United States v. Owens, Reginald

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-4373
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
REGINALD OWENS,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 00 CR 586—Harry D. Leinenweber, Judge.
____________
ARGUED JUNE 6, 2002—DECIDED AUGUST 19, 2002
____________
Before EASTERBROOK, MANION, and KANNE, Circuit
Judges.
KANNE, Circuit Judge. A jury convicted real estate
appraiser Reginald Owens of mail fraud and wire fraud
for his part in a multi-million dollar real estate and mort-
gage fraud scheme. Owens appeals, contending that the
district court improperly admitted evidence and that there
was insufficient evidence to support his conviction. We
affirm.
I. History
A. The Scheme
From 1995 until 1998, several individuals engaged in a
multi-million dollar real estate and mortgage fraud scheme
2 No. 01-4373
involving approximately eighty properties in the Chica-
go area. The scheme was a land “flip” scheme, which
basically involved having people purchase distressed
properties for cash and then immediately resell that same
property at artificially-inflated prices. One of the ring-
leaders of this flip scheme was Brian Parr, who was
personally involved in approximately sixty flip transac-
tions. Parr’s role in the scheme was to first identify the
property he wanted to buy through realtors and by search-
ing the Multiple Listing Services (“MLS”), a real estate
computer database that showed properties for sale and the
seller’s listing price. Parr would then try to negotiate the
lowest possible price for the property and would offer to
buy the property in cash. At the same time that he was
contracting for the purchase of the property, Parr would
prepare to sell the property at an artificially-inflated
price to a second buyer.1 In order to accomplish this, Parr
needed the second buyer to obtain approval for a home
mortgage, and Parr needed to obtain an inflated apprais-
al that could be used to justify the higher sales price to
the lending institution.
Parr’s co-schemers worked to locate potential second
buyers. As an incentive to second buyers, Parr instructed
the co-schemers to offer to sell the properties for no mon-
ey down and cash back at closing. Once the co-schemers
identified a second buyer, the buyer had to qualify for and
obtain a mortgage. The second buyers, however, typically
did not have jobs or bank accounts and thus could not have
normally qualified for a mortgage. To overcome this ob-
stacle, several other co-schemers, including loan officer
Tamira Smyth, created false documents to submit to the
1
Both sales usually happened simultaneously at the office of
Parr’s attorney, although sometimes the second sale actually was
executed before Parr had purchased the property at issue.
No. 01-4373 3
lender institutions. These false documents included W-2
tax forms, check stubs, employment verifications, and other
documents.
In addition to the false documents, mortgage brokers
also worked with an appraiser to ensure that the apprais-
al matched the contract price for the second sale in order
for Parr to maximize his profits. The appraisers were able
to inflate the value of these properties by omitting from
their appraisal reports critical information from the
MLS and by comparing the sale house involved in the flip
transaction to houses that were far superior. The two
primary appraisers in the scheme were Owens and Melva
Wynn.2 With the appraisers’ help, Parr’s profit ranged
from approximately $10,000 to $180,000 per flip trans-
action. Parr then used the profits from each transaction
to pay his co-schemers.
Parr’s profits, however, came at the expense of lend-
ing institutions and the federal government because the
second buyers could not or would not pay the mortgage
payments due on the properties. Further, once these prop-
erties went into foreclosure, private lending institutions
lost millions of dollars because the mortgages were based
on inflated values for the properties and those inflated
values had already been pocketed by Parr and the co-
schemers. Moreover, because many of the loans on the
properties were insured by the Federal Housing Author-
ity (“FHA”), a substantial portion of the losses ultimately
were incurred by the United States Department of Hous-
ing and Urban Development (“HUD”).
2
Melva Wynn pleaded guilty in this case.
