United States v. Phillips

Opinion

USCA1 Opinion

August 13, 1993
                                [NOT FOR PUBLICATION]
                            UNITED STATES COURT OF APPEALS
                                FOR THE FORST CIRCUIT
                                 ____________________

No. 92-1806

                                    UNITED STATES,

                                      Appellee,

                                          v.

                                   ZOLTON PHILLIPS,

                                Defendant, Appellant.

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                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                   [Hon. Douglas P. Woodlock, U.S. District Judge]
                                              ___________________

                                 ____________________

                                        Before

                         Torruella and Stahl, Circuit Judges, 
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                          and Burns,* Senior District Judge.
                                      _____________________

                                 ____________________

            Warren R. Thompson, by Appointment of the Court, for appellant.
            __________________
            Mark  J. Balthazard,  Special  Assistant  United States  Attorney,
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        with whom A. John Pappalardo, United States Attorney, was on brief for
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        appellee.

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        _____________________
        *Of the District of Oregon, sitting by designation.

BURNS,  Senior  District  Judge.     Phillips
                                    _______________________

             appeals the  district court's  order of restitution  and the

             district  court's  denial  of   his  request  to  substitute

             counsel.  Phillips  also asks  this court to  set aside  his

             plea of guilty because it was involuntary. 

                       We  have  jurisdiction  under  28  U.S.C.     1291

             (1988).

                                      BACKGROUND
                                      __________

                       On February 24, 1992,  Phillips pleaded guilty  to

             one count of bank fraud in violation of 18 U.S.C.   1344 for

             making  materially  false  statements when  obtaining  a  $5

             million loan from  First American Bank (FAB)  to establish a

             mini-storage facility.  On 

             May  22, 1992,  the court  sentenced Phillips  to 24  months

             imprisonment1  and ordered  Phillips to  pay to  the Federal

             Deposit  Insurance  Corporation  (FDIC) in  its  capacity as

             receiver  of FAB the sum of $3,520,100 within three years of

             his release from prison.

                                      DISCUSSION
                                      __________

                       Phillips contends the district court erred when it

             denied  his request  to substitute  counsel prior  to trial.
                                 
             ____________________

             1Phillips's  conduct did  not fall  under the  United States
             Sentencing  Guidelines;  thus,  the district  court  did not
             impose a term of supervised release.

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Phillips also states he received ineffective assistance from

             his  counsel and, therefore, this court should set aside his

             plea of guilty because it was involuntary.  Phillips further

             asserts  the district court erred when it ordered him to pay

             restitution  to FAB for losses  that were not  caused by his

             conduct  and when it set  an amount of  restitution that was

             per se unreasonable.
             ___ __

SUBSTITUTION OF COUNSEL
             _______________________

                       Phillips contends the court  erred when it refused

             to substitute counsel  after Phillips asked the court  to do

             so by  letter dated February  10, 1992; however,  perusal of

             Phillips's letter reflects he merely expressed his desire to

             avoid delay of trial and his concern about the timeliness of

             various motions filed  and to be  filed on  his behalf.   On

             February 14, 1992,  the parties appeared before the court to

             dispose of certain pretrial matters.  At that time (ten days

             before  trial  was  scheduled  to begin),  the  court  asked

             Phillips whether he wanted  to elaborate on his  reasons for

             writing  the  letter;  after  briefly  conferring  with  his

             attorney,  Phillips  told  the  court  he  was  "pleased  to

             proceed."  The court asked Phillips a second time whether he

             wanted  to discuss  any  matters pertaining  to his  letter.

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Again, Phillips did not complain about  his attorney nor did

             he request a change of counsel; in fact, the record does not

             reflect Phillips requested  a change of counsel  at any time

             prior  to   entering  his   plea.2    We   find,  therefore,

             Phillips's contention  that the court denied  his request to

             substitute counsel has no factual basis.

             INVOLUNTARY PLEA
             ________________

                       Phillips  asserts his sentence should be set aside

             because   of   his  court-appointed   counsel's  ineffective

             assistance.    Phillips  specifically  refers  to  counsel's

             alleged misrepresentations, untimeliness in  filing motions,

             failure to investigate,  and lack of preparation  on the day

             of trial.

