United States v. Dickler

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
8-21-1995
United States v Dickler
Precedential or Non-Precedential:
Docket 94-3517
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Recommended Citation
"United States v Dickler" (1995). 1995 Decisions. Paper 229.
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1
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0S. 94-3517 and 94-3518
UNITED STATES OF AMERICA
v.
SIDNEY J. DICKLER
RICHARD R. PETRUCCI
Sidney J. Dickler
Appellant in No. 94-3517
Richard R. Petrucci
Appellant in No. 94-3518
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Crim. Action Nos. 94-cr-00030-1 and 94-cr-00030-2)
Argued April 18, 1995
BEFORE: STAPLETON, HUTCHINSON and SEITZ, Circuit Judges
(Opinion Filed August 21, 1995)
Frederick W. Thieman
United States Attorney
Bonnie R. Schlueter (Argued)
Assistant U.S. Attorney
633 U.S. Post Office & Courthouse
Pittsburgh, PA 15219
Attorneys for Appellee
William F. Manifesto (Argued)
1550 Koppers Building
2
436 Seventh Avenue
Pittsburgh, PA 15219
Attorney for Appellant
Sidney J. Dickler
Ellen M. Viakley (Argued)
1550 Koppers Building
436 Seventh Avenue
Pittsburgh, PA 15219
Attorney for Appellant
Richard R. Petrucci
OPINION OF THE COURT
STAPLETON, Circuit Judge:
These are appeals from the judgments of sentence
imposed on Sidney Dickler and Richard Petrucci after each entered
a plea of guilty to impeding the functions of the Resolution
Trust Corporation ("RTC") in violation of 18 U.S.C. § 1032(2).
The defendants attack their sentences on two grounds: that the
court prohibited them from submitting evidence at their
sentencing hearings relevant to the calculation of the "loss"
caused by their criminal conduct for purposes of U.S.S.G. § 2F1.1
and that the district court erred in calculating that loss. We
will reverse the judgments and remand for resentencing.
I.
Sidney Dickler and Richard Petrucci were charged in a
three-count indictment with offenses relating to their operation
2
of two companies: Action Repossession Services, Inc. ("Action
Repossession") and Action Motors, Inc. ("Action Motors"). Action
Repossession was in the business of repossessing cars on behalf
of financial institutions. Action Motors was a used car dealer.
Dickler and Petrucci were principals in both companies. Counts
One and Two of the indictment charged Dickler and Petrucci with
participating in a scheme to defraud two federally insured
financial institutions, Horizon Financial Savings ("Horizon") and
Atlantic Financial ("Atlantic"), in violation of 18 U.S.C.
§ 1344. According to the indictment, the criminal activity began
in 1985. The RTC became the conservator of Horizon on June 8,
1989, and of Atlantic on January 11, 1990. Count Three charged
defendants with participating in a scheme to impede the functions
of the RTC in violation of 18 U.S.C. § 1032(2).
Action Repossession was under contract with the victim
banks to repossess cars when a car owner defaulted on his or her
car loan, or when a lease terminated and the car was not
voluntarily returned. Under its agreement with the banks, Action
Repossession was to repossess and store the vehicle, prepare a
condition report on the repossessed vehicle, and solicit three
bona fide bids for the vehicle from prospective buyers.0 The
0
As was apparently the custom in this business, Action
Repossession operated pursuant to informal, oral contracts and
the parties dispute the exact terms of the agreements. For
example, counsel for Action Repossession indicated at oral
argument before this court that the company did not solicit bids
for the banks pursuant to the repossession contract, but simply
provided this as an enhancement to the contract. This
distinction is immaterial for purposes of this appeal, however,
since it is clear that in soliciting bids for the banks and the
RTC, pursuant to the terms of the agreement or otherwise, the
3
condition report and bids were then to be sent to the banks, who
would either accept one of the bids or reject them all. If the
bids were rejected, the banks might sell the car at auction. If
one of the bids was accepted, the bank would send the vehicle
title and bill of sale to Action Repossession, who was then
expected to transfer title to the vehicle to the successful
bidder on the bank's behalf.
The defendants' fraudulent scheme involved submitting
false bids to the banks. Instead of soliciting bona fide bids
from used car dealers or individuals, Dickler and Petrucci
submitted bids with the names of fictitious bidders with the
intent that Action Motors would purchase the car for resale
whenever a false bid was accepted. Thus, under the scheme, when
the bank accepted one of the bids and sent the title and bill of
sale to Action Repossession, Action Motors would acquire the
vehicle instead of the fictitious bidder and, after repairing and
"detailing" it,0 would then resell the vehicle for a profit.
Prior to trial, Dickler and Petrucci each entered a
plea of guilty to Count Three of the indictment pursuant to a
plea agreement. The respective plea agreements, which were the
same in all aspects relevant to this appeal, provided that: (1)
banks and the RTC expected Action Repossession to solicit bona
fide bids.
0
Petrucci defined detailing a car as thoroughly cleaning
the interior and exterior (buffing, waxing, degreasing the
engine, painting the engine compartment, cleaning the trunk,
shampooing the interior, trunk, and carpeting), performing
cosmetic repairs such as repairing holes in the upholstery, and
in some cases adding or removing exterior details such as pin
striping and window tinting.
4
that conduct charged in Counts One and Two could be considered
"relevant conduct" for purposes of the presentence investigative
report ("PSR"), (2) the relevant loss for purposes of applying
U.S.S.G. § 2F1.1 was more than $120,000 and less than $500,000,
(3) each defendant would assist the government in the
investigation of other bank fraud violations, (4) a special
assessment of $50 would be paid, (5) the defendants' offense
levels under the Sentencing Guidelines should be reduced for
acceptance of responsibility, (6) the offense levels should be
increased two levels for aggravating roles, and (7) at
sentencing, the government would move to dismiss the remaining
counts and recommend that the defendants be given sentences in
the middle range of the applicable guideline range.