4 No. 01-4373
B. The Trial
Owens was indicted on two counts of mail fraud and
on one count of wire fraud for his part in the scheme. See 18
U.S.C. §§ 1341 & 1343. At trial, Parr testified on behalf
of the government and explained the scheme described
above. Parr testified that he first met Owens while complet-
ing a real estate transaction in February 1997. Subse-
quently, Parr began to use Owens as his appraiser on his
flip transactions, and Owens appraised ten flip transac-
tions for him. Parr explained that without an appraisal
equal to the extremely inflated value of the second sale, the
scheme would not have been successful. Parr testified
that Owens always appraised the property at the value
that Parr required and that he paid Owens a $500 bonus
for these inflated appraisals in addition to Owens’ stan-
dard appraisal rate.
Smyth also testified for the government and explained
that she participated in eighteen to twenty flip transac-
tions and that she asked Owens to perform appraisals on
ten to twelve transactions. Smyth stated that she would
call Owens and give him the address of the subject prop-
erty as well as the value that she wanted for that prop-
erty. Owens would usually respond that the desired value
was too high and that he did not think he could appraise
the property at that high of a value. Smyth would then
offer Owens money to obtain the desired value, and he
would eventually appraise the property at the desired
figure. In order to support the inflated price, Smyth ex-
plained that Owens would take pictures of properties at
certain angles in order to hide defects not reported in his
appraisal and that sometimes Owens did not even visit
the properties when he performed his appraisals.
Smyth further testified that for each appraisal, Owens
was paid between $250 and $400 for his standard fees,
which would appear on the closing contract, plus he
No. 01-4373 5
was also paid a “kickback” of anywhere from $500 to $1,000.
The kickback, of course, did not appear in the closing con-
tract. Smyth also testified about recorded telephone calls
she made to Owens, and transcripts of those calls were
admitted at trial. During those calls, Owens and Smyth
discussed $3,000 in kickbacks that were in arrears.
Several Federal Bureau of Investigation agents and HUD
agents testified about interviews they conducted with
Owens on three separate occasions. According to Agent
Kelly Popovotis of HUD, Owens made the following state-
ments: Owens initially stated that he had performed
five appraisals for Parr before changing that answer to
eight to ten appraisals and then finally to eleven. Owens
also initially claimed in the first interview that he did
not know the sale price of the properties (i.e., the price
that Parr wanted on the appraisal) before doing the ap-
praisals. Owens, however, admitted in his second inter-
view that he had received the sale price before doing
the appraisals. Further, Owens initially explained that
he had received $250 to $500 for each appraisal, but later
changed that answer to $1,000 and claimed that the
additional money was for a quick turnaround. Additionally,
FBI Agent Ron Carver testified that during a third in-
terview with Owens, Owens admitted that he believed
that Parr was participating in land-flip transactions.
Finally, the government offered into evidence Owens’
appraisal reports, and expert witness John Miaso analyzed
these reports and testified about his findings. A summary
of the appraisal reports showed the dollar value difference
between the listing price on the property and Owens’
inflated appraised value (i.e., the price at which Parr re-
sold the property), as well as the percentage difference
between the two. This evidence showed that Owens had
over-appraised by at least $32,100 to as much as $153,000
per property, and the percentage increase ranged from a
low of 32% to a high of 340%. For example, the listing price
6 No. 01-4373
of the property at 4351 South Calumet was $49,000, and
it was sold to a co-schemer for $45,000. Owens, however,
signed off on an appraisal of $198,000, for a difference
of $153,000 (a 340% increase). Miaso testified that al-
though different appraisers may come up with different
values for the same property, the variations would typically
range from between five to ten percent.
Miaso also testified that all appraisals must meet the
requirements of the Uniform Standards of Professional
Appraisal Practice (“USPAP”) and that all appraisers must
certify that each appraisal they performed was conducted
in conformity with USPAP. The USPAP requires certify-
ing that the appraiser personally inspected the subject
property and the comparable properties, that the appraiser
was truthful in his comments on the subject property
and the subject community, and that the comparable prop-
erties that were used were actually “comparable” and that
any price adjustments were made accordingly to reflect
differences between the subject property and the compared
property. The appraiser’s USPAP certifications also pro-
vided that:
I have not knowingly withheld any significant informa-
tion from the appraisal report, and I believe to the best
of my knowledge that all statements and information
in the appraisal report are true and correct.
