United States v. Lloyd Mallory

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-4711
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
LLOYD MALLORY,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. T. S. Ellis, III, Senior
District Judge. (1:09-cr-00228-TSE-2)
Argued: October 25, 2011 Decided: January 19, 2012
Before MOTZ, KING, and FLOYD, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Barry Coburn, COBURN & COFFMAN, PLLC, Washington, D.C.,
for Appellant. Michael John Frank, OFFICE OF THE UNITED STATES
ATTORNEY, Alexandria, Virginia, for Appellee. ON BRIEF: Neil H.
MacBride, United States Attorney, Alexandria, Virginia, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
A grand jury charged Lloyd Mallory and two co-conspirators,
Michael Milan and Chris Evans, in a twelve-count superseding
indictment. It charged Mallory specifically with the following
three counts: wire fraud, in violation of 18 U.S.C. § 1343; mail
fraud, in violation of 18 U.S.C. § 1341; and conspiracy to
commit wire and mail fraud, in violation of 18 U.S.C. § 1349.
Mallory exercised his right to a trial by jury. At its
conclusion, the jury found Mallory guilty of mail fraud and
conspiracy to commit wire and mail fraud, but acquitted him of
wire fraud. The district court made a downward variance and
sentenced Mallory to 60 months’ imprisonment for each count of
his conviction, with the sentences to run concurrently. The
court also entered a restitution order for the amount of loss.
Mallory filed a timely appeal, raising six alleged errors. For
the reasons explained below, we affirm.
I.
The jury convicted Mallory, a certified public accountant
(CPA), of participating in a conspiracy between the fall of 2006
and June 2008 to defraud various money lenders by causing them
to issue mortgage loans to unqualified home buyers. Mallory did
this by producing fraudulent documents that supported false
claims about the borrowers’ employment and income. The evidence
2
educed at trial established that Mallory drafted fraudulent tax
returns, W-2 forms, and CPA letters to convince the lenders to
issue the bad loans.
Melanie Eckstrom, a mortgage processor and one of the
government’s witnesses at trial, testified that she was part of
the scheme. Eckstrom was a mortgage processor at two mortgage
brokerages, Congressional Funding and Preferred Choice Mortgage.
As a part of her duties, Eckstrom prepared mortgage applications
and collected the documents lenders require to determine whether
to issue a loan, including such items as tax returns and W-2
statements. According to the testimony at trial, every loan
that Eckstrom processed was fraudulent in some manner.
During the relevant time period, Milan, Mallory’s co-
conspirator, was a mortgage broker for Congressional Funding
and, starting in October 2007, Preferred Choice Mortgage. Among
other things, mortgage brokers assist would-be borrowers in
completing the lender’s mortgage application. A mortgage broker
is paid in two ways: by the lender, when the loan is approved,
and by the borrower, when points are charged.
Eckstrom and Milan had an arrangement with Mallory whereby
Mallory would create fraudulent documents. During the relevant
time period, Eckstrom, Milan, and a phantom company created by
Milan, cleverly named “Phantom Financial, LLC,” received over
$100,000 in commissions.
3
Initially, Mallory was charged alongside co-conspirators
Milan and Evans. Milan and Evans, however, pled guilty before
trial.
At trial, Mallory testified in his own defense. Although
he acknowledged that he drafted the documents at issue, he
asserted that he did not know they were being used for an
unlawful purpose. Moreover, Mallory maintained that the false
tax returns that he compiled were for the purpose of exploring
potential tax strategies.
Following a five-day trial, the court convicted Mallory of
mail fraud and conspiracy to commit wire and mail fraud, but
acquitted him of wire fraud. The district court sentenced him
to 60 months’ imprisonment for each count of his conviction, to
run concurrently. The court also entered a restitution order
for the amount of loss. Mallory filed a timely appeal.
II.
