United States v. Steven Scudder

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 18a0412n.06
No. 17-3972
UNITED STATES COURT OF APPEALS
FILED
FOR THE SIXTH CIRCUIT Aug 15, 2018
DEBORAH S. HUNT, Clerk
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR
STEVEN C. SCUDDER, THE SOUTHERN DISTRICT OF
OHIO
Defendant-Appellant.
BEFORE: BOGGS, CLAY, and ROGERS, Circuit Judges.
CLAY, Circuit Judge. Defendant Steven Scudder was convicted of wire fraud, in
violation of 18 U.S.C. § 1343, for his role in a Ponzi scheme. The district court sentenced Scudder
to 14 months’ imprisonment and imposed restitution in the amount of $425,030, under the
Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. § 3663A. On appeal, Scudder raises
various challenges to the district court’s restitution order. For the reasons set forth below, we
AFFIRM the district court’s judgment.
FACTUAL AND PROCEDURAL HISTORY
In July 2013, Scudder, a licensed attorney, began working with William Apostelos, a
businessman who ran an investment firm called WMA Enterprises. In particular, Scudder agreed
to serve as trustee of the WMA Trust, which provided security to individuals who invested with
WMA Enterprises. The concept was simple: in the event of a default by Apostelos’ firm, the
No. 17-3972
WMA Trustee would liquidate the trust and distribute its assets to the firm’s secured investors.
This security helped make WMA Enterprises an apparently safe investment vehicle.
Over time, however, Scudder grew concerned about Apostelos’ business practices. These
concerns prompted Scudder to resign as trustee on June 23, 2014, which he did by notifying
Apostelos. Three months later, on September 22, 2014, he filed public notice with the Clark
County, Ohio, Recorder’s Office that he had been replaced as trustee on June 23. Pursuant to
Ohio’s recording statute, the “whole world” was deemed to have “constructive notice . . . of the
existence and contents of” Scudder’s filing. See Ohio Rev. Code § 1301.401(B).
As it turns out, Scudder’s concerns were well-founded: Apostelos was running a Ponzi
scheme. Had Scudder simply parted ways with Apostelos after his resignation in June 2014, he
might have avoided the legal fallout from the ensuing collapse of Apostelos’ companies.
Unfortunately, Scudder did not make a clean break with Apostelos. Instead, after he resigned in
June but before his resignation was publicly recorded in September, Scudder participated in a
phone call with Apostelos and an investment advisor, M.P. During the call, Scudder falsely told
M.P. that he remained the WMA Trustee, which gave the trust an air of legitimacy given his status
as a lawyer. M.P.’s clients later invested heavily with WMA Enterprises. These investments
included a $1,099,000 loan made on October 15, 2014 (the “October loan”).
Sometime after February 2015, Apostelos’ Ponzi scheme collapsed. M.P.’s clients
recouped some of the money from the October loan, but ultimately lost $425,030. Scudder himself
had invested with Apostelos; he lost $225,000. Others fared worse. All told, investors in
Apostelos’ businesses lost over $30 million.
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In January 2017, Scudder pleaded guilty to wire fraud, in violation of 18 U.S.C. § 1343.
The charge was based entirely on Scudder’s phone call with M.P., in which he falsely claimed that
he remained trustee of the WMA Trust. The plea agreement stated that “based, in part, on Mr.
Scudder’s false representation,” M.P.’s clients “invested over $1 million with Apostelos’
company,” including the October loan. (R. 9, plea agreement, PageID# 28–29.) The PSR
contained nearly identical language; it stated that “on Scudder’s false representation, . . .
individuals advised by M.P.” provided the October loan. (PSR at ¶ 28.) The PSR recommended
that the district court impose restitution under the MVRA. The recommended amount was
$425,030, corresponding to the amount of loss suffered by M.P.’s clients.
During sentencing, Scudder vigorously pressed a specific legal objection to the PSR: that
he should not owe any restitution because, “as a matter of law,” investors could not have relied on
his misrepresentation to M.P. (PSR Addendum at 1.) Scudder pointed out that under Ohio’s
recording statute, his September 22 public notice of resignation informed the “whole world” that
he had resigned as trustee in June 2014. According to Scudder, this put M.P.’s clients on
constructive notice that, contrary to his statements to M.P., he had not actually been the trustee in
September 2014. In Scudder’s words,
[t]he investors and MP could have simply checked the records in Clark County and
found out that Scudder was no longer the trustee. . . . Money sent after the notice
was filed in the recorder’s office means that the alleged victim was not directly or
proximately harmed by Scudder’s conduct. Instead the victims were directly and
proximately harmed by their failure to exercise due diligence . . . .
