United States v. Kelley

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT

                                 ____________________



          No. 95-1658



                                    UNITED STATES,



                                      Appellee,



                                          v.



                                  EDWARD C. KELLEY,



                                Defendant, Appellant.



                                 ____________________



                     APPEAL FROM THE UNITED STATES DISTRICT COURT



                           FOR THE DISTRICT OF RHODE ISLAND



                    [Hon. Ronald R. Lagueux, U.S. District Judge]
                                             ___________________



                                 ____________________



                                        Before



                               Torruella, Chief Judge,
                                          ___________



                                 Cyr, Circuit Judge,
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                         and Skinner,* Senior District Judge.
                                       _____________________



                                _____________________



               Edward C. Roy, by Appointment of the Court, with whom  Roy &
               _____________                                          _____

          Cook, was on brief for appellant.
          ____

               Margaret E. Curran, Assistant  United States Attorney,  with
               __________________

          whom Sheldon  Whitehouse, United States Attorney,  and Charles A.
               ___________________                               __________

          Tamuleviz, were on brief for appellee.
          _________



                                 ____________________

                                  February 20, 1996

                                 ____________________


____________________



          *  Of the District of Massachusetts, sitting by designation.



SKINNER,  Senior  District Judge.   Defendant-appellant
                    SKINNER,  Senior  District Judge.
                              ______________________



          Edward Kelley was charged in a six count indictment of mail fraud



          in violation of 18 U.S.C.   1341 and making false statements to a



          federal  agency in violation of 18 U.S.C.    1001.  Pursuant to a



          guilty  plea on the three mail fraud counts, Kelley was sentenced



          to 21  months incarceration,  followed by three  years supervised



          release.  On appeal of  his sentence, Kelley argues (1)  that the



          district  court erred in determining  the amount of  the loss for



          sentencing purposes, and  (2) that the district  court abused his



          discretion  in denying  a two point  offense level  reduction for



          acceptance of responsibility.  We affirm.


I.   BACKGROUND
                                   I.   BACKGROUND
                                        __________



                    A.Facts
                    A.Facts



                    This prosecution  arose out of Edward  Kelley's efforts



          to  enlist the  assistance of  the Small  Business Administration



          ("S.B.A.") in refinancing his commercial lobster boat, the "Alter



          Ego II."   Kelley purchased the  boat in June 1992  for $5,000 in



          cash  and a  $22,000  promissory note,  and  quickly sold  a  45%



          interest  to his brother Robert Fletcher for $20,000.  The vessel



          sustained substantial  damage during  a severe storm  in December



          1992.  



                    Kelley applied for disaster  relief from the S.B.A., in



          the  course of  which he  submitted a Personal  Finance Statement



          stating that the vessel  purchase price was $60,000,  rather than


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$27,000, and that he had paid cash in full without incurring  any



          debt.  Both of these averments were false.



                    Based on  this application,  the S.B.A. agreed  to loan



          Kelley $55,100, secured by  a mortgage on the vessel  and a third



          mortgage  on Kelley's house.   After  an initial  disbursement of



          $10,000 in April 1993,  Kelley submitted a Progress Certification



          Report indicating that he had purchased lobster traps from Robert



          Fletcher's R.A.F.  Lobster Company  for $32,000.   This statement



          was also false.   After the  S.B.A. disbursed the balance  of the



          loan, Kelley  used approximately $15,000 of the  S.B.A. funds for



          personal  expenses.   After a  total of  $864 in  repayments over



          three  months,   the  loan  went   into  default.     Kelley  was



          subsequently  indicted  on  the  basis of  the  false  statements



          contained  in his  Personal  Finance Statement  and his  Progress



          Certification  Report, and  pled guilty  to three counts  of mail



          fraud.


B.The Sentencing Proceeding
                    B.The Sentencing Proceeding



                    At  the  sentencing proceeding,  the  government argued



          that Kelley's total offense level should be fifteen, representing



          eleven  points  for  fraud  involving  more  than  $40,000  under



          U.S.S.G.   2F1.1(b)(1)(F), increased by two points for "more than



          minimal planning" under U.S.S.G.    2F1.1(b)(2)(A), and augmented



          by an  additional two  points for  obstruction  of justice  under



          U.S.S.G.    3C1.1.   In  support of  the obstruction  points, the



          government cited  two attestations Kelley made  in completing his


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presentence report submission to the probation office, namely (1)



          that  he had  nothing  to  do  with  the  theft  of  navigational



          equipment from the Alter Ego, and (2) that  he used all disbursed



          funds to try to keep the Alter Ego afloat.



                    At  the  sentencing  proceeding,  Kelley  contested the



          government's  calculated  offense   level,  contending  that  the



          government overvalued the loss  in light of the  S.B.A.'s failure



          to pursue civil remedies.  Kelley also argued that his submission



          to the probation department did not obstruct justice.