In compliance with Federal Rule Criminal Procedure
11(f), the court, before accepting the pleas of Dickler and
Petrucci, asked the government to summarize its evidence as to
Count Three.0 The government summarized the defendants' false
bid scheme. It submitted documentation to explain how the scheme
worked, including a bid sheet, a condition report, a bill of
sale, odometer disclosure statement, and an internal record of
Action Possession indicating the purchase, repair, and retail
sale of the vehicle. In the course of explaining the
illustrative documentation to the court, the government indicated
that the scheme included not only the preparation and submission
0
Rule 11(f) requires that a court inquire into the facts
of the case to satisfy itself that there is a factual basis for
the plea before accepting even a freely given plea.
5
of bids from fictitious bidders but also the preparation and
submission of false condition reports. Specifically, the
government represented that it had spoken with the former lessee
of the vehicle described in the sample condition report, who had
explained that the vehicle had been in better condition when it
was repossessed than represented on the condition report (e.g.,
he refuted that the tires were poor, that the car had no hubcaps,
and that the tail light was broken), and that the signature
purporting to be his on the condition report was not. Each
defendant, upon questioning by the court, agreed with the
government's factual summary and entered his plea.
A PSR was subsequently prepared for each defendant. In
relevant part, the PSRs contained the following factual
allegations and legal conclusions: the defendants would order
employees to falsify the condition reports being sent to the
financial institutions, the defendants' fraud caused the banks to
lose monies on the vehicles because the submitted bids were "low
balled," the defendants had obtained approximately $386,223 from
the banks and the RTC through the submission of false bids
(calculated by deducting the bid price and cost for detailing and
repairing the vehicles from the price at which Action Motors sold
the repossessed vehicles), and the amount they obtained
represented the amount of loss for purposes of calculating the
offense level under U.S.S.G.
§ 2F1.1(b).
Sentencing hearings were held on September 2, 1994. A
separate hearing was held for each defendant although the court
6
held that any relevant information in the first hearing
(Dickler's) could be incorporated into the second. The focus of
the hearings was the calculation of loss under U.S.S.G.
§ 2F1.1(b). Although they had stipulated to a loss of at least
$120,000 in their respective plea agreements, the defendants
objected to the PSR's loss calculation because it focused on the
gain they realized from reselling the repossessed vehicles rather
than the actual loss to the victims. They maintained that the
figure did not accurately represent the victims' loss because it
did not account for the effect market forces and other external
factors had on their resale price. Although the defendants
conceded that the court was entitled to set the loss at $120,000
based on their stipulation, they contended that no higher loss
figure was permissible because the fraudulent bids they had
submitted, although falsified as to identity of the purchaser,
represented the fair market value of the vehicles and,
accordingly, there was no loss to the victims.
According to Petrucci's testimony, the defendants
submitted bids in the name of fictitious purchasers because it
was difficult to obtain bona fide bids from outside bidders, a
contention supported by the testimony of another used car dealer
who testified that most dealers were reluctant to become involved
in the repossession bid market. The defendants were concerned,
according to Petrucci, that the failure to submit three bids in
accordance with the standard practice of the banks would
jeopardize their repossession business, which generated
7
approximately three times the income produced by their used car
dealership.
Testimony as to the banks' method for evaluating bids
on repossessed vehicles was presented by James Sweeney, a former
collection manager for Atlantic Financial. Sweeney explained
that at the time an automobile was repossessed, the bank would
determine a high and low bid for the vehicle. The high bid would
be eighty-five percent of the National Automobile Dealers
Association ("NADA") book's average value for that car. To
obtain the low bid figure, the bank would reduce that figure
based on the vehicle's condition and mileage, as represented in
the vehicle condition reports and accompanying photographs.
Sweeney testified that it was generally known in the repossession
bid industry that banks valued their repossessed vehicles in this
manner and thus that banks did not generally receive bids for
more than eighty-five percent of "book" value. Sweeney further
explained that once the statutory no-bid period passed, it was
important to obtain and accept a reasonable bid as quickly as
possible in order to avoid mounting storage charges and further
erosion of the bid price.0
The parties stipulated to testimony that Atlantic's bid
evaluation methods were standard industry practice. Sweeney also
testified that, at Dickler's suggestion, defendants would
0
According to Sweeney, an institution may not seek bids
on repossessed vehicles under Pennsylvania law until 15 days
after repossession. He also indicated that bids were generally
valid for only a short time because the NADA book was reissued
every two weeks with continually depreciating values.
8
occasionally fix up the repossessed vehicle before selling it on
the bank's behalf but, although this generated a higher return
value for the bank, they elected not to sell most of the vehicles
in this manner because they were more interested in simply
disposing of the vehicles quickly. According to Petrucci,
Horizon had likewise declined defendants' suggestion to improve
the condition of their vehicles before soliciting buyers.
The defendant also presented evidence to explain why
their resale price was generally significantly higher than their
purchase bid price. Petrucci testified that all of the
repossessed vehicles purchased from the banks and the RTC were
detailed, and that many were also repaired before they were
resold. Various witnesses testified that cosmetic and repair
work increases the price of a used vehicle disproportionately to
the cost of the work. Moreover, cars sold by used car dealers
sell at higher prices than repossessed vehicles because
repossessed vehicles are purchased on an "as is" basis and cannot
be test-driven.0
The defendants also attempted to present evidence that
the vehicle condition reports had not been falsified, but the
court would not permit this testimony, stating that defendants
could not now present evidence that contradicted the facts to
which they had agreed during the change of plea hearings.
0
When Action Motors resold the repossessed vehicles they
were covered by Action Motors' insurance and could be test driven
with Action Motors' dealer plates.
