United States v. Randall

• Court: Court of Appeals for the Fifth Circuit
• Decided: October 16, 1998
• Docket: 19-10986
• Status: Published

Opinion

Revised October 15, 1998

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

____________

No. 97-11327 ____________

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

FRANCIE SEDLAK RANDALL,

Defendant-Appellant.

Appeal from the United States District Court For the Northern District of Texas

September 30, 1998

Before REYNALDO G. GARZA, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Francie Sedlak Randall appeals the district court’s loss

calculation under U.S.S.G. § 2F1.1, following her conviction on one

count of bankruptcy fraud, in violation of 18 U.S.C. §§ 152 and 2.

We vacate the sentence and remand for further proceedings.

I

Randall acquired seven single-family properties located in

Benbrook, Carrollton, and Fort Worth, Texas. She did so by assuming the existing loans on the properties. The properties,

however, did not generate as much income as Randall expected.

Unable to make her mortgage payments, Randall filed several

petitions for Chapter 13 bankruptcy.

Randall’s properties were insured by the United States

Department of Housing and Urban Development (HUD) and the Veteran’s

Administration (VA).1 After Randall defaulted, the government

agencies were obliged to pay the mortgage companies the amount

outstanding on the loans. The properties were then sold at public

auction, each for considerably less than was paid to the mortgage

companies.

Randall pled guilty to making false statements on one of her

numerous bankruptcy petitions. Specifically, she admitted to (1)

giving a false name, (2) giving a false social security number, and

(3) falsely claiming that she had made no prior bankruptcy filings.

The district court sentenced Randall to fifteen months in prison

and ordered restitution in the amount of $226,513.24.

In calculating Randall’s sentence, the district court found

that $226,513.24 was the amount of loss attributable to Randall

under U.S.S.G. § 2F1.1 (1997). According to the presentence

report, this amount was the loss sustained by HUD and VA in

1 Five of the properties were acquired initially with loans from the Federal Housing Administration (FHA). The other two were acquired with loans from the Veterans’ Administration (VA).

-2- disposing of the properties after Randall defaulted.2 The district

court held Randall responsible for the amount the properties were

“sold short,”3 plus any fees and expenses related to the

foreclosure and sale. According to the loss report prepared by the

FBI, on which the probation officer relied, these losses totaled

$226,513.24.

II

Randall contends that the district court erred in making its

loss calculation under section 2F1.1. She argues that the short

sale losses and foreclosure expenses are not fairly attributable to

her, because those losses would have been incurred even if she had

never filed a fraudulent bankruptcy petition.

Section 2F1.1 of the Sentencing Guidelines governs offenses

involving fraud or deceit. The district court’s calculation of

loss under section 2F1.1 is a finding of fact, reviewable only for

clear error. See United States v. Tedder, 81 F.3d 549, 550 (5th

Cir. 1996). The district court’s interpretation and application of

section 2F1.1, however, is reviewed de novo. See id. Randall’s

challenge to the method of calculation used by the district court

implicates an application of the Guidelines and therefore is

2 According to the presentence report, HUD incurred $181,485 in losses, and VA incurred $45,028.24 in losses. 3 For a given property, the short sale loss is simply the amount paid out by the government agencies to the mortgage companies, minus the property’s selling price at the foreclosure auction.

-3- reviewed de novo. See United States v. Saacks, 131 F.3d 540, 542-

43 (5th Cir. 1997) (applying section 2F1.1).

When calculating loss under section 2F1.1, the district court

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

available information. See U.S.S.G. § 2F1.1, comment. (n.8). “In

deciding whether the district court arrived at a reasonable

estimate of the loss attributable to the Defendants’ fraud scheme,

we must first determine whether the court used an acceptable method

of calculating the amount of loss.” United States v. Krenning, 93

F.3d 1257, 1269 (5th Cir. 1996). The method “must bear some

reasonable relation to the actual or intended harm of the offense.”

Id.

Before a court may attribute losses to a defendant’s

fraudulent conduct, “there must be some factual basis for the

conclusion that th[o]se losses were the result of fraud.” United

States v. Eidson, 108 F.3d 1336, 1346-47 (11th Cir. 1997), citing

U.S.S.G. § 2F1.1 comment. (n.7); see also United States v. Daddona,

34 F.3d 163, 170 (3d Cir. 1994) (vacating loss calculation under

section 2F1.1 for lack of evidence that “th[e] loss was due to the

fraud of the [defendants]”). In other words, section 2F1.1 is

concerned solely with “the amount of loss caused by the fraud.”4

4 The loss calculation under section 2F1.1 is not, however, limited solely to actual losses caused by the fraud. A criminal’s intended losses may also be taken into account. See U.S.S.G. § 2F1.1 comment. (n.7).