                       We generally do not consider such claims on direct

             appeal  because issues  regarding ineffective  assistance of

             counsel "normally  require 'the resolution of factual issues

             as  well as  inquiries into  other evidentiary  matters that

             cannot  effectively be handled for the first time by a court

             of appeals.'"   United States  v. Hallock, 941  F.2d 36,  43
                             _______________   _______

             (1st  Cir. 1991).   The  matter before  us is  no exception;

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             2When Phillips pleaded guilty on  February 24, 1992, he told
             the court his attorney had "been very good." 

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thus, we  decline  to  consider  Phillips's  contentions  of

             ineffective assistance of counsel on direct appeal.

                       At oral argument, Phillips also contended his plea

             of guilty should be set aside because he was not informed by

             counsel  or the  court at  the time  he pleaded  guilty that

             restitution  could be imposed as  part of his  sentence.  We

             will briefly address this issue even though Phillips did not

             make the argument in his briefs.                Fed.      R.

             Crim.  P.  11(c)(1)  provides  that the  court  must  inform

             defendant  of  the  maximum penalties,  which  includes  the

             possibility of  restitution, before defendant enters  a plea

             of guilty.  The record shows the district court reviewed the

             terms of the plea agreement in open court and asked Phillips

             whether  he  understood  the  government   was  recommending

             payment of restitution in an amount to be  determined later.

             Phillips acknowledged  the terms  of the plea  agreement and

             indicated he understood the court did not have to follow the

             government's recommendations.   We find, therefore, Phillips

             has  no  basis  for  his  assertion   that  he  was  unaware

             restitution could be imposed as part of his sentence.

RESTITUTION
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Phillips contends  the loss to FAB  was not wholly

             caused by his

             conduct; therefore, the  court erred when it  ordered him to

             pay  restitution.    Phillips  also  asserts  that  even  if

             restitution  were  appropriate,  the  amount  of restitution

             ordered by the court was incorrect and per se unreasonable.
                                                    ___ __

             Responsibility for loss. 
             _______________________

                       Phillips contends  FAB's loss  was  caused by  (1)

             FAB's reliance  on the property valuation  of an independent

             appraiser as well as  Phillips's misrepresentations when the

             loan was made, (2)  FAB's mishandling of Phillips's business

             after  it took  over,  and (3)  economic  forces beyond  the

             control of either Phillips or FAB.

                       Under  the Victim  and  Witness Protection  Act of

             1982  (VWPA),  18  U.S.C.     3663-64  (1988  &  Supp.1990),

             restitution  is limited to "the  loss caused by the specific

             conduct that is the basis of the ... conviction."  Hughey v.
                                                                ______

             United  States, 495  U.S.  411, 413  (1990).   We  review  a
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             determination of victim loss for clear error.  United States
                                                            _____________

             v. Savoie, 985 F.2d 612, 617 (1st Cir. 1993).   
                ______

                       At  the first  sentencing hearing,  the government

             presented evidence (business records and affidavits) showing

             the devaluation of  the property was a  result of Phillips's

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bad  faith, mismanagement,  and looting of  the mini-storage

             business.  The court granted Phillips a continuance to allow

             him to produce further evidence to support his position that

             restitution  was inappropriate.   At  the second  sentencing

             hearing,   the   court   rejected   Phillips's   denial   of

             responsibility for FAB's loss.  

                       When  he  pleaded  guilty,  Phillips  admitted  to

             providing  FAB  with  materially  false   statements  (e.g.,

             omission of  his previous  filing for bankruptcy)  to obtain

             the  loan to  establish a  mini-storage facility.   Phillips

             argues, however, the diminution  of the property's value was

             due  primarily  to  the  bad management  of  the  bankruptcy

             trustee  and FAB,  who, according  to Phillips,  managed the

             property jointly even though  the trustee had legal control.

