United States v. Pelkey

• Court: Court of Appeals for the First Circuit
• Decided: July 14, 1994
• Docket: 93-2236
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

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No. 93-2236

                                    UNITED STATES,

                                      Appellee,

                                          v.

                                  MAE LINH PELKEY, 

                                Defendant, Appellant.

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                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]
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                                        Before

                         Torruella and Stahl, Circuit Judges,
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                             and Carter,* District Judge.
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            Marc Chretien, by Appointment of the  Court, with whom Chretien  &
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        Schmitt was on brief for appellant.
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            Jean B. Weld, Assistant United States  Attorney, with whom Paul M.
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        Gagnon, United States Attorney, was on brief for appellee.
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                                    July 14, 1994
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        *Of the District of Maine, sitting by designation.

CARTER, Chief District Judge.
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               In  this appeal,  Defendant Mae  Linh Pelkey  challenges the

          district court's upward departure from the Sentencing Guidelines.

          After considering Defendant's  argument, we  vacate the  sentence

          and remand for resentencing.

I. FACTS
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               On July 17, 1993,  Appellant Mae Linh Pelkey pled  guilty in

          United  States  District Court  in Concord,  New Hampshire,  to a

          criminal information  charging three  counts  of mail  fraud,  18

          U.S.C.   1341, and one count of wire fraud, 18 U.S.C.   1343.  

          Pelkey defrauded a  number of her  friends, business  associates,

          and former customers out  of more than $500,000.   The fraudulent

          transactions involved real estate, investments, and the sale of a

          Jaguar automobile.    

               The Presentence Report recommended an adjusted total offense

          level for  Pelkey of 16.1   The trial  court adopted most  of the

          findings and  recommendations of  the  Presentence Report,2  with

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          1The  recommended total adjusted offense  level of 16 included: a
          base offense level of six for fraud, U.S.S.G.   2F1.1; plus  nine
          levels for the  loss involved  in the offense  of conviction  and
          relevant   conduct,  totalling  between  $350,000  and  $500,000,
          U.S.S.G.    2F1.1(b)(1);  plus a  two-level enhancement  for more
          than one  victim, U.S.S.G.     2F1.1(b)(2)(B); plus  a  two-level
          enhancement for  vulnerable victim, U.S.S.G.    3A1.1; less three
          levels for acceptance of responsibility, U.S.S.G.   3E1.1(a)  and
          (b).

          2The court disagreed with the report in two respects.  First, the
          court  found the total amount of loss was $576,290.40 rather than
          $364,264.47.  The effect of this determination on the  adjustment

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the resulting sentencing  range of 24 to 30 months.  U.S.S.G. Ch.

          5, Pt. A (sentencing table).  In addition, the Presentence Report

          noted that the psychological injury of the victims may be grounds

          for upward adjustment under U.S.S.G.   5K2.3.  The Government, in

          turn,  requested  an  upward  departure  based  on  the  "extreme

          psychological injury" suffered by Pelkey's victims.  

               The  sentencing  transcript  reveals  the  district  court's

          struggle  over whether and how much to depart from the Guidelines

          in this case.   In an effort to quantify the  "real value" of the

          loss suffered by  the victims, the court relied on  the table set

          forth at section 2F1.1 of the Guidelines.  Finding the real value

          of  the loss  to  these victims  closer  to $10,000,000  than  to

          $500,000,  the approximate  monetary loss  used to  determine the

          base  offense level, the court concluded that an upward departure

          of five  levels, from level 17  to level 22, was  warranted.  The

          court then imposed a sentence of 43 months of imprisonment, to be

          served  concurrently with  the unexpired  term of  Pelkey's state

          sentence on related fraud charges, and restitution. 

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          for the specific offense characteristics was that the  adjustment
          would be plus ten rather than plus nine, thus raising Pelkey to a
          total  adjusted offense level of 17.   Next, the court found that
          the sentences  described in the  criminal history section  of the
          Presentence Report,  giving rise to the  state court convictions,
          were  sentences  for  conduct  that  was  "part  of  the  instant
          offense."   As  a  result, the  court  found that  Pelkey  should
          receive no criminal history points, changing her criminal history
          category  from II  to  I.   The Court  notes,  however, that  the
          recalculation  of Pelkey's  offense characteristics  and criminal
          history  category did not  change the sentencing  range from that
          recommended in the Presentence Report. 

