NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 07a0514n.06 Filed: July 19, 2007
No. 06-4157
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE CLAYTON B. SMITH, NORTHERN DISTRICT OF OHIO
Defendant-Appellant.
/
BEFORE: CLAY, GILMAN, and MCKEAGUE, Circuit Judges.
CLAY, Circuit Judge. Defendant Clayton B. Smith appeals his conviction on two counts
of mail fraud in violation of 18 U.S.C. § 1341, one count of wire fraud in violation of § 1343, and
one count of bank fraud in violation of § 1344(1). Defendant pled guilty to all counts, but argues
on appeal that there was an insufficient factual basis to support this plea and seeks to withdraw it.
He additionally contends that his sentence was improper because it was imposed pursuant to an
incorrect version of the U.S. Sentencing Guidelines. For the reasons set forth below, we AFFIRM
the district court’s order.
STATEMENT OF FACTS
Factual History No. 06-4157
The following is the recitation of the facts of this case that was consented to by Defendant:1
Beginning in July 2001, and continuing through the end of December 2001, Clayton B. Smith, entered into a scheme to defraud various securities brokers by causing such brokers to purchase securities on his behalf knowing that he did not have the funds to pay for such purchases. As part of the scheme, the defendant did knowingly cause envelopes containing confirmations of securities purchased to be deposited in an authorized depository for mail as delivered by the United States Postal Service, in violation of 18 U.S.C. § 1341 and 2.
On or about August 29, 2001, Clayton B. Smith, for the purpose of executing a scheme to defraud, did knowingly cause to be transmitted in interstate commerce, by means of a wire communication, a facsimile of a copy of a check drawn on his bank account to Schneider Securities, Inc. in Rochester, New York, a violation of 18 U.S.C. § 1343.
On or about October 9, 2001, through October 16, 2001, Clayton B. Smith, for the purpose of executing a scheme to defraud did knowingly defraud Second National Bank in Warren, Ohio, by depositing checks from an account he held at the Legacy Bank which contained insufficient funds.
(J.A. II at 3). Importantly, when Defendant purchased securities from the brokers, they retained an
interest in the securities, and were authorized to sell those securities if Defendant was unable to pay.
Procedural History
Defendant pled guilty on all four counts and was sentenced on February 24, 2006. The
district court began by acknowledging that the parties had agreed to the use of the 2001 version of
the U.S. Sentencing Guidelines, which is consistent with the time period in which Defendant
engaged in his unlawful conduct. The Guideline that applies to fraud violations is § 2B1.1(a).
Pursuant to that provision, the court found that Defendant’s base offense level was six. The court
1 At the sentencing hearing, the government recited a more detailed version of the facts, which is lengthier than that found in the indictment. At the hearing, Defendant and his counsel orally consented to the accuracy of the more detailed account and, additionally, reiterated Defendant’s admission to the factual history contained in the indictment, which Defendant signed.
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determined that the actual loss suffered by various brokers as a result of Defendant’s scheme was
$68,285.95. However, the court calculated that the intended loss was $413,681.50. Thus, the court
further applied a fourteen-level enhancement for an intended loss of more than $400,000 but less
than $1,000,000, pursuant to § 2B1.1(b)(1)(H). (J.A. at 65). Finally, the court reduced the offense
level by two for acceptance of responsibility. This placed Defendant’s base offense level at eighteen;
and with his criminal history at category I, Defendant’s sentencing guideline range was twenty-seven
to thirty-three months of imprisonment.
Defendant objected to the calculation of his intended loss and contended that the court
properly should have applied only a six-level enhancement because the actual loss suffered by the
victims was more than $30,000, but less than $70,000. The court held that while Defendant was
correct about the range of the actual loss, § 2B1.1 requires consideration of both the intended and
actual loss suffered by the victims as a result of Defendant’s conduct, and it instructs to use the
greater of the two figures to impose any applicable enhancements. Defendant responded that
because the victims retained an interest in the securities he purchased, and because they subsequently
sold those securities, his intended loss should be offset by the amount they received by selling the
securities. However, the court reasoned that because the security in which the victims retained an
interest was a stock, the value of the interest was merely an expectancy and was therefore not
guaranteed. The court observed that while there were no cases directly dealing with this issue, it
argued that in similar cases, we have held that such a speculative interest cannot be counted to offset
an intended loss because no amount of collateral was guaranteed to the victim. Thus, the court
overruled Defendant’s objections. After considering a number of § 3553(a) factors, including
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Defendant’s advanced age, the fact that he was the father of two children, and the seriousness of the
offense, the court sentenced Defendant to twenty-seven months in prison. Defendant timely filed
a notice of appeal. Defendant is no longer represented by counsel and proceeds with this appeal pro
se.
