Friday, November 21, 2008

Whether To Deduct Value of Collateral From Loan Amount, and Whether to Use Actual or Intended Loss Calculation, Depends on Specific Facts of Case

United States v. Goss, No. 07-60699 (5th Cir. Nov. 21, 2008) (Barksdale, Benavides, Dennis)

It's loss-amount time again. This time, the question is how to determine the loss amount in a mortgage-fraud scheme. The answer: it depends.

Here's the ripped-from-the-headlines conduct:

From about 1999 to 2002, Goss, a mortgage lender, conspired with others to commit mail and wire fraud by preparing and submitting false documents to induce lenders to make loans totaling over $2 million to 35 borrowers who may not have been qualified for them otherwise. Goss and his co-conspirators created false verifications of deposit and rent, IRS W-2 forms, and Social Security benefit letters and provided them to lenders to obtain the mortgages.

Additionally, they conspired to launder money by converting some of the mortgage-loan proceeds for their own use and benefit. An unindicted coconspirator issued checks to fictitious creditors for some of the fraudulently obtained loans and forwarded them to Goss. Goss also received mortgage-broker fees for each fraudulently obtained loan.

Goss wound up pleading guily to a variety of mail and wire fraud and money laundering counts. At sentencing, the district court determined that the §2B1.1 loss amount should be calculated on the basis of the intended loss, and that "the entire amount of the fraudulent loans was the appropriate amount of intended loss," without any offset for the value of the collateral.

And that was the basis for Goss's appeal. He argued that "the district court erred by not deducting the collateral value in its intended-loss calculation, resulting in an inflated loss amount . . . , and thus an inflated offense level[,]" for all the charges. The court agreed, but declined to adopt a bright-line rule, instead going for a case-by-case approach in an effort to harmonize a specific application note with broader considerations involved in loss-amount determinations.

One the one hand, Application Note 3(E)(ii) to §2B1.1 provides that, “In a case involving collateral pledged or otherwise provided by the defendant, [loss shall be reduced by] the amount the victim has recovered at the time of sentencing from disposition of the collateral, or if the collateral has not been disposed of by that time, [loss shall be reduced by] the fair market value of the collateral at the time of sentencing.” (alterations in Goss). One secondary authority* reads the application note to mean "that 'immovable collateral such as real estate properly pledged to the victim will virtually always be credited against loss . . . .'"

Then again, the Fifth Circuit "has recognized . . . that there are situations where the deduction of collateral may not provide the most fair loss assessment. For example, . . . if a defendant’s intent to avoid repaying a loan is sufficiently clear, and recovery of the collateral is problematic, these factors might preclude deduction of the collateral involved." In one such case, "the collateral consisted of movable, highly depreciable property (mobile homes); and the underlying facts made the defendants’ lack of control over the collateral an item of concern." In another, the court found it unlikely that the defendant intended for his clients to repay vehicle and mortgage loans that he helped them obtain with false social security numbers.

Thus, the court held that "in the light of the direction provided by the advisory guidelines, it becomes apparent that whether to deduct collateral—whether to employ an actual or an intended loss calculation—will depend upon the specific facts at hand." That means that "it is necessary to examine each loan individually in order to determine the fair market value of the loan’s collateral and whether it should be deducted." This inquiry "should be shaped by weighing the appropriate factors in determining, at the time of sentencing, what, in the event of a default, would be the fair market value of any recovered collateral." A non-exhaustive list of such factors includes whether "the collateral is immovable; whether third parties exercise control over the collateral; whether, in the event of default, the collateral is, or might be, damaged before recovery; whether the collateral’s value was appraised or assessed at the time of sentencing; and whether there are financial or practical risks inherently associated with the collateral." And as always, the district court may estimate the loss amount.

All that said, the court strongly implies that, in cases involving immovable, real property---as in mortgage fraud---calculating the actual loss, including an offset for the value of the collateral, will almost always be the correct approach. And so it was in Goss's case, hence a remand for resentencing.

Which leads to another question, with another it-depends answer. On remand, should "the district court’s loss calculation should be based on the fair market value of the collateral at the time of the original sentencing or, rather, at the time of resentencing[?]" The court declined to adopt a "blanket rule," instead concluding, "only for this appeal and based on the facts at hand, that focusing on the value at the time of the initial sentencing best comports with the guidelines’ plain language." (Why just for this case? Probably because the parties didn't address the issue in their briefing. This way, the district court has guidance, but the court of appeals avoids resolving the issue---and binding future panels---without full briefing and argument.)