9
The district court did not find the defendants'
arguments and evidence persuasive. The court rejected all of the
defendants' substantive objections to the PSR's loss calculation
and adopted the PSR's focus on the defendants' resale prices less
the amount they paid for the vehicles and their costs for
detailing work and repairs. The court allowed only a deduction
for computational errors of $34,765.50, resulting in a final loss
calculation of $351,457.50. Thus, under U.S.S.G. § 2F1.1, the
court added nine levels to the base offense level of six because
the loss involved in the offense was greater than $350,000 and
less than $500,000. That figure was increased another two levels
for more than minimal planning, and increased an additional two
levels for aggravating role, resulting in a total offense level
of nineteen. That figure was then reduced three levels for
acceptance of responsibility, for a total adjusted offense level
of sixteen. This offense level, with a criminal history category
of I, corresponded to a sentencing range for each defendant of
twenty-one to twenty-seven months. Within that range, the court
sentenced Dickler to twenty-four months of imprisonment and
Petrucci to twenty-one months. These timely appeals followed.0
0
The district court had jurisdiction pursuant to 18
U.S.C. § 3231 as the defendants were charged with violations of
federal law. We exercise appellate jurisdiction pursuant to 18
U.S.C. § 3742 and 28 U.S.C. § 1291.
10
II.
The threshold issue is whether the district court erred
in refusing to admit evidence at the sentencing hearing tending
to show that the condition reports submitted to the banks were
not falsified. The district court so ruled based on its view
that when a defendant under oath expressly admits facts at a plea
hearing in the course of persuading the court to accept his plea,
he may not thereafter deny those facts any more than he may
thereafter deny the facts alleged in the indictment and admitted
by his plea.
The defendants do not challenge this legal conclusion
as a general proposition.0 Rather, they insist that there were
special circumstances here that should relieve them of the
consequences that would ordinarily flow from an admission at a
plea hearing. First, according to the defendants, they did not
0
We have held that facts relevant to sentencing
contained in the indictment and plea agreement are conclusively
established by the entry of a guilty plea even if they are not
elements of the offense charged. United States v. Parker, 874
F.2d 174, 178 (3d Cir. 1989) (holding that where indictment and
plea agreement specified value of packages taken, entry of guilty
plea conclusively established value for purposes of sentencing
even though value was not an element of the offense charged); see
also Crawford v. United States, 519 F.2d 347, 350 (4th Cir. 1975)
("[T]he accuracy and truth of an accused's statements at a Rule
11 proceeding in which his guilty plea is established are
'conclusively' established by that proceeding unless and until he
makes a reasonable allegation why this should not be so."), cert.
denied, 423 U.S. 1057 (1976), and overruled on other grounds by
United States v. Whitley, 759 F.2d 327 (4th Cir.), cert. denied,
474 U.S. 873 (1985); Nesbitt v. United States, 773 F. Supp. 795,
799 (E.D. Va. 1991) ("Sworn statements in a plea proceeding are
conclusive unless the movant can demonstrate compelling reasons
for questioning their truth, such as ineffective assistance of
counsel.").
11
unambiguously admit that their scheme involved falsified
condition reports. Second, they claim surprise, pointing out
that the indictment alleged only the submission of bids from
fictitious bidders and insisting that they were "blindsided" by
the government at the plea hearings. We cannot accept either
contention.
The transcript of the change of plea hearings simply
does not support the defendants' first contention. The
government represented that it had evidence tending to show that
false condition reports were a part of the defendants' scheme.
Each defendant, in response to questioning from the court while
under oath, then acknowledged that he agreed with what the
government said he had done. There was no ambiguity; there were
clear admissions in each instance.
While we agree that the indictment did not put the
defendants on notice of the government's false condition report
contention, that fact provides no adequate explanation for the
defendants' failure to take exception to that contention at the
plea hearings. Both defendants were sophisticated businessmen
who were represented by counsel. They and their counsel sat in
court and listened to the government's representation regarding
what it would prove if the case went to trial. The government's
description of its case was neither lengthy nor complex, and each
defendant was asked point blank by the court whether he agreed or
did not agree with the government's version of the facts.
12
The defendants were thus in no position to contend at
the sentencing hearing that falsified condition reports were not
a part of their scheme.
III.
A.
The defendants pleaded guilty to a violation of 18
U.S.C. § 1032(2).0 Because their conduct involved a fraudulent
bidding scheme, the court sentenced defendants under U.S.S.G.
§ 2F1.1, the guideline provision applicable to crimes of fraud
and deceit. This guideline section provides for a base offense
level of six with graduated enhancements of the offense level
according to the size of "the loss" to the victim attributable to
the fraudulent conduct. The court determined their loss to be
$351,457.50 which added nine levels.
While the general definition section of the Sentencing
Guidelines does not define "the loss," the commentary to § 2F1.1
discusses this concept.0 Application note 7 states in relevant
part:
Valuation of loss is discussed in the
Commentary to § 2B1.1 (Larceny, Embezzlement,
0
This statute provides: "Whoever . . . corruptly
impeded or endeavors to impede the functions of [the Resolution
Trust] Corporation . . . shall be fined under this title or
imprisoned not more than 5 years, or both." 18 U.S.C. § 1032(2).
0
All references to the Sentencing Guidelines, unless
otherwise noted, are to the 1994 edition of the Guidelines Manual
which was in effect at the time of the defendants' sentencing and
incorporates amendments through November 1, 1993.
13
and Other Forms of Theft).0 As in theft
cases, loss is the value of the money,
property, or services unlawfully taken; it
does not, for example, include interest the
victim could have earned on such funds had
the offense not occurred. Consistent with
the provisions of 2X1.1 (Attempt,
Solicitation or Conspiracy), if an intended
loss that the defendant was attempting to
inflict can be determined, this figure will
be used if it is greater than the actual
loss. Frequently, loss in a fraud case will
be the same as in a theft case. For example,
if the fraud consisted of selling or
attempting to sell $40,000 in worthless
securities, or representing that a forged
check for $40,000 was genuine, the loss would
be $40,000.
There are, however, instances where
additional factors are to be considered in
determining the loss or intended loss, [for
example]:
. . . .
