F.3d
64 UNITED STATES V. LONICH
769, 777 (9th Cir. 2008) (quoting Riley, 335 F.3d at 926).
The justification is the same as in non-conspiracy cases:
“due process concerns . . . are satisfied by a preponderance
of the evidence standard because the enhancements are
based on criminal activity for which the defendant has
already been convicted.” Id.The government argues that a preponderance of the
evidence standard should apply here because the jury found
defendants guilty of a fraudulent conspiracy, and the district
court could then find that this criminal conduct caused the
bank to fail and produced the government’s related losses.
We reject the government’s position for two reasons.
First, there is a notable mismatch between the scope of
the criminal convictions and the losses that supposedly drove
the bank’s failure. The PSRs described how the FDIC paid
out of its Deposit Insurance Fund $11.47 million. Of this,
approximately $10.3 million consisted of Madjlessi-related
loans that the government required SVB to write off. But
$3.27 million of these write-offs related to a loan for
132 Village Square, another Madjlessi-controlled entity, for
which the defendants were not charged with wrongdoing.
Also included within the $10.3 million was $3.88 million in
loans for the first two pairs of Greenbriar loans. But the jury
acquitted Cutting of making a false bank entry for these two
loans. As to Cutting in particular, over $7 million of the
$10.3 million in loans thus reflected uncharged or acquitted
conduct. And all these loans pre-dated Lonich even joining
the conspiracy.
This is therefore not a situation where the losses are
“based entirely on the extent of the conspiracy.” Riley,
335 F.3d at 926. Instead, by the terms of the PSRs and the
FDIC report on which they rely, a substantial amount of
uncharged and acquitted conduct contributed to the bank’s
UNITED STATES V. LONICH 65
collapse, and thus the claimed losses. When uncharged or
acquitted conduct is in the mix to such an extent, the mere
fact of the conspiracy convictions—and thus Valensia factor
four—is not dispositive. See Hymas, 780 F.3d at 1290–93
(holding that a preponderance of the evidence standard
applied for losses associated with convicted conduct, but that
a clear and convincing standard applied for losses based on
uncharged loans); Armstead, 552 F.3d at 777.
Second, unlike our past conspiracy cases, this case
involves a substantial intermediate causation question: to
conclude that defendants’ conspiratorial conduct caused the
government’s losses, the district court had to determine that
defendants’ criminal conduct caused the bank’s collapse.
The logic of our decisions again does not support applying a
preponderance of the evidence standard in this situation.
The jury’s guilty verdicts do not compel the conclusion—or
even plausibly demonstrate—that the defendants through
their criminal conduct were responsible for SVB’s collapse.
In fact, the jury was not even permitted to hear evidence on
why the bank failed.
The preponderance of the evidence standard might have
been appropriate if, for example, the loss enhancements were
based on the value of defaulted Madjlessi loans. But here,
the linchpin of the disputed enhancements turns on a wholly
separate causal inquiry—the bank’s failure—that is
thoroughly disconnected from the jury’s verdict. It thus
cannot be said that defendants “had ample opportunity at
trial to challenge the government’s evidence of the extent of
losses caused by the conspiracy.” Treadwell, 593 F.3d
at 1001.
In short, Valensia’s fourth factor does not govern here.
The fifth and sixth factors do. Given the extremely
disproportionate sentences that the disputed enhancements
66 UNITED STATES V. LONICH
produced, a clear and convincing standard applies to the
factual underpinnings for these enhancements. This reflects
the trajectory of our precedents interpreting Valensia. The
first two Valensia factors are unlikely to add independent
weight to the analysis and do not do so here. The third and
fourth factors are effectively a threshold inquiry that asks
whether the enhancement is based on the conduct of
conviction, which, if so, means that the preponderance of the
evidence standard applies. Because the third and fourth
factors do not apply on these facts, we thus proceed to the
fifth and sixth factors, which require a clear and convincing
standard in this case.
3
We next turn to whether the government showed by clear
and convincing evidence that defendants caused SVB to fail.
This standard “requires that the government ‘prove [its] case
to a higher probability than is required by the
preponderance-of-the-evidence standard.’” Jordan,
256 F.3d at 930 (alteration in original) (quoting California
ex rel. Cooper v. Mitchell Bros.’ Santa Ana Theater,
454 U.S. 90, 93 n.6 (1981)). Under this standard, the
factfinder must have “‘an abiding conviction that the truth of
[the] factual contentions’ at issue is ‘highly probable.’”
Mondaca-Vega v. Lynch, 808 F.3d 413, 422 (9th Cir. 2015)
(en banc) (alteration in original) (quoting Colorado v. New
Mexico, 467 U.S. 310, 316 (1984)); see also Black’s Law
Dictionary 698 (11th ed. 2019) (clear and convincing
evidence requires “indicating that the thing to be proved is
highly probable or reasonably certain”). We hold that the
government did not show by clear and convincing evidence
that defendants caused SVB to fail.