*That source was the Federal Sentencing Guidelines Handbook: Text and Analysis, by Roger W. Haines, Jr. et al. (You may recognize it as the one with the light grey cover and greenish-blue stripes.) As a footnote explains, although the tome is no more than secondary authority, the Fifth Circuit and other courts tend to view it as persuasive. For that reason alone, you should consult it. But don't rely solely on Haines. Federal Sentencing Law and Practice, by Thomas Hutchinson et al. (electric blue with gold lettering), also has very good commentary.

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Thursday, November 20, 2008

Guilty Plea to Information Waives Argument That Defendant Did Not Knowingly and Voluntarily Waive Right to Indictment

United States v. Daughenbaugh, No. 08-30254 (5th Cir. Nov. 19, 2008) (Benavides, Southwick, Haynes)

Daughenbaugh agreed to plead guilty to an information charging him with one count of possessing child pornography. "Prior to entering the guilty plea, Daughenbaugh and his counsel signed an 'Affidavit of Understanding of Maximum Penalty and Constitutional Rights,' in which Daughenbaugh acknowledged his understanding of his 'right to have the charge against [him] presented to a Grand Jury for indictment.' At the plea colloquy, however, the district court did not advise Daughenbaugh of his right to a grand jury indictment or procure an explicit waiver thereof." He was sentenced to 84 months' imprisonment, followed by a life term of supervsied release.

After some convoluted procedural maneuverings, Daughenbaugh appealed his conviction. He argued "that the district court plainly erred in accepting his guilty plea because he had not been indicted and did not knowingly and voluntarily waive his right to indictment." He apparently did not argue that, as a result of the lack of an indictment waiver, his guilty plea itself was unknowing and involuntary.

The court, pointing to the rule that a guilty plea waives all nonjurisdictional defects in the prior proceedings, held that Daughenbaugh's guilty plea waived his indictment argument.
[A]ny deprivation of Daughenbaugh’s right to indictment by grand jury here took place prior to his entry of a guilty plea, and in light of the Supreme Court’s recent pronouncements on jurisdiction, we conclude that the use of a bill of information in the absence of a waiver of indictment is a nonjurisdictional defect, which he cannot now raise. . . . [A]lthough we have not previously addressed whether accepting a plea to a bill of information in the absence of an indictment waiver—as opposed to proceeding on a defective indictment—implicates a district court’s jurisdiction, we do not see a distinction between the two for the purposes of the present inquiry. Under the reasoning in Cotton, because criminal defendants may waive the right to grand jury indictment, a failure to actually secure such a waiver does not affect a district court’s power to hear a case. Thus, any error in the charging procedure here was nonjurisdictional and was therefore waived by Daughenbaugh’s subsequent guilty plea.

(internal cites omitted).


Tuesday, November 18, 2008

UUV Circuit Split On Its Way To the Supreme Court?

As discussed here, here, and here, there's a post-Leocal circuit split over whether unauthorized use of a vehicle is a "crime of violence" under 18 U.S.C. § 16(b). And the odds of the Supreme Court resolving that split just got better. A couple of weeks ago the Fifth Circuit declined to reconsider the issue en banc, in Serna-Guerra v. Mukasey. Fortunately, four judges---including two who were on the panel---issued a dissent from the denial of rehearing that practically reads like a cert petition. Here's a couple of excerpts:

[O]ur continued classification of UUV as a crime of violence directly conflicts with the Supreme Court’s decision in Leocal v. Ashcroft, 543 U.S. 1 (2004). Moreover, the Tenth Circuit has concluded that our decisions are contrary to Leocal and held that an indistinguishable offense under Arizona law is not a crime of violence. See United States v. Sanchez-Garcia, 501 F.3d 1208 (10th Cir. 2007). By failing to rehear this case en banc, the court has chosen not to correct this error in our jurisprudence and has unnecessarily prolonged our disagreement with the Tenth Circuit.