In a case involving a misrepresentation
concerning the quality of a consumer product,
the loss is the difference between the amount
paid by the victim for the product and the
0
The commentary to section 2B1.1, which has a similar
table for enhancement of the base offense level based on loss,
defines "loss" as:
the value of the property taken, damaged, or
destroyed. Ordinarily, when property is
taken or destroyed the loss is the fair
market value of the particular property at
issue. Where the market value is difficult
to ascertain or inadequate to measure the
harm to the victim, the court may measure
loss in some other way, such as reasonable
replacement cost to the victim.
U.S.S.G. § 2B1.1 cmt. (n.2); see also id. § 2B1.1 cmt.
(background) ("The value of property stolen plays an important
role in determining sentences for theft and other offenses
involving stolen property because it is an indicator of both the
harm to the victim and the gain to the defendant.").
14
amount for which the victim could resell the
product received.
. . . .
In fraudulent loan application cases and
contract procurement cases, the loss is the
actual loss to the victim (or if the loss has
not yet come about, the expected loss). . . .
However, where the intended loss is greater
than the actual loss, the intended loss is to
be used.
. . . .
In a case involving diversion of
government program benefits, loss is the
value of the benefits diverted from intended
recipients or uses.
U.S.S.G. § 2F1.1 cmt. (n.7).
We have previously interpreted § 2F1.1 and this
commentary as requiring that the method for calculating the
victim's loss correspond to the nature of the defendant's
conduct. Thus, where the defendant's fraud is similar to theft
in that the defendant has "taken" something from the victim
without giving the victim something of value in return, the value
of the thing or service taken will reflect the victim's loss.
However, where the defendant intended to and did give the victim
something of value in exchange for what was fraudulently taken,
the value of the object or service taken will not reflect the
victim's actual loss and another method of calculating actual
loss must be used. United States v. Kopp, 951 F.2d 521, 528-31
(3d Cir. 1991).
Our decision in United States v. Kopp provides a good
illustration of this rule. The defendant in Kopp had submitted
15
falsified loan documents to a bank and had thereby obtained a
loan of $13.75 million. Although the amount fraudulently taken
was $13.75 million, the court rejected this figure as the loss
under § 2F1.1 because the defendant had secured the loan with a
mortgage on other property which enabled the bank to recover the
loan proceeds when the defendant defaulted. Thus, we explained:
[The defendant] did not "take" $13.75 million
for nothing, as a thief would. Furthermore,
all thefts involve an intent to deprive the
victim of the value of the property taken. .
. .[T]he same is not always true for fraud:
some fraud involves an intent to walk away
with the full amount fraudulently obtained,
while other fraud is committed to obtain a
contract the fraud perpetrator intends to
perform.
Mechanical application of the theft
guideline in fraud cases would frustrate the
legislative purpose of the guidelines and
contravene the specific language of the
Commission.
951 F.2d at 529 (citing United States v. Schneider, 930 F.2d 555,
558 (7th Cir. 1991)).
In applying this flexible, fact-driven concept of loss,
we have thus held that in situations where value passes in only
one direction -- from the victim to the perpetrator -- the
perpetrator's gain will normally reflect the victim's loss. On
the other hand, where value passes in both directions, we have
held that the victim's loss will normally be the difference
between the value he or she gave up and the value he or she
received (or, if greater, the difference between what the
perpetrator intended the victim to give up and to receive).
16
Even where value flows in both directions, if it is not
feasible to estimate with reasonable accuracy the victim's loss
or intended loss, we have indicated that a sentencing court may
look to the perpetrator's gain as a surrogate for the victim's
loss. United States v. Badaracco, 954 F.2d 928, 937-38 and n.10
(3d Cir. 1992) (citing Kopp, 951 F.2d at 531). Where property is
received by the perpetrator of a fraud and promptly resold
without alteration, for example, the proceeds from the resale
will normally approximate the market value of the property when
the victim parted with it; in such a situation, the defendant's
gain can rationally serve as a surrogate for the victim's loss.
The guideline provision governing fraud offenses refers to the
victim's loss, however, and the defendant's gain may be used only
when it is not feasible to estimate the victim's loss and where
there is some logical relationship between the victim's loss and
the defendant's gain so that the latter can reasonably serve as a
surrogate for the former. Without this logical connection, the
defendant's gain cannot be said to be an "estimation" of actual
loss, and as our precedent and the Sentencing Guidelines make
clear, it is a reasonable estimation of loss, not an alternative,
unrelated value, that the sentencing court must ascertain.
U.S.S.G. § 2F1.1 cmt. (n.8) ("For the purposes of subsection
(b)(1), the loss need not be estimated with precision. The court
need only make a reasonable estimate of the loss, given the
available information. . . . The offender's gain from committing
the fraud is an alternative estimate that ordinarily will
underestimate the loss.") (emphasis added); cf. United States v.
17
Holloman, 981 F.2d 690 (3d Cir. 1992) (upholding use of
defendant's gain as surrogate for victim's loss where value to
defendant of stolen cancelled checks in counterfeiting scheme
reflected bank's potential loss), cert. denied, 113 S. Ct. 3002
(1993).
In Kopp, we specifically rejected the use of the
defendant's gain as "an alternative estimate, when . . . the true
loss is measurable." 951 F.2d at 530 (emphasis removed).
Although we have subsequently refined the circumstances in which
Kopp's specific actual loss calculation is applicable, we have
not strayed from the concept that the loss calculation should
represent the fraud victim's actual loss. E.g., United States v.
Shaffer, 35 F.3d 110, 114 (3d Cir. 1994) (distinguishing Kopp's
focus on calculating victim's actual loss at the time of
sentencing and holding that in check kiting scheme, loss should
be calculated at time crime is detected because this more
accurately reflects the bank's actual loss from the unsecured
fraudulent "loans"); United States v. Mummert, 34 F.3d 201 (3d
Cir. 1994) (upholding face value of loan as reasonable
calculation of bank's actual loss where no assets had been
pledged against the loan and no payments had been made thereon);
see also United States v. Dadonna, 34 F.3d 163, 170-71 (3d Cir.)