(Id. at 1–2.)
In a written ruling, the district court rejected Scudder’s challenge. The court held that
public notice of Scudder’s resignation did not “cut off his responsibility for the victims’ losses”
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because, regardless of the notice, M.P.’s clients “did invest based on Defendant’s false
representations.” (R. 29, Restitution Order, PageID# 125.) In the district court’s view, it was
“immaterial” that M.P.’s clients “apparently failed to scour the public record or otherwise take
steps to debunk [Scudder’s] fraudulent statements to them.” (Id. at 126.) The district court adopted
the restitution amount provided in the PSR. In addition, the district court sentenced Scudder to 14
months’ imprisonment, to be followed by two years of supervised release.
On appeal, Scudder challenges only the restitution award, raising two arguments. First, he
renews his argument based on Ohio’s recording statute. Second, he argues, for the first time, that
the government did not prove, and the district court did not sufficiently find, that his
misrepresentation mattered to M.P.’s clients in a practical sense, resulting in the specific loss
amount listed in the judgment.
DISCUSSION
Standard of Review
“We review de novo the question of whether restitution is permitted under the law, and
review the amount of a restitution award for abuse of discretion.” United States v. Boring,
557 F.3d 707, 713 (6th Cir. 2009). However, where a party’s challenge to restitution is raised for
the first time on appeal, the claim is reviewed only for plain error. See United States v. Cox,
665 F. App’x 457, 461 (6th Cir. 2016). Under that standard, the party must show “(1) error (2) that
was obvious or clear, (3) that affected defendant’s substantial rights and (4) that affected the
fairness, integrity, or public reputation of the judicial proceedings.” United States v. Vonner,
516 F.3d 382, 386 (6th Cir. 2008) (en banc) (quotation marks and citation omitted).
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Analysis
The MVRA requires a district court to “order . . . that the defendant make restitution to the
victim of the offense[.]” 18 U.S.C. § 3663A(a)(1). The term “victim” means any individual
“directly and proximately harmed as a result of the commission” of the offense. § 3663A(a)(2).
In the instant case, Scudder raises two arguments. First, he argues that, as a matter of law,
his public notice of resignation prevented M.P.’s clients from relying on his prior
misrepresentation about his status as the WMA Trustee. This argument is based entirely on the
text of Ohio’s recording statute, which provides that the “whole world” is deemed to have
constructive notice of any document—including Scudder’s notice of resignation—that was
properly recorded in Ohio. Second, Scudder argues that the government did not prove, and the
district court did not sufficiently find, that M.P.’s clients relied on his misrepresentation in a
practical sense in making the October loan. We consider each issue in turn.
A. Scudder’s Decision to Record his Resignation at the Clark County Recorder’s
Office
Under the MVRA, “[t]he requirement that the victim be ‘directly and proximately harmed’
encompasses the traditional ‘but for’ and proximate cause analyses.” In re McNulty, 597 F.3d 344,
350 (6th Cir. 2010) (quotation marks and citation omitted).1 In general, “[t]he necessary inquiry
is fact-specific.” Id. (quotation marks, alterations, and citation omitted). In the instant case,
however, there was no need for a comprehensive inquiry: Scudder admitted in his plea agreement
that M.P.’s clients provided the October loan “based, in part, on Mr. Scudder’s false
1
Although In re McNulty interpreted the Crime Victims’ Rights Act, 18 U.S.C. § 3771,
rather than the MVRA, its analysis is relevant to both statutes because they contain identical
language regarding causation. Compare 18 U.S.C. § 3663A(a)(2) (MVRA), with 18 U.S.C.
§ 3771(e)(2)(A) (CVRA).
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No. 17-3972
representation” about his status as the WMA Trustee. (R. 9, plea agreement, PageID# 28–29.) In
other words, Scudder conceded that his fraud caused M.P.’s clients to invest with WMA
Enterprises. Thus, he effectively conceded that the MVRA should apply. See United States v.
