United States v. Lipsey

FILED
United States Court of Appeals
Tenth Circuit
February 1, 2013
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 11-1536
v. (D. Colorado)
CEDRIC LIPSEY, (D.C. No. 1:09-CR-00387-PAB-1)
Defendant - Appellant.
ORDER AND JUDGMENT *
Before HARTZ, ANDERSON, and GORSUCH, Circuit Judges.
Defendant and appellant, Cedric Lipsey, appeals his sentence following his
plea of guilty to three counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and
2. 1 Arguing that his sixty-three month sentence is procedurally and substantively
unreasonable, he seeks a new sentencing hearing. For the following reasons, we
affirm his sentence.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 32.1.
1
Mr. Lipsey also pled guilty to one count of forfeiture, pursuant to 18
U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c), of property constituting or
derived from the proceeds of wire fraud. The government subsequently
abandoned this forfeiture claim.
BACKGROUND
The parties stipulated in Mr. Lipsey’s plea agreement that the government’s
evidence would demonstrate the details of the wire fraud scheme to which Mr.
Lipsey pled guilty. We summarize the pertinent facts from that agreement.
Between April 2004 and February 2006, primarily in the general area of
Denver, Colorado, Mr. Lipsey, a licensed real estate broker, along with Philip A.
Martinez, a loan officer and mortgage broker, implemented a scheme to defraud
lending institutions that funded residential mortgages. Mr. Lipsey held himself
out as a successful real estate agent and investor. He would induce “buyers” or
“investors” (hereafter “first investors” or “first buyers”), individuals with good
credit whom he met through his church, through friends and relatives and through
self-help seminars, to participate in a program where he claimed they could
legitimately acquire properties and profit by reselling them without investing any
money of their own.
Accordingly, Mr. Lipsey and Mr. Martinez would arrange for these “first
investors” to submit loan applications to obtain mortgages on residences. He and
Mr. Martinez would include false representations in the loan applications where
necessary to influence lenders to approve loans. Shortly after these first
investors/buyers had purchased their properties, Mr. Lipsey would arrange for
them to sell the properties to other comparable “investors” (hereafter “second
investors” or “second buyers”) at substantially higher prices. Mr. Lipsey and
-2-
Mr. Martinez received money in the form of commissions, fees and proceeds from
the sales transactions.
While that is the essence of the fraudulent scheme, there are a few other
details which explain why the scheme lasted as long as it did. Mr. Lipsey would
tell the first buyers that they were buying the residences at less than their market
value, and that the resale price was at or above their market value, thereby
enabling a quick profit. In fact, the first investors purchased the properties at or
near their market value, contrary to Mr. Lipsey’s representations. These first
investors further stated that Mr. Lipsey told them he would take care of all
paperwork and pay for any associated costs. The buyers’ only role would be to
hold the properties in their names for a short period of time. For their
participation, Mr. Lipsey paid them amounts of money ranging from $3,000 to
$15,000 after the property was sold.
When Mr. Lipsey arranged to sell the recently purchased properties to the
second buyers/investors, he made these buyers the same assurances as the first
buyers (he would handle all paperwork and expenses). Because of their limited
involvement as investors/buyers who did not intend to live in the homes, these
second buyers did not critically evaluate the price of the homes, which Mr. Lipsey
inflated to more than market value. To satisfy lenders for the sales to these
second buyers, Mr. Lipsey and Mr. Martinez arranged to have inflated appraisals
prepared.
-3-
In exchange for the second buyers’ participation, Mr. Lipsey represented to
them that he would pay them money (ranging from $5,000 to $10,000) just after
their purchases and then manage the properties as rentals and make mortgage
payments until he resold them. Or, he offered to pay them a larger sum ($90,000
to $140,000) with which the buyers could themselves manage the properties as
rentals and make mortgage payments until Mr. Lipsey sold the properties.
With respect to the lending institutions, Mr. Martinez played a large role in
insuring that the loans were made, typically with nearly 100% financing, which
required no, or only minimal, down payments. Mr. Martinez also found loans
which required little proof of the borrowers’ employment, assets or income.