(holding that actual loss may not include developer's costs to
complete construction project absent evidence linking those costs
directly to defendant's conduct in fraudulently securing
construction bonds), cert. denied, 115 S. Ct. 515 (1994).
18
In this case, the district court found that the
defendants' conduct had deprived it of the ability to make a
reasonable estimate of the loss. It reasoned that in each
instance the bank expected to receive value equal to the best of
three independently submitted bids and that because of the
defendants' conduct, no one could ever know what that value would
have been. Accordingly, the district court looked to the
defendants' gain from their scheme as a surrogate for the
victims' loss. It took the gross amount received by the
defendants from their sale of the cars and deducted the expense
of repairing and detailing, as well as the amount paid to the
banks for the vehicles. We find the district court's analysis
troublesome in a number of respects.
B.
We start with the proposition, based on the
uncontradicted evidence, that there are two distinct markets
involved here. First, there is an "as is" market in which a
buyer purchases a repossessed vehicle in the condition it was in
at the time of repossession and without an opportunity to test
drive it. The second is a "reconditioned market" in which a
buyer purchases a vehicle that has been repaired and detailed,
and with an opportunity to test drive it. A vehicle normally has
a substantially lower value in the "as is" market than in the
"reconditioned" market. In addition to the fact that the risk of
paying more than a vehicle is worth is materially greater in the
"as is" market, resulting in lower purchase prices in that
19
market, the undisputed evidence indicated that when a vehicle is
repaired and detailed, its value materially increases, often many
times the amount invested in these activities.
The banks knew that both markets existed and they chose
to participate, with immaterial exceptions, only in the "as is"
market. They did so primarily because they wanted to dispose of
the vehicles and get paid quickly. Moreover, when the banks
asked the defendants to secure three bids on an "as is" basis,
they did so in an effort to secure the fair market value of the
vehicles in the "as is" market, not because they expected the
defendants to find a particular type of bidder who would bid on
average above the fair value in that market. It follows, we
believe, that the actual loss of the banks was the fair market
value of the vehicles in the "as is" market, less what the
defendants paid the banks for the vehicles.
The record contains substantial evidence relevant to a
determination of the fair market value of the vehicles in the "as
is" market. According to the undisputed evidence, sellers in
this market value vehicles by discounting the value of the
vehicle reported in industry publications like the NADA "blue
book" by fifteen percent and by further discounting the resulting
value when there is above average mileage or below average
condition. Based on this evidence, the defendants urge that the
district court's conclusion regarding the feasibility of
estimating the loss cannot stand. We agree.
It is true, as the district court found, that the
defendants' conduct with respect to the submission of false
20
condition reports makes it difficult to now determine one factor
in the evaluation formula -- the condition of each particular
vehicle at the time of repossession. Because the condition
reports cannot be relied upon as evidence of the vehicles' actual
condition, we acknowledge that the defendants' conduct has
impaired the district court's ability to estimate the banks'
losses in particular transactions.
As the defendants stress, however, the relevant value
here is not the value of a particular vehicle, but rather the
value of a stream of many vehicles over a seven year period.
Moreover, the uncontradicted evidence indicates that, because of
the financial circumstances of their owners, repossessed
vehicles, on average, have been less well maintained and are in
poorer condition than vehicles of the same age generally.
Finally, we know that, as a result, those selling in the "as is"
market regard 85% of the "blue book" value as the high side of
the value range and generally consider condition only for the
purpose of determining whether the fair value is less than 85% of
book value. One can argue persuasively on the basis of this
record evidence that the fair market value of the stream in the
"as is" market would be no more than 85% of the aggregate "blue
book" value of all of the vehicles and that a comparison of this
figure with the aggregate amount the banks received from the
defendants for the vehicles would provide an estimate of the
banks' loss that should serve as a ceiling for purposes of loss
calculation under § 2F1.1.
21
We do not say that the evidence cited by the defendants
compels a conclusion that it is feasible to arrive at a
satisfactory estimate of the banks' losses here. We hold,
however, that it was sufficiently probative on that issue that
the district court was not at liberty to accept the government's
evidence of the defendants' gain as a surrogate without some
explanation of why an estimate of loss based on this data was not
feasible. Accordingly, we will remand to provide the district
court with an opportunity to reevaluate the feasibility of making
a satisfactory determination of the victim's aggregate losses.
C.
The second arrow to the defendants' bow is based on
data gathered from Horizon's records for the period from November
of 1989 to November of 1990. According to the defendants, these
were the only records of the victims available to them. During
this period Horizon sold a total of 1,103 repossessed vehicles.
Action Motors bought 103 or 9% of these vehicles. The rest were
sold to others. The largest single purchaser was a dealer in
eastern Pennsylvania, Yelland. Horizon received an average
return on all 1,103 vehicles equal to 96.51% of a value
designated on defendants' exhibits as the "appraised value." On
vehicles sold to Yelland the average return was 95.26% of
"appraised value." By comparison, Horizon received a 97.01%
return on the vehicles sold to Action Motors.
The district court was unpersuaded by this data for the
following reasons:
22
Defendant was the agent of the institutions
and had an obligation to solicit bids to
obtain the highest possible price for the
cars. Defendant did not fulfill this
obligation and solicited no independent bids.
(Defendant's position at ¶9). Rather,
defendant's company purchased the cars,
hiding its true identity. Thus, the fair
market value of the cars is unascertainable
because of defendant's own conduct. The fact
that the institutions may have received a
higher percentage of the cars' appraisal
value from defendant than they received, on
average, from other purchasers is of little
relevance. The cars that defendant purchased
may have been in better condition than other
cars that the financial institutions sold.
App. at 161-62.