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II. DISCUSSION
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               Pelkey contends  that the  trial  court's application  of  a

          five-level upward  adjustment  in  the  base  offense  level  was

          excessive and unreasonable.  Specifically, Pelkey argues that  it

          was error  for the  court to  assess the real  value of  the harm

          experienced  by the victims at a factor twenty times greater than

          their actual  monetary  losses.    Although  Pelkey  admits  that

          consideration of the victims' psychological injury is permissible

          under U.S.S.G.   5K2.3, she argues that the alleged injury to the

          victims  in  this  case is  not  serious  enough  to support  the

          application of  that section.   The Government responds  that the

          court principally found  support for  the departure  in the  fact

          that  the guideline sentence did  not fully account  for the harm

          done to the victims because of their loss of retirement funds and

          some of the victims'  inability to recapture the loss  because of

          their ages.  In  the alternative, the Government argues  that the

          court  found sufficient facts to support  a departure pursuant to

          section 5K2.3 for extreme psychological injury.     

               The district court offered two reasons that section  2F1.1's

          loss table  did not fully capture the harmfulness and seriousness

          of   the  conduct:  1)  for  some  of  the  victims,  the  losses

          represented "all or  partially all of their  life savings. .  . .

          and the ability of these victims to  recover from the losses they

          suffered is quite limited"; and 2) several victims have  suffered

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"extreme psychological  injury as  a  result of  the  defendant's

          conduct."3  Supplemental Findings of Fact and  Conclusions of Law

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          3The district court explained its reasons for departure both from
          the  bench  and  in written  Supplemental  Findings  of Fact  and
          Conclusions of Law.   We quote these findings and  conclusions at
          length in order to show a complete understanding of the basis for
          the district court's decision.  

               I  have departed  upwards in  sentencing the  defendant
               from a level 17 to a level 22 because I have determined
               that aggravating circumstances exist in this case of  a
               kind  and   degree  not  taken  into   account  by  the
               Sentencing Commission.   As  a  result of  this  upward
               departure, I have sentenced the defendant to 43 months.
               I have departed upwards for the following reasons:

                    (a)  Application Note 10 to Section 2F1.1  of
                    the Sentencing Guidelines provides that "[i]n
                    cases  in which  the  loss  determined  under
                    subsection (b)(1) does  not fully capture the
                    harmfulness and seriousness  of the  conduct,
                    an  upward departure  may  be warranted."   I
                    have  relied  upon  this note  in  making  an
                    upward departure.

                    (b)  The primary reason  why the loss in this
                    case  does not represent  the seriousness and
                    harmfulness  of  the  defendant's conduct  is
                    that the  losses suffered by  several of  the
                    victims  represented all or  partially all of
                    their  life savings.    Further,  in  several
                    cases,  the victims  were elderly  or nearing
                    retirement  and the ability  of these victims
                    to  recover from the  losses they suffered is
                    quite limited.   Thus,  the losses  here will
                    require several  of the victims  to live  out
                    their    lives    under   severe    financial
                    constraints  that  they  would not  otherwise
                    have had  to suffer if the  defendant had not
                    engaged in her criminal  conduct.  Given  the
                    defendant's close friendship with  several of
                    these  elderly victims,  it is  reasonable to
                    conclude  that she  was  or should  have been
                    aware  that  her   course  of  conduct  would
                    deprive these victims of all or most of their
                    retirement savings.   This is a factor  which

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at  4 and  5.    This  Court  reviews  sentencing  departures  by

          examining: (1) whether the reasons  the court gave for  departing

          are of the  sort that might permit a  departure in an appropriate

          case;  (2)  whether  the record  supports  the  finding of  facts

          demonstrating  the existence  of such  reasons; and  (3) whether,

          given the reasons, the degree of departure is reasonable.  United
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          States  v.  Rivera, 994  F.2d 942,  950  (1st Cir.  1993); United
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          States  v. Diaz-Villafane,  874  F.2d 43,  49  (1st Cir.),  cert.
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          denied, 493  U.S. 862 (1989).  In Rivera, we refined the standard
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          of  review for departures under  the first prong, finding plenary

          review  appropriate  to determine  whether the  allegedly special

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                    the  Guidelines  could   not  possibly   have
                    considered  in  measuring  the offense  level
                    that  should be  assigned to  the defendant's
                    conduct.

                    (c)  A secondary reason for the departure  is
                    that  there  is  evidence  reflected  in  the
                    Presentence Report that several  victims have
                    suffered  extreme  psychological injury  as a
                    result of the defendant's conduct.  Moreover,
                    given  the  defendant's  exploitation of  her
                    close friendship with several of the victims,
                    it is reasonable  to assume that  she was  or
                    should have been aware of the risk of extreme
                    psychological injury that  could result  from
                    her  conduct.    While  it  could  be debated
                    whether  the psychological  injuries suffered
                    by the  victims in this case are so severe as
                    to qualify for departure under   5K2.3 of the
                    Guidelines,  I  find  that the  psychological
                    injuries suffered here,  in combination  with
                    the  other  reasons  I  have  expressed,  are
                    serious   enough   to   warrant   an   upward
                    departure.