Mallory first argues that the district court committed
reversible error by asking impermissible questions of Eckstrom
during the trial regarding Mallory’s state of mind. Because
Mallory failed to object to the questioning at trial, we review
only for plain error. See United States v. Lynn, 592 F.3d 572,
577 (4th Cir. 2010). To demonstrate plain error, a defendant
must establish (1) that the trial court erred, (2) that the
4
error is clear and obvious, and (3) that the error affected his
substantial rights. United States v. Olano, 507 U.S. 725, 732-
34 (1993). Nevertheless, even if this burden is met, we have
discretion whether to recognize the error, and we will not do so
unless “the error seriously affect[s] the fairness, integrity or
public reputation of judicial proceedings.” Id. at 736(alteration in original) (quoting United States v. Atkinson, 297
U.S. 157, 160 (1936)) (internal quotation marks omitted).
The questioning at issue occurred during Eckstrom’s
testimony regarding Mallory’s role in the mortgage fraud scheme.
Specifically, the district court inquired into Mallory’s
knowledge regarding the false tax returns. Mallory argues that
the district court improperly asked Eckstrom about Mallory’s
state of mind. The testimony Mallory finds objectionable is as
follows:
Eckstrom: [Mallory] was preparing fraudulent tax
returns for us.
Court: Did he know they were false?
Eckstrom: Yes.
Court: How? How do you know that?
Eckstrom: I guess I really can’t say how. I mean—
Questioning by the district court is plainly permissible.
See Fed. R. Evid. 614. The court must not, however, “give
. . . the appearance of bias or partiality in any way or become
. . . so pervasive in his interruptions and interrogations that
he may appear to usurp the role of either the prosecutor or the
5
defendant’s counsel.” United States v. Wilson, 135 F.3d 291,
307 (4th Cir. 1998) (omissions in original) (quoting United
States v. Parodi, 703 F.2d 768, 776 (4th Cir. 1983)) (internal
quotation marks omitted).
Assuming, without deciding, that the district court
improperly questioned Eckstrom as to Mallory’s state of mind, we
are unable to say that the questioning prejudiced Mallory. To
the extent that the district court improperly caused Eckstrom to
testify that Mallory knew that the tax returns were false, it
mitigated the error by following up with a question about how
she knew. She replied, “I guess I really can’t say how.”
Moreover, the district court ameliorated any error in its
questioning by giving the following instruction to the jury:
Now, during the course of the trial I occasionally
asked questions of a witness. Do not assume that I
hold any opinion on the matters to which my questions
may have related. The Court asked questions simply to
clarify matters, not to help one side of the case or
hurt the other.
As such, neither the fairness, integrity, or public
reputation of the proceedings nor Mallory’s substantial rights
were affected. Hence, we find no reversible error.
III.
Mallory next contends that the district court erred in
admitting into evidence a certification of business record,
6
which the government relied upon in introducing a Federal
Express (FedEx) tracking record into evidence. The tracking
record helped establish the mail fraud charge against Mallory.
According to Mallory, this admission violated his right to
confront the witnesses against him as guaranteed by the Sixth
Amendment. We review this issue de novo. United States v.
Williams, 632 F.3d 129, 132 (4th Cir. 2011).
The certification of business record was offered pursuant
to Federal Rule of Evidence 902(11) and signed under penalty of
perjury by a FedEx records custodian. In the certification, the
records custodian declared the following:
[T]he documents are original records or true copies of
records that were:
1. made at or near the time of the occurrence of the
matters described in the documents, by (or from
information transmitted by) a person with
knowledge of those matters;
2. kept in the course of regularly conducted
business activity; and
3. made by the said business activity as a regular
practice.
In Crawford v. Washington, 541 U.S. 36 (2004), the Supreme
Court made clear that the right of confrontation covers all
testimonial “statements that declarants would reasonably expect
to be used prosecutorily.” Id. at 51. (internal quotation marks
omitted). To be considered testimonial, the primary purpose of
the statement must be “to establish or prove past events
7
potentially relevant to later criminal prosecution.” Davis v.
Washington, 547 U.S. 813, 822 (2006). Business records are
generally admissible, even without confrontation. Bullcoming v.
New Mexico, 131 S. Ct. 2705, 2714 n.6 (2011). “[H]aving been
created for the administration of an entity’s affairs and not
for the purpose of establishing or proving some fact at trial—
they are not testimonial.” Id. (quoting Melendez–Diaz v.
Massachusetts, 129 S. Ct. 2527, 2539-40 (2009)) (internal
quotation marks omitted).