To the extent this conclusion rests on the district
court's view that the market value of the cars in the "as is"
market "is of little relevance" because the banks bargained for
three bids solicited by Atlantic, we have already noted our
disagreement. To the extent it rests on the district court's
speculation that the 103 repossessed vehicles purchased by Action
Motors may have been in better condition on average than the
1,103 repossessed vehicles purchased by others, we find that
speculation inadequate to support the district court's rejection
of this approach to loss estimation. Given the volume of
vehicles and the duration of the period involved, we do not
believe the district court was entitled to conclude without some
supporting record explanation that the 103 vehicles assigned to
Action for repossession were in materially better condition than
those assigned to others for repossession.
23
We confess that our study has left us without
confidence that we understand exactly what the "appraised value"
refers to and how it was derived. At the same time, the record
appears to indicate that the "appraised value" on Horizon's books
came from a source not dependent on Action's condition reports,
was regularly recorded on Horizon's books, and was presumably
relied upon by it for some business purpose.0 While it is not a
necessary inference, we believe a trier of fact could infer from
this information that the "appraised value" of the various
vehicles was determined in some reasonably consistent manner. If
one draws this inference, this data concerning a substantial
sample of the relevant universe of transactions appears to
indicate that Horizon received more from the vehicles it sold to
Action Motors than it received from its other sales in the "as
is" market. Unless one is willing to assume that the sales to
others were also tainted with fraud, this would suggest that the
sales to defendants, on average, were not at prices below market
value in the "as is" market.
It is not for us to decide in the first instance
whether any or all of these inferences should be drawn. On
remand, the district court should take a fresh look at the data
0
Horizon used an independent damage appraiser, J. M.
Taylor, to assess the condition of its repossessed vehicles, but
there was conflicting evidence regarding the use that Horizon
made of these damage reports. The defendants point to evidence
indicating that Horizon used the damage reports, along with the
defendants' vehicle condition reports, to determine an
appropriate target bid, while a government witness testified that
Horizon used them only to determine the residual value of the
vehicle to the lessee.
24
from Horizon's books and determine whether or not, based on that
data, it is possible to estimate the banks' losses with
reasonable accuracy.
D.
The third arrow to the defendants' bow is an
alternative argument that grants, arguendo, the validity of the
proposition that a reasonable estimate of victim loss is not
feasible. If the district court was entitled to look to the
defendants' gain as a surrogate for the victim's loss, the
defendants insist that it erred in deducting only the defendants'
repair and detailing expenses and the purchase price paid the
banks. Specifically, the defendants argue that the district
court, if it looked to gain, was required to deduct the
commissions paid to salespersons at Action Motors for reselling
the cars (allegedly $40,820.79) and auction and transportation
expenses related to the resales (allegedly $7,180.00). In
addition, the defendants argue for a further $16,017.96 reduction
in their gain, a figure that reflects the difference between the
vehicles they resold at auction and the vehicles they resold to
individuals in the retail market. Since the district court set
the gain at $351,457.50, one or more of these adjustments could
make a difference in the guideline range.
The district court found the argument regarding the
defendants' additional expenses "without merit" because the
"focus of the Court should be on the loss to the victim, not the
costs of committing the crime to the defendant." App. at 165.
25
"Even if the defendant[s] incurred these costs," the court
reasoned, "they are not clearly connected to the actual losses
sustained in this case, which is the lost value on the cars that
the financial institutions sold to the defendant[s]." Id.
Having determined to look to the defendants' gain as a
surrogate for the victim's loss, we believe the district court
was not entitled to give credit for certain expenses that reduced
the defendants' gain and ignore others that would have the same
effect on the ground that the latter were not clearly connected
to the bank's loss.0 In short, we find it impossible to
logically distinguish between the defendants' repair costs and
the commissions and auction costs they paid in order to realize
their gain.0
0
While the district court was, of course, entitled to
pass upon the probative value of the evidence regarding the other
expenses, it made no finding that this evidence was not worthy of
belief. To the contrary, based on the district court's findings
and conclusions and the fact that this evidence of other expenses
was uncontradicted and unchallenged by the government, it appears
that the district court regarded it as credible, but not legally
relevant.
0
In United States v. Badaracco, 954 F.2d 928 (3d Cir.
1992) we approved the use of the defendant's gain as a surrogate
for the victim's loss and declined to deduct the defendant's
expenses from the amount of his gain. Our refusal there to give
the defendant credit for his expenses is not contrary to the
position we take here. Badaracco involved a bank officer whose
fraud involved conditioning construction loans on developers'
subcontracting out the electrical work to companies in which the
defendant had an interest. We found this type of fraud to be
like embezzlement and concluded that an analogy to the theft
guidelines was therefore proper. On this basis, we upheld the
district court's use of the defendant's gain, measured in terms
of the full amount of the contracts awarded to the defendant's
electrical companies, as a reasonable estimate of the loss under
§ 2F1.1. We refused to deduct the expenses of the defendant's
companies because a three-party transaction was involved and
those expenses neither conferred a benefit on the bank nor were
26
The other adjustment requested by the defendants is
also appropriate. The argument is that if the sentencing court
follows a gain approach because it cannot estimate the victim's
loss with reasonable precision, and the defendant demonstrates
that a component of the total gain is attributable solely to its
own efforts after the victim's loss was complete, that component
must be deducted. More specifically, the record shows the price
received by Action Motors on the resale of each vehicle,
including the price on those sold at auction and those sold at
retail. The value received on retail resales over and above what
would have been received at auction is attributable, according to
the defendants, solely to their own efforts and must be deducted
before their gain can serve as a reasonable surrogate for the
victim's loss. The district court rejected this argument because
"the fact that the defendants' profit percentage . . . on his
retail car sales was greater than his wholesale profit margin
does not inform [the] Court about the actual losses on the cars."
App. at 166.
logically related to anything received by the bank in the
transaction. As we have pointed out, the banks' loss in this
case was the difference between what they gave up (the value of
the cars at the time they were sold to defendants) and what they
received (the amount paid by the defendants for the cars). Gain
can logically serve as a surrogate for loss here only to the
extent it reflects the value of what the banks gave up. Based on
the uncontradicted evidence in this case, it appears that the
expenses incurred by the defendants between the time they
purchased the cars and resold them contributed to their resale
value. Accordingly, the resale value cannot be used as a
surrogate for the value of the vehicles at the time of their
purchase by the defendants without deducting their expenses.