In response,  the government  points out FAB  only

             had  possession  of  the  property  for  a   few  days  from

             approximately January 6 to 

             January 17, 1989,  and began foreclosure proceedings  during

             that  time.3  On or  about January 17,  1989, Phillips filed

             for  bankruptcy once  again, and  the trustee  in bankruptcy

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             3Phillips  does  not specifically  argue  the  value of  the
             property diminished between January 6 and January 17, 1989.

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took control of the property shortly  thereafter.  In August

             1989, the property  was sold  at auction by  the trustee  in

             bankruptcy;  Phillips points  out the  property's value  had

             decreased  considerably by  then.4   The  sum of  $3,520,100

             represents  the  difference  between  the   $5  million  FAB

             originally  loaned Phillips for  establishment of  the mini-

             storage  facility  and  the  amount  FAB  received  for  the

             property.  

                       The  court  rejected  Phillips's  contentions  and

             found  the government's  arguments persuasive  of Phillips's

             ultimate responsibility for FAB's loss.  After reviewing the

             record, we concur with the court's conclusion that FAB would

             not have incurred the loss "but for" the loan to Phillips, a

             loan     Phillips     obtained     by    making     material

             misrepresentations.  We, therefore,  do not find the court's

             conclusion clearly erroneous.  

             Amount of loss.
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                       Phillips further  argues that even  if restitution

             were appropriate, the court incorrectly calculated the loss.

             Phillips points out the correct calculation of loss would be

             the value  of the property  "less the value (as  of the date
                                 
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             4The district court  noted it  was not the  proper forum  in
             which  to  initiate a  claim  of  mismanagement against  the
             trustee in bankruptcy.

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the property is returned)  of any part of the  property that

             is returned."  

             18 U.S.C.    3663(b)(1).  The value  of the property  is its

             worth  on the date title  is transferred.   United States v.
                                                         _____________

             Smith,  944 F.2d 618, 625 (9th Cir. 1991), cert. denied, 112
             _____                                      _____ ______

             S.Ct. 1515 (1992).   When  the amount of  loss is  disputed,

             "the government  bears the  burden of  establishing it by  a

             preponderance of the evidence."  Id.
                                              __

                       In Smith, the bank  took title to certain property
                          _____

             when Smith defaulted on loans.  Before selling the property,

             the bank  held it for a  long period in  a declining market.

             The Smith court  found the property should  have been valued
                 _____

             on  the  date the  bank  "had the  power  to dispose  of the

             property  and  receive  compensation,"  id.,  and  the  loss
                                                     __

             recognized by  the court should  have been  reduced by  that

             amount.  In the matter before us, FAB took possession of the

             property   in   early   January   and    began   foreclosure

             proceedings.5   On or about January 17, 1989, Phillips filed

             for bankruptcy; the  trustee in bankruptcy retained  control

             over   the  property  until   foreclosure  proceedings  were

             completed in August 1989.  Unlike the bank in Smith, FAB had
                                                           _____
                                 
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             5Again,  we note  Phillips does  not specifically  argue the
             value of the property diminished between January 6 and 
             January 17, 1989.

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little  or no  time  to dispose  of  the property  in  early

             January  since Phillips filed  bankruptcy almost immediately

             after FAB took physical possession of the property.

                       After  considering  the  circumstances, the  court

             concluded Phillips was responsible for  FAB's loss totalling

             $3,520,100, the 

             amount  still owing after the  property at the  heart of the

             loan was auctioned  by the  trustee in bankruptcy.6   We  do

             not find the district court's conclusion clearly erroneous.

             Reasonability of restitution order.
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                       Phillips  also  contends  the  court's  order  for

             restitution was  per se  unreasonable because the  court did
                              ___ __

             not consider  all relevant factors required  by statute when

             it  ordered  payment of  restitution.    Phillips bases  his

             argument specifically  on the  court's  failure to  consider

             Phillips's ability to pay the restitution ordered.  