It is beyond dispute that the FedEx tracking record was not
created “for the purpose of establishing or proving some fact at
trial.” Id. Thus, as was uncontested below, it was not
testimonial and was not subject to confrontation.
The certification of business record was, however, created
for the sole purpose of use at trial. Thus, we must consider
whether its admission violated Mallory’s Confrontation Clause
rights. In Melendez-Diaz, the Supreme Court described the
difference between an affidavit that is created for the purpose
of providing evidence against a defendant and an affidavit
created for the purpose of authenticating an admissible record.
It stated, “A clerk could by affidavit authenticate or provide a
copy of an otherwise admissible record, but could not
. . . create a record for the sole purpose of providing evidence
against a defendant.” Melendez-Diaz, 129 S. Ct. at 2539.
8
Moreover, the majority dismissed the dissent’s fear that its
holding would disrupt the long-accepted practice of
authenticating documents pursuant to Rule 902(11): “Contrary to
the dissent’s suggestion, we do not hold, and it is not the
case, that anyone whose testimony may be relevant in
establishing the . . . authenticity of the sample . . . must
appear in person as part of the prosecution’s case.” Id. at
2532 n.1 (citation omitted).
Consequently, Melendez-Diaz makes clear that the Sixth
Amendment right to confront witnesses does not include the right
to confront a records custodian who submits a Rule 902(11)
certification of a record that was created in the course of a
regularly conducted business activity. Because the
certification does not trigger the Confrontation Clause, we are
unable to find a constitutional violation here.
IV.
Mallory next avers that there is insufficient evidence to
support his convictions. A defendant who challenges the
sufficiency of the evidence faces a “heavy burden.” United
States v. Beidler, 110 F.3d 1064, 1067 (4th Cir. 1997) (quoting
United States v. Hoyle, 51 F.3d 1239, 1245 (4th Cir. 1995))
(internal quotation marks omitted). “[A]n appellate court’s
reversal of a conviction on grounds of insufficient evidence
9
should be ‘confined to cases where the prosecution’s failure is
clear.’” United States v. Jones, 735 F.2d 785, 791 (4th Cir.
1984) (quoting Burks v. United States, 437 U.S. 1, 17 (1978)).
The jury’s verdict must be upheld on appeal if there is
substantial evidence in the record to support it. Glasser v.
United States, 315 U.S. 60, 80 (1942). We review the record in
the light most favorable to the government in determining
whether there is substantial evidence to support the conviction.
United States v. Penniegraft, 641 F.3d 566, 571 (4th Cir. 2011).
Circumstantial as well as direct evidence is considered, and the
government is allowed “the benefit of all reasonable inferences
from the facts proven to those sought to be established.”
United States v. Tresvant, 677 F.2d 1018, 1021 (4th Cir. 1982).
In evaluating the sufficiency of the evidence, we do not review
the credibility of the witnesses and we “assume that the jury
resolved all contradictions [in the testimony] in favor of the
government.” United States v. Romer, 148 F.3d 359, 364 (4th
Cir. 1998) (quoting United States v. United Med. & Surgical
Supply Corp., 989 F.2d 1390, 1402 (4th Cir. 1993)) (internal
quotation marks omitted).
A.
As to his sufficiency of the evidence claim, Mallory first
avers that the government failed to prove that he used the
10
United Postal Service or another interstate carrier for the
purpose of executing his fraudulent scheme. Pursuant to 18
U.S.C. § 1341, to prove mail fraud the government is required to
establish that the defendant (1) knowingly participated in a
scheme to defraud and (2) used the mail or another interstate
carrier for the purpose of executing such scheme. United States
v. Delfino, 510 F.3d 468, 471 (4th Cir. 2007).
Mallory contends that the government failed to present
substantial evidence as to whether FedEx is such an interstate
carrier. For the reasons set forth in the district court’s
comprehensive and well-reasoned order on this issue, we affirm.
See Order, United States v. Mallory, No. 1:09cr228 (E.D. Va. May
13, 2010), ECF No. 225.
B.
Mallory’s second sufficiency of the evidence claim is that
the government failed to put forth any evidence proving that he
had the requisite knowledge that the documents he created were
false, that he harbored any specific fraudulent intent in
crafting them, or that he knew that the documents were being
used for an unlawful purpose. Moreover, according to Mallory,
the government neglected to present expert testimony to
establish that the information he relied on to draft the
11
documents he produced was inadequate from an accounting
perspective.