                    After  hearing  testimony  from  eight  witnesses,  the



          sentencing court rejected  the S.B.A.'s valuation of  its loss at



          $54,236.    Specifically,  the  sentencing  court  rejected   the



          testimony of an  S.B.A. witness  who appraised the  value of  the



          vessel  at $5,000.  The court implicitly adopted the testimony of



          Kelley's expert  marine surveyor, Steven Mainella,  who testified



          that  the  vessel was  worth between  $18,000  and $25,000.   The



          defendant  did not, however, attempt to rebut the testimony of an



          S.B.A. loan  officer as to  the potential recovery  from Kelley's



          house.   Consequently,  the only  evidence before  the sentencing



          court on the value of the house was that a foreclosure proceeding



          would fetch an estimated $104,000, which after satisfying $95,000



          in  superior  mortgages  and  auction expenses  would  produce  a



          negligible recovery.



                    The court concluded that  the S.B.A.'s loss was between



          $20,000  and  $40,000,  resulting in  an  offense  level of  ten.



          Finding  that the S.B.A. had failed to pursue pledged collateral,


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the  sentencing court  denied restitution.   The court  added two



          points  for  more  than  minimal   planning,  and  two  more  for



          obstruction of  justice; it  concluded that his  criminal history



          category was one.  Accordingly, Kelley was sentenced to 21 months



          imprisonment, followed  by three years  supervised release, which



          was within the guideline range.


II.  ANALYSIS
                                    II.  ANALYSIS
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                    A.Calculation of the S.B.A.'s Loss
                    A.Calculation of the S.B.A.'s Loss



                    Kelley argues that the district court's conclusion that



          the S.B.A.'s loss ranged between  $20,000 and $40,000 was clearly



          erroneous  in  light of  evidence adduced  at  trial.   Under the



          Sentencing  Guidelines,  crimes  involving  fraud  are  uniformly



          assessed a base offense level  of six.  See U.S.S.G.    2F1.1(a).
                                                  ___



          This  base offense  level  is  increased  in  proportion  to  the



          magnitude of the loss  if the victim's loss exceeded  $2,000. See
                                                                        ___



          U.S.S.G.    2F1.1(b)(1).    The  commentary   to  the  Guidelines



          provides a  set of formulae to apply in determining the amount of



          the  loss   in  particular  circumstances.     For  example,  the



          commentary instructs that  to calculate the loss  in a fraudulent



          loan  application, the  sentencing  court starts  by taking  "the



          amount  of  the  loan not  repaid  at  the  time  the offense  is



          discovered,  reduced by  the amount  the lending  institution has



          recovered (or can expect  to recover) from any assets  pledged to



          secure the loan."  See U.S.S.G   2F1.1,  comment. (n.7(b)).  This
                             ___



          formula  is  binding  in   cases  involving  the  procurement  of


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fraudulent   loans  and   is  clearly   applicable  to   Kelley's



          misconduct.  See United  States v. Bennett, 37 F.3d 687, 695 (1st
                       ___ ______________    _______



          Cir. 1994); see also Stinson  v. United States, 113 S. Ct.  1913,
                      ________ _______     _____________



          1915   (1993)  ("[C]ommentary  in   the  Guidelines  Manual  that



          interprets  or explains  a guideline  is authoritative  unless it



          violates   the  Constitution   or  a   federal  statute,   or  is



          inconsistent  with,  or  a  plainly erroneous  reading  of,  that



          guideline.").



                    Kelley challenges the court's  findings as to the value



          of the mortgage and  the vessel.  A sentencing  court's valuation



          of loss is subject to the "clearly erroneous" standard of review.



          See, e.g., United States v. Brandon, 17 F.3d 409, 457 (1st Cir.),
          ___  ____  _____________    _______



          cert.  denied, 115  S. Ct.  80 (1994).   Although  the Guidelines
          _____________



          suggest  that a rather specific formula should be applied in this



          case,  the Sentencing  Commission has  recognized that it  may be



          difficult  to  calculate  a  specific  loss with  any  degree  of



          precision.  Precise loss may be hard to determine where the value



          of  collateral is in dispute,  either because the  victim has not



          exercised rights against  the collateral, or  it is alleged  that



          such efforts did not bring a fair market price. Cf. United States
                                                          ___ _____________



          v. Chorney, 63 F.3d 78, 82 (1st Cir. 1995) (rejecting defendant's
             _______



          argument  that  he  had  been denied  sufficient  opportunity  to



          establish  fair market value of  unpledged assets).   In light of



          potential difficulties in  calculating the  loss, the  sentencing



          court  "need only make a  reasonable estimate of  the loss, given



          the available information."  See U.S.S.G.   2F1.1, comment (n.8).
                                       ___


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With  respect  to the  Alter  Ego,  the district  judge



          rejected the government witness' testimony  that the vessel had a



          value of $5,000, implicitly adopting  Steven Mainella's appraisal



          of $18,000 to $25,000.  Neither party contests use of this figure



          on appeal.