DISCUSSION
I. The Factual Basis for Acceptance of Defendant’s Guilty Plea
A. Standard of Review
We review a defendant’s challenge to the factual basis for the court’s acceptance of a guilty
plea for abuse of discretion. United States v. Bennett, 291 F.3d 888, 894 (6th Cir. 2002). However,
when a defendant fails to object on Rule 11 grounds before the district court, as Defendant failed to
do in this case, the defendant must demonstrate plain error in order to prevail. United States v. Vonn,
535 U.S. 55, 59 (2002). While Defendant objected to the inclusion of his intended loss in the district
court’s calculation of his base offense level, he did not object on the grounds that there were
insufficient bases to accept the guilty plea. Thus, we will proceed under a plain-error analysis.
“Plain error is defined as an egregious error, one that directly leads to a miscarriage of
justice.” United States v. Busacca, 863 F.2d 433, 435 (6th Cir. 1988). Plain error occurs when “(1)
there was an error, (2) that is clear and obvious, and (3) that affects substantial legal rights” and 4)
where that error “seriously affects the fairness, integrity, or public reputation of judicial
proceedings.” United States v. Angel, 355 F.3d 462, 469 (6th Cir. 2004).
B. Analysis
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According to Federal Rule of Criminal Procedure 11(b)(3), “[b]efore entering judgment on
a guilty plea, the court must determine that there is a factual basis for the plea.” Thus, Defendant
will be able to show that an error occurred if he can show that this rule was violated. When faced
with a challenge to the sufficiency of the factual basis for a defendant’s guilty plea, we consider
“whether the record of the plea hearing . . . establishes a factual basis for all the elements of” the
offense pled. United States v. Tunning, 69 F.3d 107, 112 (6th Cir. 1995). Further, “[w]here the
crime is easily understood, several courts have held that a reading of the indictment . . . and an
admission by the defendant, is sufficient to establish a factual basis under Rule 11.” United States
v. Williams, 176 F.3d 301, 313 (6th Cir. 1999) (quoting United States v. Edgecomb, 910 F.2d 1309,
1313 (6th Cir. 1990)) (internal quotation marks omitted). We have previously stated that § 1341
violations are sufficiently easy to comprehend, such that they require only the recitation of the
indictment in order to establish a factual basis under Rule 11. See United States v. Byrd, 2007 U.S.
App. LEXIS 8096, *18 (6th Cir. 2007). Finally, as we have held before, “where a plea agreement
contained a factual basis supporting the counts to which defendant pled guilty, and both defendant
and his attorney agreed to the paragraph’s accuracy, a sufficient factual basis had been presented.”
United States v. Baez, 87 F.3d 805, 810 (6th Cir. 1996).
The elements of a violation of 18 U.S.C. § 1341 are: “(1) a scheme to defraud and (2) the
mailing of material for the purpose of executing the scheme.” United States v. Stull, 743 F.2d 439,
441-42 (6th Cir. 1984). In other words, the defendant must have a scheme to defraud, the intent to
defraud, and must use the mail in order to further that scheme. See id. A violation of § 1343
requires a showing of the same elements as § 1341, except that instead of a requirement that the U.S.
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mail is used, it has a requirement that an interstate wire is used. See United States v. Griffith, 17
F.3d 865, 874 (6th Cir. 1994).2
At the sentencing hearing, both Defendant and his attorney agreed to the oral recitation of
these facts and reiterated their consent to the written account as well. Both the oral recitation and
the facts section of the indictment, which Defendant signed, clearly state all the elements of the fraud
violation, including that Defendant had the requisite intent to defraud his victims. Accordingly,
Defendant is faced with the incredibly difficult task of arguing that despite the fact that he signed
the indictment and agreed to the recitation at the sentencing hearing, the facts presented at the
sentencing hearing make it impossible to believe that he was guilty of each element of the fraud
violations. See Baez, 87 F.3d at 810.
Defendant argues that because of the nature of his account of his dealings with the victims,
it was impossible for him to have intended to defraud his victims, and thus, there was no factual
basis supporting the plea. The purchases that form the basis for this offense were made through a
“margin account.” A margin account differs from a “cash account” in that a margin account allows
the broker to retain an interest in the security. Therefore, if the purchaser is unable to settle his or
her account, the broker may simply liquidate the security to settle the account. Essentially, in a
margin account, the broker acts as a creditor to the purchaser. Defendant argues that it is effectively
impossible to intend to defraud a broker with a margin account because the nature of the transaction
guarantees that the broker is insured against fraud.
2 An examination of Defendant’s brief reveals that he does not appeal his conviction under § 1342, which involves the use of a fictitious or incorrect name or address for the purpose of completing a § 1341 violation. See 18 U.S.C. § 1342.
6 No. 06-4157
Defendant likens the use of a margin account to traditional secured-loan-fraud cases.