Quite simply, the evidence of Mallory’s knowledge of the
falsity of the documents that he produced, his knowledge of
their unlawful use, and his fraudulent intent is not only
substantial, it is overwhelming. The documentary evidence alone
establishes his knowledge and fraudulent intent. At trial, the
government presented false tax returns, fraudulent CPA letters,
and fake W-2 forms that Mallory prepared, which showed his
intent and knowledge. It also presented emails that
demonstrated the same. In addition, there was testimony at
trial that Mallory knowingly created the false documents.
Moreover, Mallory testified at trial that he was unaware
that the documents he prepared were being used for an unlawful
purpose. The jury, however, disbelieved his testimony. That
the jury found his testimony implausible may constitute
additional evidence in support of Mallory’s conviction. See
United States v. Burgos, 94 F.3d 849, 868 (4th Cir. 1996)
(“[T]he jury evidently believed [the defendant] perjured
himself. . . . [H]is perjured testimony could have been viewed
as affirmative evidence of his guilt. Thus, [the defendant’s]
lying on the stand may have aided in establishing the fact that
he was guilty.”); United States v. Bennett, 848 F.2d 1134, 1139
(11th Cir. 1988) (“By choosing to present a defense the
12
[defendants] incurred the risk that they might bolster the
government’s case. Indeed, this court has held that a
defendant’s implausible explanation may constitute positive
evidence in support of a jury verdict.”).
We disagree with Mallory’s contention that the government
was required to present expert testimony to establish that the
information he relied on to draft the documents he created was
insufficient from an accounting perspective. It suffices to say
that there is no requirement that the government present expert
testimony on this matter.
V.
According to Mallory, the district court violated his
rights pursuant to the Speedy Trial Act, 18 U.S.C. §§ 3161-3174,
in that the record fails to establish that the court conducted
the requisite balancing test when deciding whether to grant
three requests for a continuance. In considering Speedy Trial
Act arguments, we review the district court’s legal conclusions
de novo and its factual findings for clear error. United States
v. Kellam, 568 F.3d 125, 132 (4th Cir. 2009).
The Act requires that a criminal trial begin within seventy
days of the filing of an information or indictment, or of the
defendant’s initial appearance, whichever occurs later.
§ 3161(c)(1). To afford courts some flexibility in scheduling
13
trials, however, the Act provides that certain periods of delay
may be excluded from the seventy-day computation. As is
applicable in Mallory’s case, § 3161(h)(7)(A) excludes from the
seventy-day computation those delays in which the district court
finds “that the ends of justice served by granting [a]
continuance outweigh the public’s and defendant’s interests in a
speedy trial.” Zedner v. United States, 547 U.S. 489, 498–99
(2006).
The Act lists several factors that the district court must
consider when making the “ends of justice” assessment required
by § 3161(h)(7)(A), including whether the defendant needs
reasonable time to obtain counsel, whether counsel needs
additional time for effective preparation of the case, and
whether delay is necessary to ensure continuity of counsel.
§ 3161(h)(7)(B)(iv). The Act also makes clear that the district
court is not to grant a continuance because of a “lack of
diligent preparation or failure to obtain available witnesses on
the part of the attorney for the [g]overnment.”
§ 3161(h)(7)(C).
Before a delay can be considered excludable from the
seventy-day computation, the district court must explain,
“either orally or in writing, its reasons for finding that the
ends of justice served by the granting of such continuance
outweigh the best interests of the public and the defendant in a
14
speedy trial.” § 3161(h)(7)(A). The district court is required
to state its findings on the record by the time it rules on the
defendant’s motion to dismiss. Zedner, 547 U.S. at 506–07. It
also must be “clear from the record that the court conducted the
mandatory balancing contemporaneously with the granting of the
continuance.” United States v. Henry, 538 F.3d 300, 304 (4th
Cir. 2008) (quoting United States v. Keith, 42 F.3d 234, 237
(4th Cir. 1994)) (internal quotation marks omitted). If a
district court fails to state its findings on the record, then
the delay is not excludable under the Act. Zedner, 547 U.S. at
507.