Louchart, 680 F.3d 635, 637 (6th Cir. 2012) (holding that a district court can rely at sentencing on
facts “explicitly admitted to by the defendant” in a plea agreement).
Scudder is not saved by Ohio’s recording statute. According to Scudder, it is black letter
tort law that “public notice correcting a misrepresentation precludes reliance on the prior
misstatement and makes any reliance after the correction unjustifiable.” (Def.’s Br. at 18.) But
even accepting this view of tort law, it is not controlling in the criminal restitution context. As the
Supreme Court has explained, our role in interpreting a criminal restitution statute is “to define a
causal standard that effects the statute’s purposes, not to apply tort-law concepts in a mechanical
way[.]” Paroline v. United States, 134 S. Ct. 1710, 1729 (2014). Accordingly, restitution under
the MVRA is required where there is “some direct relationship between the injury asserted and the
injurious conduct alleged.” United States v. Church, 731 F.3d 530, 538 (6th Cir. 2013) (quoting
United States v. Evers, 669 F.3d 645, 659 (6th Cir. 2012)). “[T]he defendant’s conduct need not
be the sole cause of the loss, but it must be a material cause[.]” Id. (alterations omitted) (quoting
Evers, 669 F.3d at 659). This standard is easily met in the instant case because Scudder explicitly
admitted to causing the investor losses. He cannot avoid the consequences of his admission by
making technical arguments based on a recording statute.
In addition, placing controlling weight on Ohio’s recording statute would create tension
with other aspects of restitution law. First, although this Court has not addressed the issue, it
appears doubtful that an investor’s negligence would preclude a criminal restitution award. See,
e.g., United States v. Ross, 607 F. App’x 746, 747 (9th Cir. 2015); United States v. Guy, 335 F.
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App’x 898, 900 (11th Cir. 2009); United States v. Zafar, 291 F. App’x 425, 429 (2d Cir. 2008);
United States v. Rosby, 454 F.3d 670, 677 (7th Cir. 2006). Yet Scudder’s proposed rule would
have exactly that effect. Although he frames the issue in terms of causation, his underlying
argument simply blames the victims for not checking the Clark County records. In Scudder’s
view, M.P.’s clients were “directly and proximately harmed by their failure to exercise due
diligence[.]” (PSR Addendum at 2.)
Second, Scudder’s proposed rule would have restitution awards turn on the vagaries of
each state’s particular recording statute. For example, identically situated defendants located in
different states would face different restitution obligations depending on whether their state’s
recording statute supplies notice to the “whole world,” notice to “everyone in the state,” or notice
to “everyone in the county.” Similarly, a recording statute might provide “conclusive” evidence
of notice, or merely “presumptive” evidence. Given that these minor differences seem divorced
from the fundamental question underlying the MVRA—whether the defendant directly and
proximately caused the victim’s loss—they should not play a controlling role in the causation
analysis. It would elevate form over substance to allow a defendant to cite a broadly worded
recording statute as a trump card.
Third, this Court has held that the causation inquiry “is fact-specific.” In re McNulty, 597
F.3d at 350 (quotation marks, alterations, and citation omitted). Yet Scudder would have us ignore
the facts and focus entirely on a legal fiction: that M.P.’s investors knew of his resignation by
virtue of his public filing. This makes little sense. There was ample room for Scudder to argue
that, as a factual matter, M.P.’s investors did not rely on his misrepresentation. For example,
Scudder could have argued that M.P.’s clients did not care about his status as a lawyer. Or that
their investment decisions were based entirely on other factors. Or that they probably did learn
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about his resignation, either through his public filing or through some other means. But Scudder
did none of these things. Instead of engaging in the fact-specific inquiry contemplated by the
MVRA, he seeks to short-circuit that inquiry entirely. We reject his effort. Scudder “caused” the
investor losses because he admitted in his plea agreement that those losses were “based, in part”
on his misrepresentation. Nothing more was required.