I have no present or contemplated future interest in
the subject property, and neither my current nor future
employment nor my compensation for performing
this appraisal is contingent on the appraised value of
the property.
I was not required to report a predetermined value
or direction in value that favors the cause of the client
or any related party, the amount of the value esti-
mate, the attainment of the specific result, or the oc-
currence of a subsequent event in order to receive my
No. 01-4373 7
compensation and/or employment for performing the
appraisal. I did not base the appraisal report on a re-
quested minimum valuation, a specific valuation, or the
need to approve a specific mortgage loan.
Owens signed such appraisal certifications for all of the ap-
praisals he performed for Parr’s properties. Finally, Miaso
testified that Owens’ reports used improper comparable
properties and failed to provide crucial information.
In his defense, Owens attempted to convince the jury
that he lacked the requisite intent to defraud.3 To this
effect, he noted that he had only participated in approxi-
mately ten of the eighty flip transactions and that he had
made, at most, $1,000 per flip transaction, whereas Parr
and the others had made tens of thousands of dollars.
Additionally, Owens argued that the kickbacks were for
expedited, not fraudulent, appraisals.
The jury subsequently convicted Owens of two counts
of mail fraud and of one count of wire fraud, and the dis-
trict court sentenced him to thirty-three months of im-
prisonment on each count to run concurrently.
II. Analysis
Initially, Owens contends that the district court erred
in admitting certain parts of Miaso’s testimony, which
3
A conviction under the mail fraud statute requires that (1) there
was a scheme to defraud; (2) the mails were used to further that
scheme; and (3) the defendant participated in that scheme with
an intent to defraud. See United States v. Davuluri, 239 F.3d
902, 906 (7th Cir. 2001). Similarly, a conviction under the wire
fraud statute requires that (1) there was a scheme to defraud;
(2) wires were used in furtherance of the scheme; and (3) the
defendant participated in the scheme with the intent to defraud.
See United States v. O’Brien, 119 F.3d 523, 532 (7th Cir. 1997)
8 No. 01-4373
according to Owens, “violated Rule 704(b) of the Federal
Rules of Evidence [because] the expert testif[ied] to the
ultimate issue of whether the appraisals done by defendant
were fraudulent in nature.”
Federal Rule of Evidence 704 provides:
(a) Except as provided in subdivision (b), testimony
in the form of an opinion or inference otherwise admis-
sible is not objectionable because it embraces an ulti-
mate issue to be decided by the trier of fact.
(b) No expert witness testifying with respect to the
mental state or condition of a defendant in a criminal
case may state an opinion or inference as to whether
the defendant did or did not have the mental state
or condition constituting an element of the crime
charged or of a defense thereto. Such ultimate issues
are matters for the trier of fact alone.
In other words, Rule 704 allows testimony regarding an
ultimate issue except when that ultimate issue concerns the
defendant’s mental state or condition and that issue con-
stitutes an element or defense of the crime charged. On
appeal, Owens contends that Miaso’s testimony violated
Rule 704(b), and the government first responds by asserting
that defense counsel failed to preserve the error for re-
view by objecting to the testimony at trial on Rule 704(b)
grounds.
Immediately prior to expert witness Miaso taking the
witness stand, Owens objected to any testimony by Miaso
that Owens’ appraisal reports were fraudulent:
Defense Counsel: I forgot to make this objection ear-
lier. . . . His reports say that the appraisals done by
Mr. Owens were fraudulent. I do not think that as an
expert he ought to be allowed to testify that he thinks
they’re fraudulent. He ought to be able to testify to
all the inadequacies, all the ways they violate the uni-
No. 01-4373 9
form standards. . . . But to say that they are fraudulent
to the jury as an expert invades the province of the jury
to decide whether his intent was to defraud, because
that is what he is charged with, mail fraud and wire
fraud.
Government Counsel: That’s what he’s going to tes-
tify to. His opinion that these [appraisals] were fraudu-
lent and misleading, and he’s going to say why.