Accordingly, as indicated above, Mr. Martinez provided false information about
the buyers’ qualifications. Both Mr. Lipsey and Mr. Martinez employed a number
of other tactics to lull the lending institutions to issue the loans they sought.
The scheme eventually was discovered. As the plea agreement states, “As a
result of this fraudulent scheme, the individuals who ended up as the second (and
in one instance the third) buyers learned that the properties they had purchased
were worth substantially less than amounts for which they had been mortgaged.
All but one of the properties have gone into foreclosure. The actual loss to the
lenders is $4,430,240.29, [2] because the unpaid principal balances on their loans
2
While this was the loss amount stated in the plea agreement, it ultimately
was adjusted.
-4-
exceeded the amounts they recovered by reselling the properties.” Plea
Agreement at 21, R. Vol. 1 at 74.
The only disputed issues in this case are the amount of loss attributed to
Mr. Lipsey’s fraud, the amount of restitution which he is required to make, and
the impact of those two calculations on Mr. Lipsey’s prison sentence. After
multiple sentencing hearings addressing the issues of loss calculation and
restitution, the district court determined that the government had proven, by a
preponderance of the evidence, that the total loss from Mr. Lipsey’s fraudulent
scheme, for purposes of sentencing under the advisory United States Sentencing
Commission, Guidelines Manual (“USSG”), was $4,208,860.11. The court further
concluded that, pursuant to the Mandatory Victims Restitution Act (“MVRA”), 18
U.S.C. § 3663A(b)(1)(A), Mr. Lipsey was required to make restitution in the
amount of $2,922,759.89. Mr. Lipsey disputes these amounts and, in particular,
the methodology used to calculate them.
In preparation for sentencing under the advisory Guidelines, the United
States Probation Office prepared a presentence report (“PSR”). The PSR arrived
at a total offense level of 26, which included an 18-level upward adjustment
because, pursuant to USSG §2B1.1(b)(1)(J), the loss exceeded $2,500,000 but was
less than $7,000,000. With a criminal history category of 1, the advisory
Guidelines sentencing range was 63 to 78 months. Mr. Lipsey filed objections to
the PSR, challenging the loss and restitution calculations. The government filed
-5-
objections and corrections to the restitution amount. The court ultimately
sentenced Mr. Lipsey to 63 months’ imprisonment, after finding that the loss and
restitution amounts were as stated above.
Mr. Lipsey appeals his sentence, arguing: (1) the district court erred in
calculating the loss amount, thereby rendering his sentence procedurally
unreasonable; (2) the district court erred in calculating the amount of restitution
required, thereby also rendering his sentence procedurally unreasonable; and (3)
his sentence is substantively unreasonable.
DISCUSSION
We review sentences for reasonableness under a deferential abuse-of-
discretion standard. See United States v. Alapizco-Valenzuela, 546 F.3d 1208,
1214 (10th Cir. 2008). “‘Reasonableness review is a two-step process comprising
a procedural and a substantive component.’” Id. (quoting United States v. Verdin-
Garcia, 516 F.3d 884, 895 (10th Cir. 2008)). See Gall v. United States, 552 U.S.
38, 51 (2007). “Procedural review asks whether the sentencing court committed
any error in calculating or explaining the sentence.” Alapizco-Valenzuela, 546
F.3d at 1214. Substantive review, on the other hand, “involves whether the length
of the sentence is reasonable given all the circumstances of the case in light of the
factors set forth in 18 U.S.C. § 3553(a).” United States v. Conlan, 500 F.3d 1167,
1169 (10th Cir. 2007). A within-Guidelines sentence is entitled to a presumption
-6-
of substantive reasonableness on appeal, and a defendant must rebut this
presumption by demonstrating that the sentence is unreasonable in light of the
other sentencing factors laid out in § 3553(a). Rita v. United States, 551 U.S.
338, 347 (2007); United States v. Kristl, 437 F.3d 1050, 1054 (10th Cir. 2006).