Defendant points out that we have typically offset the amount of loss in secured-loan-fraud cases by
the amount that the defendant pledged in order to secure the loan. See United States v. Quigley, 382
F.3d 617, 622 (6th Cir. 2004); United States v. Wright, 60 F.3d 240, 241 (6th Cir. 1995). Defendant
relies heavily on Quigley for this proposition, but fails to address the fact that in Quigley we
explicitly stated that non-cash collateral held by the victim will not be relevant to the amount of loss
determination. Id. at 623. Envisioning precisely the scenario before us today, we differentiated a
situation where a victim held a guaranteed amount in collateral from the defendant (as was the case
in Quigley with respect to one category of the loans at issue, see id. at 622) from a situation where
the victim would most likely generate some amount, but it was impossible to tell how much (as was
the case with the other category of loans at issue in Quigley, see id. at 623, and with the accounts in
the instant case). With respect to the second category of loans, we held that the defendant could
make no argument that the victim received collateral where the amount of such collateral was
entirely speculative. Specifically, this Court stated:
[T]he profit on the sale of loans was a mere expectancy. [The mortgage lender] was virtually assured of the profit because of its contractual relationship with [a third party], but it was not guaranteed that the sale would take place or that the amount realized would be as expected. It is possible that some event may have intervened to prevent [the mortgage lender] from making the profit, thereby depriving [the victim] of the funds. With respect to category (3), [the victim] obtained loans in the amount of approximately $ 5.8 million that were originated by [the mortgage company]. [The victim] then funded those loans and sold them to [a third party] resulting in a “lost profit” to [the mortgage company] of $ 384,390. As with category (2), we find that [the] [d]efendant is not entitled to an offset that represents a profit that [the mortgage company] may have earned if it funded the loans and sold them.
Id.
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Thus, by analogy, it would not make sense to relieve Defendant of intent to defraud simply
because the nature of his transaction with his victims was such that they could have recovered funds
with the sale of the stock. In determining loss, the amount of loss Defendant reasonably intended
must be our guide. See United States v. Tager, 788 F.2d 349, 355 (6th Cir. 1986). Essentially,
Defendant forced the victims into a gamble that could have resulted in them 1) recovering their
investment; 2) recovering some percentage of their investment; or 3) recovering nothing. The fact
that it was possible that outcome one or two could have resulted does not deter a finding that
Defendant had the requisite intent to defraud. Nor does it negate the fact that Defendant engaged
in this scheme knowing it was also possible for the victims to recover nothing. Under these facts,
Defendant certainly cannot meet the high burden required to establish plain error. Angel, 355 F.3d
at 469. Because the record clearly indicates that Defendant admitted that he did, in fact, have the
intent to defraud, his argument is unpersuasive. See Baez, 87 F.3d at 810. Thus, we are convinced
that the district court’s decision to accept Defendant’s guilty plea did not result in plain error.
II. Computation of Defendant’s Sentence
Generally, we review the district court’s interpretation of the Sentencing Guidelines de novo.
United States v. Palacios-Suarez, 418 F.3d 692, 694 (6th Cir. 2005). However, our only role with
respect to this issue is to determine whether the district court complied with the stipulation of the
parties as to which version of the Guidelines was to be used, and not to review its interpretation.
Defendant failed to object to the version of the Guidelines the district court used at trial, so
Defendant must demonstrate that the use of the November 2001 Guidelines resulted in plain error.
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As we stated above, plain error occurs when “(1) there was an error, (2) that is clear and obvious,
and (3) that affects substantial legal rights,” and 4) where that error “seriously affects the fairness,
integrity, or public reputation of judicial proceedings.” Angel, 355 F.3d at 469.
“Generally, the district court is instructed to apply the version of the Guidelines in place at
the time of sentencing.” United States v. Davis, 397 F.3d 340, 346 (6th Cir. 2005); see also §
1B1.11(a). However, where application of the version of the Guidelines in place at the time of
sentencing would amount to a violation of the ex post facto clause, this Court must apply the version
of the Guidelines in place at the time of the defendant’s offense. Id.; see also § 1B1.11(a), (b)(1),
cmt.6 (2002).
In the instant case, it is undisputed that the parties consented to the use of the 2001
Guidelines, but it was never expressly stated what version of the 2001 Guidelines were to be used.
Accordingly, the district court should have applied the version that was in place during the time of
Defendant’s offense. Davis, 397 F.3d at 346. The district court applied the version of the Guidelines
that had been amended as of November 1, 2001, whereas Defendant argues that the court should
have used the version that was in affect January 1, 2001 to coincide with the events of Defendant’s
fraudulent conduct. Thus, this issue will turn on when Defendant’s offense can be said to have taken
place. If Defendant’s offenses were completed before November 1, 2001, the court’s use of the
November Guidelines would constitute error.3
3 It is worth noting that the differences between the November 1, 2001 version and the January 1, 2001 version of the Guidelines may not be sufficient to rise to the level of an ex post facto violation. See Miller v. Florida, 482 U.S. 423, 430 (1987). Thus, even if Defendant could show that
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The factual account of this case, to which Defendant clearly consented and we find was
properly accepted, states that his mail-fraud activities continued through December 2001, which
means that the November 2001 Guidelines would be the most appropriate. This is further
substantiated by the fact that the government presents evidence that unlawful purchases of securities
occurred after November 1, 2001, specifically those made through L&M Financial Services.