The Guidelines require that a defendant’s sentence “be
based on ‘all harm that resulted from the acts or omissions’
UNITED STATES V. LONICH 67
of the defendant.” United States v. Hicks, 217 F.3d 1038,
1048 (9th Cir. 2000), as amended on denial of reh’g (July
31, 2000) (quoting U.S.S.G. § 1B1.3(a)(3)). The term
“‘resulted from’ establishes a causation requirement,” which
includes both cause-in-fact (but-for causation) and
proximate cause. Id. at 1048–49; see also United States v.
Peppel, 707 F.3d 627, 644 (6th Cir. 2013) (explaining that
under the Guidelines, “[c]ausation includes two distinct
principles, cause in fact, or what is commonly known as ‘but
for’ causation, and legal causation.” (quoting United States
v. Rothwell, 387 F.3d 579, 583 (6th Cir. 2004)).
These basic causation requirements apply to loss
enhancements. The Guidelines define “loss” to include not
only actual loss and intended loss, but also “reasonably
foreseeable pecuniary harm.” U.S.S.G. § 2B1.1 cmt.
n.3(A)(i). This “import[s] the legal concept of a causal
relationship between the defendant’s conduct and the
determined loss.” Rothwell, 387 F.3d at 583. The
Guidelines’ loss rules thus “do[] not obviate the requirement
to show that actual, defendant-caused loss occurred.”
Berger, 587 F.3d at 1045; see also U.S.S.G. app. C vol. II
amend. 617, at 178 (2003) (explaining that § 2B1.1
“incorporates [a] causation standard that, at a minimum,
requires factual causation (often called ‘but for’ causation)
and provides a rule for legal causation (i.e., guidance to
courts regarding how to draw the line as to what losses
should be included and excluded from the loss
determination)”). Applying this principle, we have vacated
sentences when the government failed to produce sufficient
evidence to show proximate or but-for cause for asserted loss
amounts. See Berger, 587 F.3d at 1046–47; Hicks, 217 F.3d
at 1047–49.
68 UNITED STATES V. LONICH
In this case, the district court made no independent
findings about the cause of the bank’s collapse beyond
adopting the PSRs and rejecting defendants’ objections
without explanation. But neither the PSRs nor the additional
materials the government now cites sufficiently show that
defendants were responsible for SVB failing, especially
given indications in the record that other factors internal and
external to the bank may have contributed to the bank’s
collapse.
First, although the PSRs stated that defendants had
caused the bank to fail, they cited only the FDIC report.
Relying exclusively on that report, the PSRs explained that
regulators “were forced to downgrade SVB’s capital due to
the relationship between the bank and Bijan Madjlessi,” and
that before the downgrade, the Madjlessi relationship
“represented 74% of Total Risk Based capital.” The PSRs
then found that “[a]fter this downgrade from the FDIC, the
bank failed as it was unable to provide the necessary funding
to stay afloat because 74% of their risks were taken up by
Bijan Madjlessi.”
There are several difficulties with the reliance on the
FDIC report. For one, the report did not find that defendants
caused SVB’s failure. The FDIC issued its report before
SVB’s failure, and the report instead concerned the FDIC
downgrading SVB. The FDIC report also does not blame all
the bank’s problems on the Madjlessi-related loans. While
the FDIC report noted its concern for SVB concentrating too
much capital in Madjlessi, it also mentioned a host of other
issues besetting SVB, including poor management,
deteriorating market conditions, concentrated lending to
another larger borrower, poor financial reporting, and so on.
Madjlessi is mentioned by name in only one paragraph in the
eleven-page report.
UNITED STATES V. LONICH 69
The government argues in its briefing that the other
problems the FDIC report identifies are “all hallmarks of the
Madjlessi relationship.” But setting aside that the FDIC
report does not connect all the bank’s problems to Madjlessi,
that the Madjlessi loans may have reflected the bank’s
otherwise poor practices does not mean those loans (much
less defendants’ criminal conduct) are, standing alone, what
caused the bank to fail. Based on the FDIC report, it is not
clear whether SVB’s collapse was caused by defendants’
conspiracy-related loans or by other “intervening” and
“independent” factors, including outside economic forces.
Hicks, 217 F.3d at 1049.
Second, neither the PSRs nor the FDIC report focused on
those loans for which the jury convicted defendants. The
PSRs referenced the total amount of loans to Madjlessi—
$35,000,000. But not all the loans comprising this amount
were claimed to be unlawful. The “74%” figure referenced
in the PSR and FDIC report related to all Madjlessi-related
loans. And even then, it is not apparent from the FDIC report
that it is properly interpreted as meaning that 74% of the
bank’s risks were taken up by Madjlessi-related loans.