The Court: He can do it. It’s the old ultimate issue deal.
Defense Counsel: Right
Thus, at trial, Owens’ objection was based “on the old ulti-
mate issue” objection, which Rule 704 abolished, see, e.g.,
United States v. Baskes, 649 F.2d 471, 479 (7th Cir. 1980),
and focused on the reports’ fraudulent nature, not on
Owens’ mental state.
However, on appeal, Owens refocuses his argument on the
mental state prohibition now embodied in Section (b) of
Rule 704 and contends that Miaso improperly testified
regarding Owens’ intent to defraud. Although we ques-
tion whether defense counsel’s objection was specific enough
to inform the trial judge that Owens was objecting to the
evidence on Rule 704(b) grounds, we will nevertheless ad-
dress Owens’ contention on the merits.
At trial, Miaso testified that the relevant apprais-
al reports were defective in that they did not follow cer-
tain standards set forth by public and private regulatory
bodies, and Owens has no qualms with this testimony.
However, at the end of each description of a certain ap-
praisal report, Miaso added that in his opinion, the ap-
praisal report was “misleading and fraudulent.” Owens
contends that the final comments—that the appraisal
reports were “misleading and fraudulent”—violated
Rule 704(b). However, as we noted above, Rule 704(b) ad-
dresses the defendant’s mental state, and Miaso did not
comment in any way about Owens’ mental state.
10 No. 01-4373
In United States v. Aggarwal, 17 F.3d 737, 743 (5th Cir.
1994), the defendant was convicted of wire fraud and
appealed, contending that the government’s expert witness
violated Rule 704(b) by using terms such as “scam,” “fraudu-
lent,” and “fraud” to describe the loans at issue. Accord-
ing to the defendant, those terms implied that the defen-
dant had the required intent to commit fraud. See id. In
response, the government noted, inter alia, that the expert
“never commented directly on [the defendant’s] state of
mind,” thus Rule 704(b) was not violated, and the Fifth
Circuit affirmed. Id. In the present case, as in Aggarwal,
Miaso only used the phrase “misleading and fraudulent” to
describe the quality of the appraisal reports, and thus nev-
er commented directly on Owen’s state of mind. Therefore,
this testimony was properly admitted. See Aggarwal, 17
F.3d at 743; 29 CHARLES ALAN WRIGHT & VICTOR JAMES
GOLD, FEDERAL PRACTICE & PROCEDURE § 6285, at 395
(1997) (“Rule 704(b) usually bars only a direct statement
that defendant did or did not have the required mental
state.”).4
Owens next contends that the evidence was insuffi-
cient to support a finding that he intended to defraud.
Normally, we review whether a jury verdict has evidentia-
4
At oral argument, there was discussion as to whether or not
Rule 704(b) should even apply to Miaso’s testimony as the
legislative history of the rule suggests that Congress only in-
tended to limit “the scope of expert testimony by psychiatrists
and other mental health experts.” S. Rep. No. 225, 98th Cong., 2d
Sess. 230 (1984), reprinted in 1984 U.S.C.C.A.N. 3182, 3412. How-
ever, we can find no federal circuit court that specifically has so
held, see United States v. Richard, 969 F.2d 849, 855 n.6 (10th Cir.
1992) (collecting cases), and in the present case, we need not
address the issue. See also WRIGHT § 6285, at 392 (noting that the
Seventh Circuit, among others, has suggested that Rule 704(b)
is limited to psychiatrists and other mental health experts but
that many courts have assumed that it applies more broadly).
No. 01-4373 11
ry support in a criminal case by asking if there was suffi-
cient evidence, when viewed in the light most favorable
to the government, to allow a rational trier of fact to find
all of the essential elements of an offense beyond a reason-
able doubt. See United States v. Carlino, 143 F.3d 340, 343
(7th Cir. 1998). However, Owens did not preserve normal
review of the issue because, although he moved for a
judgment of acquittal at the close of the government’s
case, he failed to renew his motion at the close of all the
evidence. Therefore, we review Owens’ claim only for plain
error, which in this context is present only if his convic-
tions amount to a manifest miscarriage of justice. See
id. “Manifest miscarriage of justice is perhaps the most de-
manding standard of appellate review. We will reverse
only if the record is devoid of evidence pointing to guilt, or
if the evidence on a key element of the offense was so
tenuous that a conviction would be shocking.” United
States v. Taylor, 226 F.3d 593, 597-98 (7th Cir. 2000).