Accordingly, we hold that it was proper to apply the November 1, 2001 version of the Guidelines,
and the district court did not commit plain error.
CONCLUSION
For the forgoing reasons, we AFFIRM the district court’s order.
his offenses were complete before November 1, 2001, he may not be able to show that this error violated the ex post facto clause, and accordingly, would be unable to show that any legal right was affected. Such an inquiry, however, is not necessary for this analysis because the facts indicate that the November 1, 2001 version is the most appropriate version to apply.
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RONALD LEE GILMAN, Circuit Judge, concurring. I write separately to express
my disagreement with the district court’s calculation of the “intended loss” attributable to Smith
for sentencing purposes. Because Smith does not challenge this calculation on appeal, however,
instead relying solely on the argument that he did not possess the requisite intent to defraud in the
first place, I concur rather than dissent.
The lead opinion relies on United States v. Quigley, 382 F.3d 617 (6th Cir. 2004), for the
proposition that “non-cash collateral held by the victim will not be relevant to the amount of loss
determination.” Lead Op. at 7 (citing Quigley, 382 F.3d at 623). But Comment 2(E)(ii) to
U.S.S.G. § 2B1.1 (2001), the relevant Guidelines section, provides as follows:
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, the fair market value of the collateral at the time of sentencing.
(Emphasis added.)
The italicized language directly describes the situation in the present case, and instructs
that the intended loss attributable to Smith be reduced by the “the amount the victim[s] . . .
recovered” when they liquidated Smith’s unpaid stock. (Like my colleagues, I assume that the
“loss” in Comment 2(E)(ii), which appears as Comment 3(E)(ii) in the 2006 Guidelines, refers to
“intended loss.” See also Quigley, 382 F.3d at 622 (“[W]e find [the fraudulent loan application
cases] (and the Application Notes related to them) extremely relevant to the question of the
valuation of an intended loss.”) (emphasis added).)
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Moreover, the words “fair market value” under the second scenario contemplated by
Comment 2(E)(ii) clearly advise that even what the lead opinion characterizes as “mere
expectancies”—i.e., non-cash collateral—should factor into the intended-loss calculation. The
reasoning in Quigley, in other words, is very difficult to square with the language of the
Guidelines themselves. Indeed, if only “guaranteed” or fixed cash-type collateral counted, as the
lead opinion and Quigley suggest, then the words “fair market value” would be mere surplusage.
We should of course be reluctant to construe a Guidelines provision, as with any statute or rule,
in a manner that reads readily understandable terms right out of it. See Reg’l Airport Auth. v.
LFG, LLC, 460 F.3d 697, 716 (6th Cir. 2006) (reiterating the basic principle, derived from
“accepted canons of statutory interpretation,” that surplusage is “a result we are to avoid
whenever possible”).
I also note that the factual circumstances in Quigley—where the “victim” was a
mortgage-lending company that had issued loans based on false pretenses, and had not yet sold
the loans to offset its losses by the time of sentencing—are sufficiently distinguishable from
those in the present case so as to preclude Quigley from being the binding authority that the lead
opinion makes it out to be. In any event, to the extent that the language from Quigley quoted by
the lead opinion is contrary to my analysis as set forth above, I would simply reiterate the
Supreme Court’s admonition that, in attempting to quantify matters involving securities and loss,
“form should be disregarded for substance and the emphasis should be on economic reality.” See
Tcherepnin v. Knight, 389 U.S. 332, 336 (1967); see also United States v. Blood, 435 F.3d 612,
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630 (6th Cir. 2006) (“We have emphasized that the intended loss must . . . reflect economic
reality.”) (quotation marks omitted).
The district court’s attribution of nearly $414,000 in intended loss to Smith in the present
case ignores the value of the brokers’ liquidated security interests, and thus fails to reflect
“economic reality.” Their actual loss was roughly $68,000, and because this amount more
closely reflects economic reality than a loss of 100% of the purchase price of the securities, it
should also be the measure of the “intended loss” under U.S.S.G. § 2B1.1. To argue that Smith
intended for the brokers to lose 100% of the purchase price if he did not timely pay necessarily
implies that the pledged securities would lose all of their value in a matter of four business days
(cited in the record as the “clearing period” for the relevant stock purchases), an argument that is
totally bereft of “economic reality.” I nonetheless concur in the judgment because Smith has not
appealed this determination.