-4- United States v. Saacks, 131 F.3d 540, 542 (5th Cir. 1997)

(emphasis added).

It is undisputed that HUD and VA incurred the losses described

in the record. That is, for each of the seven properties, they

received less at auction than they paid the mortgage companies

whose loans they insured. They also incurred various fees and

expenses in the process, such as brokers’ fees, property management

fees, advertising expenses, and taxes. There is no evidence,

however, that these losses were caused by Randall’s fraudulent

conduct. To the contrary, the evidence demonstrates that the

losses attributed to Randall by the district court resulted from

her default on the mortgages. At the sentencing hearing, Special

Agent Kimberly Jones testified that the various fees and expenses

would be incurred during any foreclosure, regardless of whether a

bankruptcy petition is filed. She further testified that at such

foreclosures, properties are typically sold short.

Thus the evidence indicates that the government agencies would

have incurred the foreclosure losses even if Randall had never

filed a fraudulent bankruptcy petition. They still would have had

to foreclose on the properties, compensate the mortgage companies,

and incur the related fees and expenses. Consequently, it cannot

fairly be said that the short sale losses and foreclosure expenses

-5- are attributable to Randall’s fraudulent conduct.5

Of course, the Government need not show that the losses

resulted from the specific conduct for which Randall was convicted.

The sentencing court may also consider other “relevant conduct”

beyond that giving rise to the criminal conviction. U.S.S.G.

§ 1B1.3. However, “[f]or conduct to be considered ‘relevant

conduct’ for the purpose of establishing one[’]s offense level[,]

that conduct must be criminal.” United States v. Peterson, 101

F.3d 375, 385 (5th Cir. 1996). The Government has not alleged, nor

does the evidence suggest, that Randall acted criminally by

defaulting on the mortgages, or in the course of obtaining the

5 United States v. Daddona, 34 F.3d 163 (3d Cir. 1994), presented a similar scenario. The defendants in Daddona were convicted of various counts of fraud stemming from their attempts to disclaim bonds issued in connection with a construction project. Id. at 164. The project was financed by a mortgage from the Summit Tax Exempt Bond Fund. Id. at 165. With the project only partially completed and far-behind schedule, Summit foreclosed on the project. It then cost Summit $1,500,000 to complete the project. Id. at 170. At sentencing, the district court attributed the $1,500,000 amount to the defendants fraudulent conduct. Id. The Court of Appeals reversed, finding that the record contained “no indication that this loss was due to the fraud of the [defendants].” Id. It instead found that the losses incurred in the post-foreclosure completion of the project were caused by the contractors’ failure to timely fulfill their performance obligations. Id. It concluded: “Whatever losses Summit or others may have suffered from [defendants’] fraud, Summit has not demonstrated any losses which can fairly be measured by its cost to complete the project.” Id. at 172. Likewise, whatever losses HUD and VA may have incurred from Randall’s fraudulent bankruptcy filings, those losses cannot fairly be measured by their short sale losses and foreclosure expenses. Those losses were caused by her default, not her bankruptcy filings.

-6- loans in the first place. Thus losses stemming solely from her

default and the consequent foreclosure are not properly considered

in her sentencing.

At most, the evidence suggests that Randall’s criminal conduct

delayed the government agencies’ repossession of the properties.