To sustain a conviction under the mail fraud statute, see
18 U.S.C. § 1341, the evidence must establish that (1)
there was a scheme to defraud; (2) the mails were used to
further that scheme; and (3) Owens participated in that
scheme with an intent to defraud lenders. See United
States v. Davuluri, 239 F.3d 902, 906 (7th Cir. 2001).
Similarly, Owens’ conviction under the wire fraud stat-
ute, see 18 U.S.C. § 1343, can be upheld only if the evi-
dence establishes that (1) there was scheme to defraud;
(2) wires were used in furtherance of the scheme; and
(3) Owens participated in the scheme with the intent to
defraud. See United States v. O’Brien, 119 F.3d 523, 532
(7th Cir. 1997). Owens concedes, as he must, that there
was a scheme to defraud and that the mails and wires
were used in furtherance of that scheme. His sole conten-
tion on appeal is that he had no knowledge of the scheme
and therefore did not act with an intent to defraud.
12 No. 01-4373
Intent to defraud requires a willful act by the defen-
dant with the specific intent to deceive or cheat, usually
for the purpose of getting financial gain for one’s self or
causing financial loss to another. See United States v.
Paneras, 222 F.3d 406, 410 (7th Cir. 2000). As direct evi-
dence of a defendant’s fraudulent intent is typically un-
available, “specific intent to defraud may be established
by circumstantial evidence and by inferences drawn
from examining the scheme itself that demonstrate that
the scheme was reasonably calculated to deceive persons
of ordinary prudence and comprehension.” Id.A review of the record makes clear that Owens has not
met the heavy burden he bears in making a manifest
miscarriage of justice argument on appeal. The jury’s con-
clusion that Owens knew of the scheme and had the
requisite intent to defraud is supported by Agent Carver’s
testimony that Owens admitted that he believed that
Parr was participating in a flip scheme. The jury’s con-
clusion that Owens had an intent to defraud is also sup-
ported by the abundant evidence that Owens received
“kickbacks” for his artificially-inflated appraisals, which
were not reported in the closing contracts. Cf. United
States v. Britton, 289 F.3d 976, 982 (7th Cir. 2002) (find-
ing an intent to defraud when misrepresentations were
contemporaneous with benefits received by defendant).
Further, the jury’s conclusion is supported by Miaso’s
testimony that Owens’ appraisal values were extraordi-
narily high and that although appraisers may differ by
five to ten percent, an over-appraisal of 340% was mis-
leading and fraudulent. Combined with the fact that
Owens repeatedly left critical information off of the ap-
praisals, there is more than enough evidence in the rec-
ord to support a finding of an intent to defraud.
On appeal, Owens alleges that the fact that he made
less money than Parr and Smyth supports his claim that
he did not know of the scheme and did not have an in-
No. 01-4373 13
tent to defraud. Additionally, he claims that the fact that
he was only involved in approximately ten of the eighty
flip transactions supports the same conclusion. Neither of
these arguments has any merit because the fact that some
schemers made more money than others is completely
irrelevant to Owens’ intent to defraud. See, e.g., United
States v. Moore, 991 F.2d 409, 414 (7th Cir. 1993) (“The
fact that [the defendant] made less profits than his co-
conspirators does not diminish the importance of his role
in the offense.”). Additionally, the fact that Owens was
only involved in approximately ten of the flips is ex-
plained simply by the fact that he did not become part
of the scheme until it had been in operation for approxi-
mately two years and the fact that it came to an end short-
ly after he became a co-schemer.
III. Conclusion
For the foregoing reasons, Owens’ convictions and sen-
tence are AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—8-19-02