The district court granted three continuances before the
case finally went to trial. Regarding the first continuance,
Mallory, along with his co-defendants, Milan and Evans,
requested a six-month continuance on the basis of the large
amount of discovery associated with the case. After
consideration of the request, the district court found the
request excessive and granted a continuance of four months
instead.
A little over two months later, counsel for Milan requested
a second continuance. In argument to the district court,
Milan’s counsel sought an additional four-month continuance
because of the size and complexity of the case. He indicated
that Mallory’s counsel did not oppose the request. In a
15
subsequent hearing, all defendants indicated their agreement
with the motion. Thus, the district court granted the
continuance. Milan and Evans subsequently pled guilty.
Just days before the trial began, after being surprised to
discover that the government was going to offer expert
testimony, Mallory requested a third continuance for the purpose
of procuring his own expert. The district court granted him an
additional two weeks to obtain an expert.
From our review of the record, it is evident that the
district court granted the three requested continuances based
upon a contemporaneous balancing of the required factors,
including a finding that Mallory’s counsel needed additional
time to prepare Mallory’s defense, and in utmost consideration
of the extent to which the continuances were needed to serve the
interests of justice. Furthermore, the district court abided by
the requirement that it state its findings on the record by the
time it ruled on the defendant’s motion to dismiss. In denying
the motion to dismiss, the district court stated the following:
[T]o be clear, the continuances granted were, in
fact, reasonably necessary . . . to serve the ends of
justice, and these ends outweighed the interest of the
public and Mr. Mallory in a speedy trial. This was
particularly true in light of the complex nature of
this fraud conspiracy case, the fact that there were
three defendants with potentially conflicting
defenses, the significant amount of electronic
evidence in issue, and the fact that Mr. Milan had
only a single court-appointed lawyer. Thus, the
factors required for a continuance under § 3161(h)(7)
16
were clearly satisfied and the continuances were
granted for this reason.
United States v. Mallory, No. 1:09cr228, 2010 WL 1039831, at *3
(E.D. Va. Mar. 19, 2010). Accordingly, we find no error.
VI.
Next, Mallory avows that venue was improper in the Eastern
District of Virginia because his office was in Maryland and all
of the acts that he allegedly committed in furtherance of the
conspiracy occurred in Maryland. He also argues that the issue
is not waived.
The prosecution must establish venue by a preponderance of
the evidence, and we review de novo the district court’s
decision as to venue. United States v. Newsom, 9 F.3d 337, 338
(4th Cir. 1993). Venue is proper “in [any] district where the
offense was committed.” Fed. R. Crim. P. 18. “If an objection
to venue is not raised in the district court, the issue is
waived on appeal. A defendant, however, does not waive his
venue objection by failing to file a written pleading.” United
States v. Stewart, 256 F.3d 231, 238 (4th Cir. 2001) (citations
omitted). As the Stewart court recognized, there are two
purposes of the contemporaneous objection rule: (1) to preserve
judicial resources by making sure that the district court has
the opportunity to avoid errors that, if uncorrected, might
17
require a retrial, and (2) “to prevent counsel from
‘“sandbagging” the courts by withholding a valid objection from
the trial court . . . to obtain a new trial when the error is
recognized on appeal.’” Id. at 239 (quoting United States v.
David, 83 F.3d 638, 645 (4th Cir. 1996)).
If Mallory’s venue claim is waived, we need not reach the
merits of the issue. Thus we first consider whether the
argument is waived. In contending that his venue argument is
not waived, Mallory cites to language in Stewart where we made
clear that “[b]ecause proper venue is a constitutional right,
waivers of venue rights through failure to object should not
readily be inferred.” Id. at 238. Thus, “ambiguity as to the
defendant’s intent to waive venue should be interpreted in favor
of the defendant, in light of the constitutional underpinning of
the defendant’s right to proper venue.” Id. at 239.