I. Loss Calculation
Under the Guidelines, the base offense level applicable to a crime involving
fraud is increased according to the amount of loss. USSG §2B1.1(b). “The court
should use the greater of actual or intended loss.” United States v. James, 592
F.3d 1109, 1114 (10th Cir. 2010) (citing USSG §2B1.1 cmt. n.3(A)). The
Guidelines define “actual loss” as “the reasonably foreseeable pecuniary harm that
resulted from the offense.” USSG §2B1.1 cmt. n.3(A)(i).
“A district court’s loss calculation at sentencing is a factual question we
review for clear error.” United States v. Griffith, 584 F.3d 1004, 1011 (10th Cir.
2009) (quoting United States v. Ary, 518 F.3d 775, 787 (10th Cir. 2008)).
“Reversing for clear error ‘requires that, based on the entire evidence, we have a
definite and firm conviction that a mistake has been committed.’” Id. (quoting
United States v. Hahn, 551 F.3d 977, 979 (10th Cir. 2008) (further quotation
omitted)). The issue of the methodology used by the court to calculate loss,
however, is a legal question which we review de novo. See James, 592 F.3d at
1114. Furthermore, “the government bears the burden of proving loss by a
preponderance of the evidence.” Id. Finally, “the comments to the Guideline
-7-
instruct that we are to give ‘appropriate deference’ to the district court’s
determination, because the ‘sentencing judge is in a unique position to assess the
evidence and estimate the loss based upon that evidence.’” Griffith, 584 F.3d at
1011 (quoting USSG §2B1.1, cmt. n.3(C)).
The district court made the following findings with respect to the loss
calculation:
At the time of the crimes to which the defendant has pled
guilty, he was a licensed real estate broker. As a result of his
familiarity with real estate transactions, the Court finds that, between
April 2004 and March 2006, it was reasonably foreseeable to the
defendant that mortgage loans on the properties involved in his
fraudulent activities would be sold or repackaged to lenders other
than the ones who made the [second] sale loans. . . . [I]t was also
reasonably foreseeable to the defendant between April 2004 and
March 2006 that the market value of the properties could fluctuate
either up or down in the future.
Sentencing Mem. at 2-3, R. Vol. 1 at 269-70 (record citations omitted). The court
then agreed with the government’s theory of loss, “that the unpaid principal on the
mortgage loan used to secure the [second] sale is reduced by the amount for which
the collateral securing the loan was sold. Thus, for those properties that were
subject to foreclosure, this means that the unpaid principal on the [second] sale
note is reduced by [the] amount for which the property securing the note was sold
after the lender reacquired the property at foreclosure.” Id. at 3.
In reaching this conclusion, the court relied upon our decision in United
States v. Washington, 634 F.3d 1180 (10th Cir.), cert. denied, 132 S. Ct. 300-8-
(2011), in which we stated, “[w]here a lender has foreclosed and sold the
collateral, the net loss should be determined by subtracting the sales price from
the outstanding balance on the loan.” Id. at 1184. Using that formula provided in
Washington, the district court found that the government had proven, by a
preponderance of the evidence, that the total amount of actual loss was
$4,208,860.11.
We perceive no error in the court’s methodology or calculations. Mr.
Lipsey makes two primary arguments to us on appeal: (1) that the district court
erred in ignoring the conclusion of his expert, Dr. Mark Levine, that the relevant
“value” of the properties subject to foreclosure, for the purposes of calculating
loss, was their appraised value at the time of foreclosure, rather than the amount
for which such properties were actually sold following foreclosure; and (2) the
court erroneously shifted the burden to establish loss on to Mr. Lipsey. 3
The problem with Mr. Lipsey’s first argument is it finds no support in our
case law. Rather, the district court correctly followed the reasoning of
Washington and explained why Mr. Lipsey’s reliance on James was misplaced.