The presentence report found that “[b]y causing serial filings,

defendant successfully stalled the foreclosure proceedings against

the properties for approximately one year.”6 That delay may have

deprived the government agencies of rental income they could have

otherwise earned during that period. They may also have suffered

somewhat worse short sale losses if the properties lost value

during the delay. The sentencing hearing, however, contained no

evidence of potential rental income, nor did it contain any

6 Even if Randall’s multiple filings did delay foreclosure proceedings, it is unclear from the evidence whether such a delay is fairly attributed to the fraudulent nature of those filings. The filing of any bankruptcy petition operates as a stay on debt collection activities. See 11 U.S.C. 362. Thus the delay may have been caused by the mere fact that Randall filed one or more bankruptcy petitions, not the fact that her petitions contained false statements. Randall’s “serial filings,” independent of the false statements therein, may be considered for sentencing purposes if they amount to “relevant conduct” within the meaning of U.S.S.G. § 1B1.3. To be so considered, however, such conduct must itself be criminal. See United States v. Peterson, 101 F.3d 375, 385 (5th Cir. 1996). It is also possible that Randall’s false statements did contribute directly to the delay. Her false name or her failure to disclose her past bankruptcy petitions may have hindered the bankruptcy court’s ability to determine whether additional stays were warranted. However, unless it can be shown that either her false statements directly contributed to the delay, or her serial filings constitute “relevant conduct,” the mere fact that Randall “successfully stalled the foreclosure proceedings” is not necessarily attributable to her crime.

-7- evidence that the short sale losses were greater as a result of the

delay.

For these reasons, the district court should not have

attributed all of the government agencies’ short sale losses and

foreclosure expenses to Randall’s crime. Such losses resulted from

the fact of Randall’s default on the mortgages, not her bankruptcy

filing. We therefore conclude that $226,513.24 does not reflect

the loss caused by Randall’s conduct.

The Government responds that even if Randall’s crime was not

the sole cause of the foreclosure losses, the amount of those

losses is nonetheless a reasonable estimate of the losses stemming

from Randall’s conduct. It bases this argument on the principle

that losses under section 2F1.1 may be calculated according to the

risk of loss to which victims of criminal conduct are exposed. Our

cases have held that it is “proper to calculate loss based on the

risk engendered by defendant’s criminal conduct.” E.g., United

States v. Clements, 73 F.3d 1330, 1339 (5th Cir. 1996).

Even on this theory, however, the Government fails to show a

“reasonable relation to the actual or intended harm of the

offense.” United States v. Krenning, 93 F.3d 1257, 1269 (5th Cir.

1996). There is no evidence that Randall’s behavior exposed the

government agencies to the full amount of their short sale losses

and foreclosure expenses. At no time did Randall’s fraud endanger

their right to make a claim as a creditor, nor did it threaten

-8- their right to any remedy, such as foreclosure. The Government

does not allege that Randall attempted to hide assets. Nor does it

allege that Randall’s false statements prevented the creditors from

receiving notice that their mortgages had become the subject of

bankruptcy proceedings.

At most, as discussed above, the fraud may have delayed the

government agencies’ ability to foreclose on the property. It did

not cause, however, the foreclosure itself or the consequent short

sale losses and expenses. Those losses were inherent in Randall’s

default and were not caused by Randall’s fraudulent statements on

her bankruptcy petition. Because such losses are not properly

attributed to Randall’s criminal conduct, we find the district

court’s loss calculation was in error.

III

Finally, the Government argues that even if Randall is correct

that the district court erred in its loss calculation, she cannot

demonstrate that correcting this error would reduce her offense

level. As support, the Government cites United States v. Watson,

966 F.2d 161, 164 (5th Cir. 1992). The defendant in Watson

challenged the district court’s inclusion of certain warehousing

fees in his loss calculation. Id. In dicta, we wrote that even if

those costs should have been excluded, the defendant in Watson

failed to provide us with the amount of those costs. Id.

Consequently, he could not demonstrate that subtracting those costs

-9- would reduce his loss calculation enough to make a difference in

his sentence. Id.

We find Watson inapposite to the case at hand. The record

before us is replete with evidence of the amount incorrectly

attributed to Randall’s bankruptcy fraud. A brief review of the

record demonstrates that at least for the five HUD properties,

brokers’ fees and taxes alone totaled over $28,000.7 If such costs

were removed from the district court’s loss calculation, Randall’s

eight-level increase would drop to a seven-level increase. Compare

U.S.S.G. § 2F1.1(b)(1)(I)(1997) (eight level increase for losses

exceeding $200,000) with U.S.S.G. § 2F1.1(b)(1)(H)(1997) (seven

level increase for losses exceeding $120,000). Our dicta in Watson

is therefore inapplicable.

IV

Accordingly, the district court’s sentence is vacated, and we

remand for new sentencing consistent with this opinion. The

district court may also consider whether any perjury guidelines are

applicable.

7 We use the HUD properties simply because the record sets forth the HUD losses in greater detail. Obviously, this figure does not include any fees or taxes for the two VA properties. Nor does it include any of the short sale losses erroneously attributed to Randall.

-10-