* * *

We are bound by the Supreme Court’s decisions and therefore have an obligation to correct panel rulings that conflict with its instructions. See Rivers v. Roadway Express, Inc., 511 U.S. 298, 312 (1994); Thurston Motor Lines, Inc. v. Jordan K. Rand, Ltd., 460 U.S. 533 (1983). There is also an overarching interest in maintaining the uniformity of federal immigration laws and consistency in their enforcement. Bustamante-Barrera v. Gonzales, 447 F.3d 388, 399 (5th Cir. 2006); Renteria-Gonzalez v. INS, 322 F.3d 804, 814 (5th Cir. 2002). Rehearing this case would serve those purposes, yet the majority of the court has chosen to allow our erroneous classification of UUV as a crime of violence to continue.

Of course, this isn't a guaranteed cert grant, but there's several factors in favor: 1) the split is clear, 2) the Fifth Circuit's position conflicts not only with another circuit, but with a Supreme Court decision, as well, 3) with this rehearing denial, it's clear that the Fifth Circuit isn't going to address the split on its own, 4) the issue affects both immigration and criminal cases, and the courts in the Fifth Circuit handle more of those cases than in any other circuit, except possibly the Ninth, and 5) in recent terms the Supreme Court has heard several cases involving interpretation of the 18 U.S.C. § 16 COV definition, as well as the similar "violent felony" definition from the ACCA. So unless there's some vehicle problem, Serna-Guerra certainly ought to show up on the Court's docket for OT09.

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Monday, November 17, 2008

Circuit Split Over Whether Recidivist Possession Is Necessarily an Aggravated Felony Deepens; Second Circuit Says No

Okay, referring to it as "recidivist possession" begs the question somewhat, but the post title can only accommodate so many characters. The issue, more precisely, is whether a second or subsequent state conviction for simple possession of a controlled substance is an aggravated felony simply because it could have been prosecuted as a felony under the federal Controlled Substances Act.

As you know, the circuits are split on that issue. The Fifth and Seventh Circuits have said "yes." The First, Third, and Sixth Circuits, as well as the BIA (in cases where there is no contrary circuit precedent), have said no. The Second Circuit has now joined the "no" group with its decision in Alsol v. Mukasey, Nos. 07-2068-ag(L), 08-1942-ag(CON), 08-1112-ag (2d Cir. Nov. 14, 2008):
We hold that a second conviction for simple controlled substance possession under state law is not a felony under the Controlled Substances Act because the offense of conviction does not proscribe conduct punishable as a felony as it does not correspond in any meaningful way with the federal crime of recidivist possession even if it could have been prosecuted in state court as a recidivist offense.

So there's another cite to add to your cert petitions.

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Wednesday, November 12, 2008

Will They Call It an EA-File?

Via Bender's Immigration Daily, we learn that the Washington Post is reporting that A-Files are going electronic:

The Bush administration has launched a major overhaul of the nation's immigration services agency, selecting an industry consortium led by IBM to reinvent how the government handles about 7 million applications each year for visas, citizenship and approval to work in the United States, officials announced yesterday.

* * *

The new system would allow government agencies, from the Border Patrol to the FBI to the Labor Department, to access immigration records faster and more accurately. In combination with initiatives to link digital fingerprint scans to unique identification numbers, it would create a lifelong digital record for applicants. It also would eliminate the need for time- and labor-intensive filing and refiling of paper forms, which are stored at 200 locations in 70 million manila file folders.

That last bit has to make you wonder just how reliable the filing system is, especially when the presence or absence of documents in an A-File is offered to establish an element of a criminal offense. Turns out lots of mistakes get made:
Government investigators have reported that the agency's pre-computer-age paper filing system incurs $100 million a year in archiving, storage, retrieval and shipping costs; has led to the loss or misplacement of more than 100,000 files; and has contributed to backlogs and delays for millions of cases.

And speaking of using A-File docs (or EA-File bits & bytes?) in lieu of live testimony at trial, the Supreme Court heard oral argument the other day in Melendez-Diaz v. Massachusetts, which presents a related question: "Whether a state forensic analyst’s laboratory report prepared for use in a criminal prosecution is 'testimonial' evidence subject to the demands of the Confrontation Clause as set forth in Crawford v. Washington, 541 U.S. 36 (2004)." For more on Melendez-Diaz, check out our post on the cert grant, the oral argument transcript, and SCOTUSblog's argument analysis.

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