          Supplemental Findings of Fact and Conclusions of Law at 4-5. 

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circumstances underlying the  departure "are of a 'kind' that the

          Sentencing Guidelines, in principle,  permit the sentencing court
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          to consider."   Rivera, 994 F.2d at 951.   Plenary review is also
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          applied to interpretations of Guideline language.   Id.  However,
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          we review  the  district court's  determination  that a  case  is

          unusual, and therefore worthy of departure, "with full  awareness

          of, and respect for,  the trier's superior 'feel' for  the case."

          Id. at 952 (quoting  Diaz-Villafane, 874 F.2d at 50).   Similarly
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          deferential  is our review of  the second and  third prongs, that

          is, the sentencing court's findings of fact and the direction and

          degree of departure, respectively.  Id. at 950.  
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               The  sentencing   judge  is  not  required   to  ignore  the

          consequences  of a  fraud scheme  outside the  immediate monetary

          loss.  If  the evidence  shows that the  defendant's offense  was

          more serious than contemplated by the applicable guidelines,  the

          judge  can  depart  upward.    See  18  U.S.C.    3553(b)(general
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          principle); U.S.S.G.    2F1.1, comment (n.10).   Application Note

          10  provides a nonexclusive list of  circumstances where the loss

          determined in  section 2F1.1(b)(1)  does  not fully  capture  the

          harmfulness of the conduct and, thus, departure may be warranted.

               In this  case, we begin by  noting that the amount  of money

          and  the number  of victims  had already  been factored  into the

          calculation of Pelkey's base offense level under the  Guidelines.

          U.S.S.G.   2F1.1(b)(1)  and (b)(2)(B).  In  addition, the special

          vulnerability  resulting from  the age of  the victims  and their

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relationship with the Defendant had also been taken into account.

          U.S.S.G.      3A1.1.   Accordingly,  if we  are to  avoid double-

          counting in this case, the departure  can be valid only if it was

          properly based  on the  victims'  resulting financial  strain  or

          psychological harm.  We will deal with each issue in turn.

A. Financial Strain of Victims
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               The  principal  reason  given  by  the  district  court  for

          departure was the  victims' limited ability  to recover from  the

          loss of accumulated  savings and the  resulting financial  stress

          associated with the  loss of life savings.  This presents for our

          determination the issue of  whether these facts are  unusual and,

          therefore, worthy of departure.  Accordingly, we will "accept the

          findings  of fact of the  district court unless  they are clearly

          erroneous" and  will "give due deference to  the district court's

          application  of  the  guidelines to  the  facts."    18 U.S.C.   

          3742(e).  

               Robert  and  Kim  Atma's  financial  loss represented  their

          accumulated life savings of more than 20 years.  Already retired,

          Katherine Meuse and  Julie Laskey, now  without their  retirement

          savings, are forced to live on social security and to borrow from

          friends and relatives.  In addition, Ms. Meuse has been forced to

          forego  physical  examinations  and   medication  for  her  heart

          problem.    Pelkey's  scheme  left  Robert  LeClair  "financially

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depleted."   Mr. LeClair was forced to  go back to work full time

          at age 60, his automobile has been repossessed, and he was forced

          to take out a home equity loan.    

               The  nonexclusive  list  of  grounds   for  departure  under

          Application Note 10 of section 2F1.1 does not include the reasons

          given by the district court for departure.  The failure to have a

          secure financial future does not, without more, rise to the level

          of seriousness contemplated  by the other  grounds for  departure

          suggested  in the  application  note.4   The bases  for departure

          provided in Application Note 10 all suggest unusual repercussions

          beyond  the loss of financial  capacity and the  general sense of

          betrayal   normally  associated   with   fraud  involving   false

          pretenses.     We acknowledge that there is a distinction between

          defrauding a 40-year-old of her life savings and defrauding a 60-

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          4Examples  of  fraud  of a  more  serious  caliber  given in  the
          Application Note are:

               (a)  the primary objective of the fraud was non-
               monetary;

               (b)   false  statements were  made for  the  purpose of
                    facilitating some other crime;

               (c)  the offense caused physical or psychological harm;

               (d)  the offense endangered national security or 
               military readiness;

               (e)   the  offense caused  a loss  of confidence  in an
                    important institution.