                    With respect to the  house, the parties agree that  the



          property was appraised  at $130,000 and  subject to two  superior



          mortgages  totalling $95,000.    At the  sentencing hearing,  the



          S.B.A. loan  officer testified that  it was standard  practice in



          the  banking industry  to  value  property  to be  liquidated  at



          auction  at 80%  of  appraisal value,  or  $104,000 for  Kelley's



          house.   The  S.B.A.  loan officer  further  testified that  this



          liquidation value would be further offset by the $95,000 in prior



          mortgages, and  by  the estimated  $5,000  to $8,000  in  auction



          expenses.  Foreclosure on  Kelley's house would thus yield  a net



          return of  $1,000 to $4,000.   Kelley did not offer  testimony at



          the  sentencing hearing to  dispute this accounting,  nor does he



          attempt to factually undermine its premises on appeal.



                    Kelley  does  make  the  suggestion  that  the S.B.A.'s



          accounting method is  wrong as  a matter of  law.   Specifically,



          Kelley  argues that the sentencing court must accept the value of



          the  collateral to the defendant,  rather than the victim lending



          institution,  and that he should be credited for the full $35,000



          in equity he could have obtained if he sold the house on the open



          market.    But the  commentary to  the Guidelines  specifies that



          valuation of  collateral is the amount  the "lending institution"


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could expect to  receive from pursuing  a security interest.  See
                                                                        ___



          U.S.S.G.    2F1.1, comment. (n.7(b)).   The express  reference in



          the  Guidelines  to  the  mortgagee  rather  than  the  mortgagor



          precludes  Kelley's argument.   The  value of the  loss is  to be



          offset  by the  amount the  lender could  expect to  recover from



          pursuit  of  pledged collateral.    Consequently,  the $1,000  to



          $4,000  expected recovery is the  proper measure of  the value of



          the house.



                    To summarize, the evidence  before the sentencing court



          demonstrated  that  if  the  S.B.A. had  pursued  civil  remedies



          against  the house and the  boat, it could  have recouped between



          $19,000  and $29,000.    Deducting this  amount from  the $54,236



          outstanding loan balance, the S.B.A.'s loss was somewhere between



          $24,000 and $35,000.  This range is well within the range of loss



          found by the court.



                    Kelley makes a final  argument that it was inconsistent



          for the sentencing  court to deny restitution, while  valuing the



          S.B.A.'s loss as greater than  $20,000.  Although Kelley properly



          points out that the  authority of a sentencing court  "to decline



          to  order   restitution  is  limited,"  the   commentary  to  the



          Sentencing Guidelines suggests there  are several factors a court



          may consider in  declining to order  restitution. See U.S.S.G.   
                                                            ___



          5E1.1, comment. (backg'd).  Prominent among these factors are the



          lack of victim's need,  uncertainty in calculating the amount  of



          restitution, and fairness  to the  victim. See also  18 U.S.C.   
                                                     ________



          3664(a).   The  judge went  on at some  length in  explaining his


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reasons   for  denying  restitution,  specifically  finding  that



          because the S.B.A. failed  to avail itself of civil  remedies, it



          was both difficult to ascertain the proper amount  of restitution



          and fair  to deny  all restitution.1   Kelley erroneously  argues



          that an  absolute denial  of restitution necessarily  implies the



          conclusion that  the S.B.A. had  no loss.   There  is no  logical



          reason to make such a leap.


B.Obstruction of Justice
                    B.Obstruction of Justice



                    Kelley also challenges  his two  point enhancement  for



          obstruction  of justice.   Under  the Sentencing  Guidelines, the



          provision of a materially false statement to a  probation officer



          during  the  preparation  of  a  presentence  report  constitutes



          obstruction of  justice. See U.S.S.G.    3C1.1, comment (n.3(h)).
                                   ___



          The sentencing court found that the following two passages of the



          signed  statement which  the defendant  filed with  the probation



          department were materially false:



                      In addition, I hoped to upgrade  the boat

                      with the proceeds of the loan.  Some time

                      after the  gear was  lost at sea,  all of

                      the electronic equipment  on the boat was

                      stolen by  my son.   As a result  of this

                      theft,  which I had absolutely nothing to

                      do with,  the boat  was inoperable.   The

                      boat could not generate any income.



                      At the time of  the application, I was in

                      a very difficult financial  situation and

                      I  was  desperate to  get  the boat  back

                      working.   I used all of the funds that I



                              
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          1  The government has not filed a cross-appeal to challenge these

          findings.



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received   to   pay   for  boat   related

                      expenses.