27
Again, we believe the district court misunderstood the
import of the argument being made. We do not suggest that the
district court needs to view this argument with an uncritical
eye. We do say, however, that the underlying legal premise is a
sound one. When a gain approach is used as a surrogate for loss
fraud and the defendant demonstrates that a component of the gain
as calculated by the government could not be a component of the
victim's loss, an appropriate adjustment is required.
E.
The fourth and final arrow to the defendants' bow in
their attack on the district court's calculation of loss is
premised on the fact that it included the defendants' gain on all
purchases that occurred between 1985 and December of 1992.
According to the defendants, the victim's loss under § 2F1.1 can
include only loss attributable to "relevant conduct" under
§ 1B1.3(a)(2) and "relevant conduct" can include only conduct
proscribed by a criminal statute. Because the bids they
submitted to the RTC prior to November 29, 1990, the effective
date of 18 U.S.C. § 1032(2), were not in violation of that
statute, the defendants maintain that it was reversible error to
include any loss attributable to those bids.
The conduct underlying the indictment involved two
periods: the period during which defendants submitted false bids
to Horizon (1985 to June 1989) and Atlantic (1985 to January
1990), and the period during which they submitted false bids to
the RTC who had been appointed custodians of the failed banks
28
(June 1989 or January 1990 to December 1992). Counts One and Two
of the indictment, which were dismissed at sentencing, were based
on the conduct during the earlier period and Count Three, to
which the defendants pleaded guilty, was based on the conduct
during the latter period. There is no question that the
defendants' actions in defrauding the banks during the early
period is "relevant conduct" within the meaning of the Sentencing
Guidelines and thus that any loss attributable to that conduct
may be used to calculate the defendants' offense level under
U.S.S.G. § 2F1.1.0 The defendants argue, however, that because
the statute underlying their guilty pleas, 18 U.S.C. 1032(2), was
not enacted until November 29, 1990, their acts vis-a-vis the RTC
prior to that date cannot be considered relevant conduct for
purposes of determining loss. The district court regarded all
sales as relevant conduct without finding that the bids during
the challenged period were criminal conduct. If the defendants
are right, this would require a $101,562.23 reduction in the
district court's loss calculation.
0
"Relevant conduct" includes acts that were part of the
same course of conduct or common scheme or plan as the offense
conduct if those acts would be grouped as multiple counts under
U.S.S.G. § 3D1.2(d) had the defendant been convicted of those
counts. See U.S.S.G. § 1B1.3(a)(2) & cmt.(n.3). The bank fraud
and RTC fraud counts would be grouped as related counts under
§ 3D1.2(d) because the offense level for both offenses is
determined on the basis of total loss. Moreover, as part of the
plea agreement, the defendants acknowledged their responsibility
for the conduct charged in Counts One and Two and stipulated that
that conduct could be considered "relevant conduct" for purposes
of sentencing. See also U.S.S.G. § 6B1.2(a) (conduct underlying
charges dismissed pursuant to a plea agreement can not be
excluded from consideration in sentencing by the terms of the
plea agreement).
29
Although this court has not yet addressed the question,
other courts of appeals have concluded that "relevant conduct"
within the meaning of § 1B1.3 must be criminal conduct. See
United States v. Sheahan, 31 F.3d 595, 600 (8th Cir. 1994) ("We
agree that the relevant conduct the sentencing court should
consider in the section 2F1.1 loss calculation is that which is
attributable to the defendant's 'criminal conduct.'"); United
States v. Wilson, 980 F.2d 259, 261 (4th Cir. 1992) (same).0 The
government does not contend otherwise, and we agree.0
The relevant criminal conduct need not be conduct with
which the defendant was charged, United States v. Santiago, 906
F.2d 867 (2d Cir. 1990), nor conduct over which the federal court
has jurisdiction, United States v. Pollard, 986 F.2d 44 (3d
Cir.), cert. denied, 113 S. Ct. 2457 (1993). Thus, the district
court's use of the loss attributable to the challenged period
could be upheld if the defendants' conduct during that period was
shown to constitute any state or federal crime, since it is clear
0
Without directly addressing this issue, other courts
have presumed that relevant conduct is criminal. See, e.g.,
United States v. Palomba, 31 F.3d 1456, 1464 n.8 (9th Cir. 1994)
(For purposes of provision permitting grouping of closely related
counts, relevant conduct is defined inter alia with reference to
similarity between charges of conviction and "other criminal
conduct."); United States v. Shonubi, 998 F.2d 84 (2d Cir. 1993)
(The guideline provision defining relevant conduct with respect
to a "course of conduct" refers to identifiable pattern of
criminal conduct.); United States v. Bethley, 973 F.2d 396, 401
(5th Cir. 1992) (Relevant conduct involves "repeated instances of
criminal behavior [that] constitute a pattern of criminal
conduct."), cert. denied, 113 S. Ct. 1323 (1993).
0
While § 1B1.3 does not expressly so state, it defines
relevant conduct in terms that are more consistent with the
hypothesis that relevant conduct is limited to criminal behavior.
30
that the conduct was part of the same on-going scheme as the
offense conduct. See U.S.S.G. § 1B1.3(a)(2). For some
inexplicable reason, however, the government did not present
evidence at the sentencing hearing or argue in its brief on
appeal that the conduct during that period was otherwise
criminal. Nevertheless, at oral argument before this court the
government suggested a number of criminal offenses which the
defendants were said to have committed by submitting fictitious
bids to the RTC0 and asked that we affirm the district court's
inclusion of the loss that occurred during the challenged period
on this basis.
While we think it highly likely that the defendants'
conduct during the challenged period did violate some criminal
statute, we decline to accept the government's invitation. Due
process requires that the defendants have fair notice of exactly
why the government believes their conduct during this period was
criminal and a fair opportunity to counter the government's case
on that score. In order to be fair, such an opportunity may have
to include an opportunity to offer additional evidence.