B. Actual Investor Reliance
In the district court, Scudder vigorously pressed his restitution challenge based on Ohio’s
recording statute. In addition, he raised two other arguments that he does not pursue on appeal:
(1) that investors caused their own loss by making what they should have known would be an
unsecured loan; and (2) that investors caused their own loss by failing to properly document that
loan. At no point during the district court proceedings did Scudder dispute that he had caused the
investor losses in a practical sense, as provided in his plea agreement and in his PSR. Nor did he
dispute the PSR’s computation of the amount of loss. Therefore, it is unsurprising that the district
court’s findings on these issues tracked the findings made in the PSR. Specifically, the district
court determined that M.P.’s clients “did invest based on Defendant’s false representations” and it
imposed the PSR’s recommended restitution amount. (R. 29, Restitution Order, PageID# 125–
26.)
On appeal, Scudder takes issue with these rulings. For the first time, he argues that “there
is no evidence that the investors actually did rely on” his misrepresentation. (Def.’s Br. at 25
(emphasis in original).) He notes that no investors testified that their decisions were “based on
[their] belief that a lawyer managed the WMA land trust” and that, more generally, the government
did not even prove that the October loan was secured by the WMA Trust. (Id. at 27.) In addition,
Scudder faults the district court for not requiring “reliable and specific evidence” to substantiate
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the amount of loss, (id. at 29), thereby “default[ing]” its obligation to “ensure that defendants are
sentenced based on accurate information,” (id. at 35).
Unfortunately for Scudder, the district court was not required to make detailed factual
findings in these circumstances. In general, a district court “may accept any undisputed portion of
the presentence report as a finding of fact[.]” Fed. R. Crim. P. 32(i)(3)(A). It must make specific
rulings only on the “disputed” or “controverted” portions of a PSR. See Fed. R. Crim. P.
32(i)(3)(B). In the instant case, the PSR was clear: it stated that “on Scudder’s false
representation, . . . individuals advised by M.P.” provided the October loan. (PSR at ¶ 28.) The
PSR further recommended that the district court impose restitution in the amount of $425,030.
Despite these unambiguous statements, Scudder did not dispute that he had caused the investor
losses in a practical sense, nor did he contest the amount of those losses. Accordingly, the district
court was entitled to rely on the PSR’s findings on these issues.
Scudder admits that he did not previously identify the concerns he now raises, but argues
that they are nonetheless preserved because he did inform the district court of other challenges to
restitution—principally, he repeatedly pressed his recording act argument. However, that was not
enough. Under Rule 32(i)(3)(A) and (B), a district court may accept a PSR’s factual findings
unless they are “controverted.” This Court has explained that “‘controverted’ matters refer to those
that are disputed or opposed by reasoning.” Vonner, 516 F.3d at 388 (quotation marks, alterations,
and citation omitted). “[A] defendant cannot show that a PSR is inaccurate by simply denying the
PSR’s truth.” United States v. Lang, 333 F.3d 678, 681 (6th Cir. 2003) (citation omitted). Instead,
the defendant “must produce some evidence that calls the reliability or correctness of the alleged
facts into question.” Id. (citation omitted). Absent such evidence, “the judge may rely entirely on
the PSR.” Id. (citation omitted).
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In the instant case, Scudder did not provide the district court with any “reason” to doubt
the PSR’s finding that he caused the investor losses in a practical sense, nor did he provide any
“reason” to question the PSR’s computation of the loss amount. Indeed, he did not raise these
issues at all, let alone cite evidence undermining the PSR’s findings. As a result, the district court
was permitted to rely on the PSR. Although Scudder did press his recording act challenge in the
district court, that did not preserve unrelated restitution claims. As we explained in United States
v. McGee, a district court’s fact-finding obligations are triggered only as to the specific issues
identified by the defendant. See 529 F.3d 691, 700–01 (6th Cir. 2008) (holding that the defendant
“did not sufficiently controvert the facts contained in his PSR” where the defendant “very clearly
led the court to believe—whether intentionally or not—that his only objection was to the
relevancy, and not the veracity, of the disputed portions of his PSR” (emphasis in original)). A
defendant cannot transform a narrow challenge in the district court into a broad argument on
appeal.
For all these reasons, the district court did not err at sentencing, let alone plainly err. The
PSR explicitly stated that the October loan was made “on Scudder’s false representation[.]” (PSR
at ¶ 28.) The PSR also recommended a specific restitution amount: $425,030. Any objection to
these findings should have been made at sentencing. Because Scudder failed to object, the district
court was entitled to rely on the PSR.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment.
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