          U.S.S.G.   2F1.1, comment (n.10).

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year-old of her savings;  that is, the 40-year-old is  capable of

          recouping  at least some of  the loss, while  the 60-year-old may

          have little or no opportunity to recover from the financial loss.

          This  distinction  is,  at  least  partially,  reflected  in  the

          enhancement for  vulnerable victims  and, in any  case, does  not

          warrant a five-level departure.  Therefore, the upward  departure

          in  this case must be vacated.    On remand, if the court were to

          make  specific findings that some  of the victims  were unable to

          provide for their welfare  or that the facts present  a situation

          equal to the  serious caliber  of the other  basis suggested  for

          departure in Application Note 10, departure may be appropriate.5

B. Psychological Injury to Victims
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               The district  court  also gave  as  a secondary  reason  for

          departure  the victims  psychological injuries.    "[P]hysical or

          psychological harm" to the victim is specifically mentioned under

          Application Note 10(c)  as a  possible basis for  departure.   An

          upward departure grounded on psychological  injury is appropriate

          only when the  injury is  "much more serious  than that  normally

          resulting from commission of the offense," U.S.S.G.    5K2.3, and

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          5The  Court notes that Application Note 10 has since been amended
          to  provide  that departure  may be  appropriate if  "the offense
          involved  the knowing endangerment of the solvency of one or more
          victims."   U.S.S.G   2F1.1, comment (n.10(f))(1993).  This seems
          to address the type of harm the court was attempting to quantify.
          A departure based on these grounds requires  a court to find that
          a defendant  knowingly pushed  a  victim into  extreme  financial
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          hardship.  

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only when there is a "substantial impairment of the intellectual,

          psychological, emotional, or behavioral  functioning of a victim,

          when the impairment is likely to be of an extended or  continuous

          duration, and when the impairment manifests itself by physical or

          psychological symptoms or by changes in behavior patterns."  Id.;
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          United  States  v.   Astorri,  923  F.2d  1052,   1059  (3d  Cir.
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          1991)(court  upheld  two-level departure  for  psychological harm

          where  evidence showed  that a  victim suffered  from high  blood

          pressure and was under a doctor's care as a result of defendant's

          actions).

             The  evidence, in this  case, of  psychological injury  to the

          victims was, at best, meager.   All of the victims expressed  the

          feeling  that they  had  lost trust  in  their ability  to  judge

          others.   In  addition, the  record reveals  that the  Atmas, who

          considered themselves "best friends" of Pelkey for over 22 years,

          suffered a sense of severe shock after learning of the fraudulent

          real  estate  scheme.6   Ms. Meuse  and  Ms. Laskey,  friends and

          former clients  of Pelkey, told  the probation officer  that they

          experienced pain, frustration, and depression over  the knowledge

          that  they will  not  live their  senior  years without  fear  of

          financial burden.  Sean Tracey told the Probation Officer that he

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          6Robert Atma's  victim impact  statement also  references "mental
          anguish   and   heartache"   resulting   from   the   unexplained
          geographical  separation  from  his  wife.    Assuming  that  the
          separation  is attributable  to Pelkey's conduct,  these feelings
          are not serious enough to establish a psychic injury.

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suffered lingering feelings of distrust for others as a result of

          the  offense.  The  victim experiencing  the most  severe psychic

          harm  appears  to  be  Mr.  LeClair,  Pelkey's  former   business

          associate.  Mr. LeClair  disclosed to the probation  officer that

          he was in an "emotionally drained state," experiencing moments of

          extreme  despair  and  thoughts  of   suicide.    No  medical  or

          psychological records were offered and there is no evidence  that

          treatment was received by any of the victims.   

               This evidence is altogether insufficient to permit departure

          for psychological injury.  We do  not think that feelings of lack

          of trust, frustration, shock, and depression suffered by Pelkey's

          victims are so far beyond the  heartland of fraud offenses as  to

          constitute psychological harm  within the meaning  of the  Policy

          Statement in   5K2.3 or Application Note 10(c) to   2F1.1; United
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          States  v. Lara,  975  F.2d 1120,  1128  (5th Cir.  1992)(finding
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          inadequate proof of  harm).  Some  degree of consequential  trust

          and reliance by the victim  is to be expected in the  majority of

          fraud  cases involving false pretenses, and  the presence of such

          reliance  will  not generally  justify  departure.   In  sum, the

          injuries  these people suffered were  no worse than  that of many
          ________

          fraud victims.       

               The  sentence  is  vacated  and  the case  is  remanded  for

          resentencing consistent with this opinion.

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