Accordingly, on remand, the district court should require the
0
The government cited the federal mail fraud statute, 18 U.S.C.
§ 1341, and the Pennsylvania criminal fraud statutes, e.g., 18
Pa. Cons. Stat. Ann. § 4107 (deceptive business practices); id. §
4101 (criminal forgery). As we understand a conservatorship
under the RTC's statute, the bank does not cease to exist when
the RTC is appointed conservator. Accordingly, it may be that
the submission of fictitious bids to the RTC violated
Pennsylvania's bank fraud statute (e.g., 18 Pa. Cons. Stat. Ann.
§ 4133) or even the then current version of 18 U.S.C. § 1344, the
statute underlying Counts One and Two and making it a crime to
defraud a bank insured by the Federal Deposit Insurance
Corporation.
31
government to identify the statute or statutes it relies upon and
to identify the record evidence that satisfies each element of
the offense proscribed. The defendants should then be afforded
the opportunity to develop an appropriate record and argue to the
contrary.0
IV.
For the foregoing reasons, we will vacate the
defendants' sentences and remand for resentencing. On remand,
the question may arise whether the district court is restricted
to resentencing the defendants based on the current record, plus
whatever the defendants may have to offer in response to the
government's designation of a criminal offense applicable to the
defendants' pre-November 29, 1990, conduct vis-a-vis the RTC.
Stated conversely, the issue may arise whether the district court
may reopen the record to permit further development of the
relevant facts in light of this opinion. We do not preclude the
district court from permitting further development of the record
and leave that for resolution by an exercise of the district
court's informed discretion.
We agree with the Fourth and the D.C. Circuit Courts of
Appeal that, where the government has the burden of production
0
United States v. Pollard, 986 F.2d 44 (3d Cir. 1993), cert.
denied, 113 S. Ct. 2457 (1993), does not provide support for the
proposition that we must search the record ourselves and
determine whether the defendants' conduct was otherwise criminal.
In Pollard, the defendant did not argue that the relevant conduct
was non-criminal, but only that the federal court was without
jurisdiction to charge him based on that conduct.
32
and persuasion as it does on issues like enhancement of the
offense level under § 2F1.1 based on the victim's loss, its case
should ordinarily have to stand or fall on the record it makes
the first time around. It should not normally be afforded "a
second bite at the apple." United States v. Leonzo, 50 F.3d
1086, 1088 (D.C. Cir. 1995) (remanding for resentencing on the
existing record where government failed to sustain its burden of
proving loss under § 2F1.1); United States v. Parker, 30 F.3d
542, 553-54 (4th Cir.) (no new evidence permitted on resentencing
where prosecution had failed to introduce sufficient evidence
that offense took place within 1000 feet of a "playground" within
meaning of statute), cert. denied, 115 S. Ct. 605 (1994). At the
same time, we perceive no constitutional or statutory impediment
to the district court's providing the government with an
additional opportunity to present evidence on remand if it has
tendered a persuasive reason why fairness so requires. See
United States v. Ortiz, 25 F.3d 934, 935 (10th Cir. 1994)
(holding that an order vacating sentence and remanding for
resentencing contemplates a de novo hearing at which court can
receive any evidence it could have considered during first
sentencing hearing); United States v. Cornelius, 968 F.2d 703,
705 (8th Cir. 1992) (holding that district court erred in
refusing to consider defendants' evidence upon resentencing);
United States v. Jacobs, 955 F.2d 7, 10 (2d Cir. 1992) (per
curiam) (where original sentence had been vacated because there
was insufficient evidence connecting conspiracy's income to drug
sales, district court could on remand consider "reliable new
33
evidence" on this issue; United States v. Stern, 13 F.3d 489, 498
(1st Cir. 1994) ("where a sentence is vacated and remanded for
redetermination under correct principles, the government is not
automatically foreclosed from offering evidence pertinent to the
newly established rule.")
Where, as here, the government believes that it is not
feasible to estimate the victim's loss and its evidence, in the
absence of the defendant's evidence, would support a finding to
that effect, it will frequently not be fair to expect the
government to be prepared with evidence concerning any theory of
loss calculation the defendant may advance at the sentencing
hearing. If the government, for want of notice or any other
reason beyond its control, does not have a fair opportunity to
fully counter the defendant's evidence and the government's
theory does not carry the day, the district court is entitled to
permit further record development on remand.
By making these observations, we do not suggest that
the government should or should not be permitted to offer further
evidence in this case on remand. The district court is in a far
better position than we to assess the situation in the light of
the circumstances surrounding the original sentencing hearing.
V.
We hold that the district court did not err when it
refused to entertain evidence tending to show that the condition
reports were not falsified. We further hold, however, that the
district court's findings and conclusions do not support the
34
sentences imposed. Accordingly, we will reverse the judgments of
the district court and remand for resentencing.
On remand, the district court will revisit its
conclusion that it is not feasible to estimate the banks' and
RTC's loss with a reasonable degree of accuracy. At a minimum,
this will involve a reevaluation of the defendants' evidence
concerning the trade practice regarding the valuation of vehicles
to be sold in the "as is" market and Horizon's sales proceeds
between November 1989 and November 1990. If the district court
concludes that it is feasible to estimate the victims' losses, it
will resentence the defendants based on the stipulated loss of
$120,000 unless the government demonstrates that a greater loss
was incurred.
If the district court once again determines it
appropriate to look to the defendants' gain as a surrogate for
the banks' loss, it will deduct from the gross gain all expenses
necessarily incurred in realizing that gain and any component of
the gain necessarily attributable solely to the defendants'
investment of their own resources after their purchase of the
vehicles from the banks. Finally, the district court shall not
include any gain attributable to bids received by the RTC prior
to November 29, 1990, unless it determines that those bids were
made in violation of a specific state or federal criminal
statute.
35