Additionally, as the government and the district court point out, his argument
3
With respect to his first argument, Mr. Lipsey alleges that when the
“[victim/] note holder re-acquired the property following the foreclosure sale[,]
. . . the value of the property at that point in time was the best and most
reasonable calculation of the true value of the re-acquired property.” Appellant’s
Op. Br. at 15.
-9-
ignores the fact that Mr. Lipsey and Mr. Martinez admitted to generating false
appraisals in connection with the sales of the properties at issue.
Mr. Lipsey’s second argument, to which he devotes merely a page of his
brief, is equally unavailing. While it is true that the government bears the burden
of establishing loss, the district court did not shift that burden to Mr. Lipsey by
rejecting his argument about the value of appraisals and by not requiring the
government to introduce such appraisals. As indicated above, appraisals of the
kind sought by Mr. Lipsey were simply irrelevant to the calculation of loss in this
case. The government properly carried its burden of proof.
II. Restitution
Mr. Lipsey also argues that his sentence is procedurally unreasonable
because the district court erred in calculating the amount of restitution he is
obligated to pay under the MVRA. “We review the legality of a restitution order
de novo, the district court’s factual findings for clear error, and the amount of
restitution for abuse of discretion.” United States v. Parker, 553 F.3d 1309, 1323
(10th Cir. 2009). “The determination of an appropriate restitution amount is by
nature an inexact science.” Id. (further quotation omitted). Thus, the MVRA
directs courts to “reach an expeditious, reasonable, determination of appropriate
restitution by resolving uncertainties with a view toward achieving fairness to the
victim.” Id.-10-
The district court found that the “government has proven by a
preponderance of the evidence [that] restitution in the amounts and to the victims
listed in the Probation Department’s revised restitution list . . . is $2,922,759.89.”
Sentencing Mem. at 11-12, R. Vol. 1 at 278-79. As it did with the calculation of
loss, the court agreed with the government’s theory of restitution calculation that
it “should . . . use the difference between the unpaid principal balance [on the
notes from the lenders to the second buyers] and the amount that the lender
received from selling the property after foreclosure.” Id. at 9. The court rejected
Mr. Lipsey’s argument (which he continues to make on appeal) that the restitution
amount should be calculated based on the amount that the lender successfully bid
on the properties at the foreclosure sale. In short, the district court’s methodology
for calculating restitution was correct, leading to a reasonable and fair result. 4
III. Substantive Reasonableness
Finally, Mr. Lipsey challenges his sentence, arguing it is substantively
unreasonable primarily because, at sixty-three months, his sentence is
disproportionately longer than the fifty-month sentence of his equally culpable co-
defendant, Mr. Martinez. As the government points out, however, Mr. Lipsey
discounts or ignores the fact that Mr. Martinez entered into a plea agreement with
4
We note that the total amount of restitution ordered by the district court
was less than the total amount of loss calculated. This was because the identities
of some of the actual owners of the defaulted notes were not specifically
documented.
-11-
the government more than a year earlier than did Mr. Lipsey and he (Mr.
Martinez) provided substantial information to the government. The government
accordingly recommended that Mr. Martinez receive a downward departure in his
sentence, based upon his substantial assistance, under USSG §5K1.1. As the
district court specifically noted, “[t]he two [men] do not stand in similar positions
given the aspect of cooperation.” Tr. of Sentencing (Vol. 5), 11/23/2011, R. Vol.2
at 683.
Furthermore, we have stated that “[w]hile similar offenders engaged in
similar conduct should be sentenced equivalently, disparate sentences are allowed
where the disparity is explicable by the facts on the record.” United States v.
Davis, 437 F.3d 989, 997 (10th Cir. 2006) (further quotations and citations
omitted). The record in this case clearly reveals the reason for the disparity
between the sentences of Mr. Lipsey and Mr. Martinez. Mr. Lipsey has failed to
rebut the presumptively reasonable sentence he received.
CONCLUSION
For the foregoing reasons, we AFFIRM the sentence imposed on Mr. Lipsey.
ENTERED FOR THE COURT
Stephen H. Anderson
Circuit Judge
-12-