The FDIC report similarly referenced the $10.3 million
write-off that the FDIC ordered SVB to take on Madjlessi-
related loans. But as we noted above, this write-off included
an uncharged $3.27 million loan for 132 Village Square, and
$3.88 million for the first two pairs of Greenbriar loans for
which Cutting was acquitted. And all the loans that were
written off pre-dated Lonich’s involvement in the
conspiracy. From a causation perspective, it is thus unclear
if the loans associated with defendants’ criminal wrongdoing
led to the bank’s failure.
Third, the government on appeal now points to three
“investigative reports” it included in its sentencing
70 UNITED STATES V. LONICH
memorandum. But the PSRs did not rely on any of these
investigative reports. And there is no indication the district
court did either. If anything, the court discounted the
government’s sentencing memorandum after finding the
government belatedly changed its calculations and provided
conflicting numbers.
The three investigative reports have other important
limitations. They are essentially summaries of interviews of
two California bank examiners and one federal examiner.
Although these examiners generally opined that the
defendants caused the bank to fail, the written reports do not
identify the bases for those conclusory opinions. For
example, one state examiner reportedly “felt that the Bijan
Madjlessi loans exceeding the [legal lending limit] caused”
the bank’s failure. The reports also do not discuss the role
of other potential factors flagged in the FDIC report, such as
adverse economic conditions or the bank’s overall poor
management practices.
Fourth, while the government’s causation theory lacked
support as to all defendants, it was particularly lacking as to
Lonich, who did not join the conspiracy until January 2009.
All damages listed in the government’s calculation table
related to loans issued before Lonich joined the conspiracy.
“A defendant’s relevant conduct does not include the
conduct of members of a conspiracy prior to the defendant
joining the conspiracy.” U.S.S.G. § 1B1.3, cmt. n.3(B); see
also United States v. Bad Wound, 203 F.3d 1072, 1077–78
(8th Cir. 2000) (vacating sentence because the district court
did not make a finding on when the defendant joined the
conspiracy, so that the court could not tell what percentage
of the loss should be attributable to him).
In response, the government points out that it charged
Lonich in connection with the 101 Houseco loan. But that
UNITED STATES V. LONICH 71
loan was fully paid and accounted for zero loss according to
the government’s own calculations. It was also secured by
collateral worth twice the amount of the loan itself. It is thus
hard to see how Lonich—who did not even work at the bank
and was involved in only one loan—can be said to have
caused the bank’s downfall, especially given the other
potential causal factors at play. The government tries to
advance a theory by which the 101 Houseco loan, while fully
paid, nonetheless contributed to the bank’s problems. But
neither the PSR nor the district court made findings on that
point, and the government’s logic is far from self-evident.
In short, the government did not demonstrate by clear
and convincing evidence that defendants caused SVB to
fail. 7 This means that the government did not sufficiently
support defendants’ 20-level loss enhancement. Perhaps the
government, at resentencing on an open record, can prove its
theory that defendants were responsible for SVB’s failure.
We hold only that, on this record, defendants’ 20-level loss
enhancement cannot be sustained. 8
Our determination that the government did not
adequately prove defendants caused SVB to fail means that
other aspects of defendants’ sentences are infirm as well.
The district court imposed a 2-level sentencing enhancement
under U.S.S.G. § 2B1.1(b)(2)(A)(i) because defendants’
offenses involved ten or more victims. But these victims
consisted of the FDIC, TARP, and shareholders of the bank.
7
Although we question whether the government even met the
preponderance of the evidence standard, we need not address that issue
in light of our holding as to the appropriate standard.
8
We thus do not reach defendants’ alternative argument that even if
they caused SVB to fail, there was insufficient evidence supporting the
monetary losses identified in the PSR.
72 UNITED STATES V. LONICH
This enhancement thus likewise depended on the finding that
defendants were responsible for the bank’s failure. Lonich’s
4-level enhancement for jeopardizing the safety and
soundness of a financial institution, U.S.S.G.
§ 2B1.1(b)(17)(B)(i), encounters the same problem. 9
The same is true of defendants’ approximately
$20 million restitution orders, which were likewise premised
on the government’s theory that defendants caused the bank
to fail. While the standard of proof for restitution is a
preponderance of the evidence, Hymas, 780 F.3d at 1293 n.4,
because we are already vacating defendants’ sentences due
to the lack of demonstrated causal relationship between their
offenses and the bank’s collapse and remanding for
resentencing, we likewise vacate the restitution order as
well. We thus do not reach defendants’ other assignments
of error as to the restitution award.
* * *
For these reasons and those set forth in our
accompanying memorandum disposition, we affirm
defendants’ convictions. But we vacate defendants’
sentences and remand for resentencing on an open record.
See United States v. Matthews, 278 F.3d 880, 885 (9th Cir.
2002) (en banc) (“[A]s a general matter, if a district court
errs in sentencing, we will remand for resentencing on an
open record—that is, without limitation on the evidence that
the district court may consider.”).
AFFIRMED in part, VACATED in part, and
REMANDED.
9
Cutting and Melland do not challenge this enhancement as to them.