                       The VWPA does not prohibit a sentencing court from

             imposing restitution upon a defendant who is indigent at the

             time.   United States v. Brown, 744 F.2d 905, 911 (2d Cir.),
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             cert.  denied, 469 U.S. 1089 (1984).  A court must, however,
             _____  ______
                                 
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             6Although  Phillips argues  the  worth of  the property  was
             greater when he  relinquished control, this  appellate court
             is not the proper forum in which to challenge the bankruptcy
             trustee's  competency  in  controlling or  disposing  of the
             property.

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"consider ... the financial  resources of the defendant, the

             financial needs and earning ability of the defendant and the

             defendant's dependents, and such  other factors as the court

             deems appropriate."  18 U.S.C.   3664(a).  See, e.g., United
                                                        ___  ____  ______

             States  v. Ramilo, 986  F.2d 333, 336  (9th Cir. 1993).   In
             ______     ______

             this circuit,  a sentencing court  is not  required to  make

             "open-court findings on the statutory factors when issuing a

             restitution  order so long  as the record  on appeal reveals

             that  the   judge  made   implicit  findings  or   otherwise

             adequately  evinced his  consideration  of  those  factors."

             Savoie, 985 F.2d at 11.  
             ______

                       The record reflects Phillips brought the requisite

             factors to  the attention  of  the court  in his  sentencing

             memorandum  and  at  sentencing.7    The  court acknowledged

             these  factors  and   concluded  Phillips  was  sufficiently

             resourceful  to  be capable  of paying  all,  or at  least a

             substantial portion,  of the restitution within  three years

             of  his release  from prison.   The  court made  no specific

             findings to support its  conclusions; the absence of express

             findings, however, is not fatal when the record reflects the

             court gave thought to the requisite factors.  Id. 
                                                           __

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             7The  probation  officer  also  addressed  Phillips's future
             money-earning prospects in the PSR.

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                                          11

When  the court ordered payment of restitution, it

noted  that Phillips was  smart and resourceful.   The court

             further remarked  that Phillips made  a great deal  of money

             once,  and, in its opinion, Phillips was capable of making a

             great  deal of  money again.    Cf. Smith,  944 F.2d  at 623
                                             ___ _____

             (defendant ordered to pay $12.8 million to FSLIC within five

             years of  his  release  from prison  based  on  the  court's

             observation  that  defendant demonstrated  in  the past  his

             ability to accumulate assets in this amount of restitution);

             United States v. Rogat, 924 F.2d 983, 986 (10th Cir.), cert.
             _____________    _____                                 _____

             denied,  111 S.Ct.  1637  (1991)  (indigent defendants  were
             ______

             ordered  to  pay restitution  of approximately  $2.5 million

             based  on  the  fact  both were  "able,  intelligent,  well-

             educated, talented business people, who do have  substantial

             capacity to earn money now or in the future, and, therefore,

             do  have ability  to make  restitution").   The  VWPA itself

             demands  only  that  the  sentencing  court  "consider"  the

             factors  enumerated therein,  Savoie,  985 F.2d  at 11;  the
                                           ______

             record  reflects  this   sentencing  court  had  before   it

             information bearing  on  these factors.    Although  another

             court may  have reached a  different conclusion,8 we  do not
                                 
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             8According to Phillips, he carries a staggering debt of more
             than $36 million after being denied discharge in bankruptcy.
             The  family's current  income is  apparently limited  to his

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find  the  sentencing  court  abused  its  discretion.    To

             paraphrase Judge  Selya in Savoie, "[w]e  have said enough,"
                                        ______

             maybe even too much.

                                      CONCLUSION
                                      __________

                       Based on the foregoing, we find the district court

             did not err when  it ordered Phillips to pay  restitution in

             the amount of $3,520,100.

                       Affirmed.
                       ________

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             wife's earnings as a nurse's  aide and the pittance Phillips
             may   be  able  to  earn  while  imprisoned.    To  pay  the
             restitution  alone,  Phillips  will  have  to  make  profits
             greatly  exceeding $3.5  million (legitimately,  we presume)
             within three years of  his release from a two-year  stint in
             prison.  We note Phillips's resourcefulness in the past does
             not necessarily promise the same success in the future -- at
             least, we  hope not;  after all, his  past "resourcefulness"
             led him to this court.

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