In Stewart, we found the defendant had raised a venue
objection even though he did not file a written motion. Id. at
238. During oral argument of Stewart’s co-defendant’s written
motion challenging venue, Stewart indicated “that he was in a
similar position.” Id. at 239. On appeal, the government
acknowledged that it had understood he was challenging venue
and, accordingly, had argued venue was proper as to both Stewart
and the co-defendant. Id. This, we found, was sufficient to
permit the district court to rule on Stewart’s venue challenge
18
and to preserve the issue for appeal. Id. Based on this case,
Mallory argues he preserved the issue despite failing to move
formally to challenge venue.
But, the facts in Stewart are easily distinguishable from
those presented by Mallory. First, there was no motion
regarding venue filed by any defendant in the case at bar,
whereas in Stewart there was. But this, as noted above, is not
dispositive. There is also no indication that either the
government or the district court knew that Mallory was making a
venue challenge. Thus, the district court was not presented
with an opportunity to rule upon any venue issue. Nevertheless,
Mallory invites us to infer from his Crawford arguments, and
questioning concerning the FedEx tracking bill and the Rule
902(11) certificate, that he raised the issue of where the
charged criminal acts occurred and thereby made a venue
challenge. We must decline the invitation. Simply put, the
inference is too tenuous. Hence, we hold that this issue was
waived. Accordingly, we need not reach the merits of Mallory’s
venue claim.
VII.
Finally, Mallory contends that the district court erred in
finding that the loss of the entire unpaid principal of mortgage
loans was reasonably foreseeable to him in light of the collapse
19
of the housing market. Mallory is unable to prevail on this
issue.
In a fraud case such as this one, the government is
required to establish the amount of loss for sentencing purposes
by a preponderance of the evidence. United States v. Pierce,
409 F.3d 228, 234 (4th Cir. 2005). We review the amount of
loss, to the extent that it is a factual matter, for clear
error. United States v. West, 2 F.3d 66, 71 (4th Cir. 1993).
This deferential standard of review allows reversal only if we
are “left with the definite and firm conviction that a mistake
has been committed.” United States v. Stevenson, 396 F.3d 538,
542 (4th Cir. 2005) (quoting Anderson v. Bessemer City, 470 U.S.
564, 573 (1985)) (internal quotation marks omitted).
In sentencing for conspiracy to commit wire fraud and mail
fraud, the district court looks to U.S.S.G. § 2B1.1 and its
application notes to calculate the loss caused by the
defendant’s criminal conduct and then increases the offense
level accordingly. U.S.S.G. § 2B1.1. This calculation is a
two-step process. First, pursuant to Application Note 3(A)(i)
of this Guideline, “‘[a]ctual loss’ means the reasonably
foreseeable pecuniary harm that resulted from the offense.” Id.
cmt. n.3(A)(i). Second, the district court credits against the
loss “the amount the victim has recovered at the time of
sentencing from disposition of the collateral, or if the
20
collateral has not been disposed of by that time, the fair
market value of the collateral at the time of sentencing.” Id.
cmt. n.3(E)(ii).
Mallory takes issue with the second step of the district
court’s calculation because the court reduced the loss only by
the actual amount recovered from the foreclosure sales. He
maintains that the district court should have, instead, applied
a larger set off amount because it was not foreseeable that the
housing collapse would occur. This, according to Mallory,
caused the amount that the victims were able to recover to be
smaller than it otherwise would have been.
In support of this argument, prior to sentencing, Mallory
submitted to the district court affidavits from appraisers
stating what they thought the loss would have been but for the
housing collapse and asserting that the collapse was not
reasonably foreseeable.
Although the district court noted at sentencing that the
sentence of 60 months’ imprisonment would be the same even if it
adopted Mallory’s loss amount, the court rightly rejected
Mallory’s position. Simply put, the first step in calculating
the loss has a foreseeability prong to it, but the second step
does not. Accordingly, it is of no consequence that the housing
collapse was not reasonably foreseeable to Mallory. He receives
the benefit of what the victims recovered, not what they
21
foreseeably might have recovered. “To accept [Mallory’s]
argument would be to encourage would-be fraudsters to roll the
dice on the chips of others, assuming all of the upside benefit
and little of the downside risk.” United States v. Turk, 626
F.3d 743, 750 (2d Cir. 2010). Because we decline to provide
such encouragement, we reject Mallory’s argument.
VIII.
Wherefore, for the reasons stated above, Mallory’s
conviction and sentence are affirmed.
AFFIRMED
22