          A  sentencing  court's  finding  of material  falseness  will  be



          overturned only where clearly erroneous. See, e.g., United States
                                                   ___  ____  _____________



          v. Tracy, 36  F.3d 199, 202 (1st Cir.), cert.  denied, 115 S. Ct.
             _____                                _____________



          609 (1994).



                    Although Kelley argues that the  sentencing court erred



          in failing to evaluate all testimony used to support a finding of



          falseness  "in a  light most  favorable to  the  defendant," this



          interpretative  principle  only applies  to  the construction  of



          allegedly  perjurious  language,  not  to  the  determination  of



          credibility of fact  witnesses.  See  U.S.S.G.   3C1.1,  comment.
                                           ___



          (n.1).  Furthermore, lenitive  interpretations only apply "to the



          extent that an innocent reading may be plausible."  See Tracy, 36
                                                              ___ _____



          F.3d at 204.



                    Although Kelley  argues that neither  of his statements



          was  false, there was ample evidence  before the sentencing court



          to support its  findings.  Kelley's claim that  he had nothing to



          do  with theft  of electronic  equipment from  the Alter  Ego was



          discredited by the testimony  of his son.  Mark  Kelley testified



          that his father  asked him to  temporarily remove equipment  from



          the Ego  in  order  to  support  a  fraudulent  insurance  claim.



          Similarly,  Kelley's  claim  that  S.B.A.  funds  were  uniformly



          dedicated to  boat expenses was contradicted by  bank records and



          cancelled checks indicating almost $15,600 of the S.B.A. loan was



          used  for  mortgage  payments,   parochial  school  tuition,  and



          miscellaneous household expenses.   In view of this evidence, the



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defendant's  statements  were  not  susceptible  to  an  innocent



          interpretation.   The sentencing  court was warranted  in finding



          that both statements were false.



                    Kelley  also suggests that  neither of these statements



          was material.  The materiality requirement for an allegedly false



          statement "is  not a  stringent one."  United  States v.  Ovalle-
                                                 ______________     _______



          M rquez, 36 F.3d 212, 226  (1st Cir. 1994), cert. denied,  115 S.
          _______                                     ____________



          Ct. 1322 (1995).  Under the Sentencing Guidelines, a statement is



          material which, "if  believed, would tend to  influence or affect



          the issue  under determination."  See U.S.S.G.    3C1.1, comment.
                                            ___



          (n.5).  Materiality  does not  require a factual  nexus with  the



          underlying  criminal conduct.    Rather, for  the  purposes of  a



          sentencing determination, materiality  involves some  attestation



          that could influence the court's sentencing discretion, including



          (but not  limited to) determination of a period of incarceration,



          conditions  of  supervised  release, or  whether  restitution  is



          awarded.    For example,  this court  has  held that  lying about



          citizenship  in  a submission  to  the  probation department  was



          material  because  of a  particular  district  judge's policy  to



          suspend supervised release in order to facilitate the deportation



          of illegal aliens. See United States  v. Biyaga, 9 F.3d 204,  205
                             ___ _____________     ______



          (1st Cir. 1993).  A false statement may be material  even "if the



          falsehood  is designed  to  mitigate  significantly the  wrongful



          conduct  and so  affect  the court's  exercise  of discretion  in



          choosing  a sentence  within the  range."   See United  States v.
                                                      ___ ______________



          Agoro, 995 F.2d 1288, 1292 (1st Cir. 1993).
          _____


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The  making  of  false statements  in  the  probation



          submission is  similar enough  to the underlying  charged conduct



          (making false statements to a governmental entity) to establish a



          close  nexus.  Furthermore, both  of the statements (if believed)



          could  have  impacted  the  decisions of  the  sentencing  court.



          Kelley's denial  of knowledge about  the theft and  its insurance



          implications could have swayed  the determination that Kelley had



          exhibited  "more   than  minimal   planning"  under   U.S.S.G.   



          2F1.1(b)(2) or that  Kelley had  a role as  an "organizer"  under



          U.S.S.G.     3B1.1.   Similarly,  Kelley's  statements about  the



          expenditure  of  the  proceeds  of the  S.B.A.  loan  could  have



          affected  the  sentencing  court's  decision  on  restitution  or



          minimal planning.   Moreover, the suggestion that the default was



          the result  of Kelley's  "desperation" constituted an  attempt to



          evoke  sympathetic mitigation  from  the sentencing  court.   See
                                                                        ___



          Agoro, 996  F.2d at  1292.   As each  of these  potential impacts
          _____



          would  independently  satisfy  the  materiality  requirement, the



          findings of the sentencing court were free of error.


III.   CONCLUSION
                                  III.   CONCLUSION
                                         __________



                    For the foregoing reasons, the sentence is affirmed.
                                                               ________


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