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Case Summaries
Offense Conduct
(Chapter 2)
United States v. Sullivan 2014 WL 4235414 (7th Cir. 2014)
Chapter 2 enhancements affirmed
Defendants, brothers Daniel and John, owned a group of companies that offered remodeling services to homeowners. While they provided honest work on construction jobs when their clients paid in cash, they operated differently when financing was involved. By promising homeowners that they could remodel their homes at a discount, the defendants duped numerous people into refinancing their homes and paying the loan proceeds directly to one of their companies, leaving the jobs unfinished once they had the money. They targeted certain neighborhoods in Chicago by cold-calling homeowners, distributing flyers, and hiring a company to mass mail flyers to residents of these target neighborhoods. They told their marketers to look for “elderly, ignorant homeowners.” Once they got a prospect, the defendants directed them to a specific loan company and title company. The defendants required the homeowners to sign letters of direction, so the title companies sent checks directly to the defendants’
companies. Then they would require the homeowners to sign over the checks before the remodeling work could begin. They hired subcontractors to do some of the work, but then abandoned the remodeling jobs before completion. From 2002 to 2006, they collected over $1.2 million from over forty homeowner/victims. A jury found them both guilty on two counts of wire fraud. Prior to sentencing, the parties stipulated that in May 2004, a county court had entered a permanent injunction against John, barring him and one of his companies from engaging in the home repair business in Chicago. At sentencing, the district court applied three, “Chapter 2” enhancements: 1) Violation of a Prior Judicial Injunction, under §2B1.1(b)(9)(C); 2) Sophisticated Means, under §2B1.1; and 3) use of Mass- Marketing, under §2B1.1(b)(2)(A). The defendants challenged all three enhancements on appeal. The defendants first argued that the §2B1.1(b)(9)(C) did not apply because John took affirmative steps to avoid violating the injunction. The Seventh Circuit disagreed, finding that the evidence at trial showed that the defendants simply dissolved the company subject to the injunction, formed a new company, then continued in the same manner under the same management and employees. There was no error in applying the enhancement. Regarding the sophisticate means enhancement, the defendants claimed that their crime was the “garden variety home repair fraud scheme” and application of the enhancement was in error. The court was not convinced, explaining that “sophisticated means” is defined as an “especially complex” operation “pertaining to the execution or concealment of an offense.” Here, the defendants “falsified construction contracts and lied to convince homeowners into paying substantial sums from their refinance loans for remodeling work the appellants never intended to finish. The appellants coordinated various moving parts – their employees, subcontractors, and mortgage brokers – to fool their victims. The district court did not err in its finding that the appellants used sophisticated means to achieve their scheme.” Finally, the defendants argued that they did not use mass-marketing, but instead their scheme involved “ordinary, everyday cold-calling,” sending “mailings ordinarily sent by all types of small businesses,” and “old-fashioned knocking on doors.” Again, the court disagreed, noting that the admitted conduct falls squarely within the Guidelines’ definition of “mass-marketing,” which is a plan to solicit “by telephone, mail, internet, or other means to induce a large number of people to purchase goods or services. . . .” The defendants hired telemarketers to sell their services by phone, paid a company to mail thousands of fliers, and directed employees to canvass neighborhoods. “The district court made no mistake in finding that the appellants used massmarketing and applying this sentencing enhancement.”
United States v. Freeman
2014 WL 4056553 (3rd Cir. 2014)
Drug quantity finding did not meet sufficient indicia of reliability standard
The defendant was found guilty of one count of conspiracy to possess with intent to distribute cocaine. Much of the evidence against the defendant was provided by the testimony of cooperating witnesses. After the verdict, the district court submitted a postconviction question to the jury: “do you find that five kilograms or more was involved?” After a period of deliberation, the jury failed to arrive at a unanimous decision. The initial PSR calculated a base offense level of 12, because the jury did not find an amount of drugs attributable to the defendant. However, after receiving DEA investigation reports, the PSR was amended to show a drug amount of 96.5 kilos, with an ultimate sentencing range of 292 to 365 months. The district court found the defendant responsible for 15 to 50 kilos, based on: “information adduced at trial, which would put it at a base offense level of 34, instead of 36. . . . [T]he Court is mindful of relevant conduct and what it can consider, and there is an abundance of evidence that the Court cannot ignore.” On appeal, the defendant argued that the district court erred by failing to find a specific amount of cocaine attributable to him. The Third Circuit explained that it required the “information used as a basis for sentencing under the Guidelines . . . have sufficient indicia of reliability to support its probable accuracy.” In this case, other than the one conclusory statement, “the District Court offered no other explanation as to the basis for its findings.” “On this record, we cannot conclude that the District Court’s factual findings regarding drug quantity at [the defendant’s] sentencing hearing met the Guidelines’ sufficient indicia of reliability standard.” [Editor’s Note: the court cited decisions from several other circuits where the appeals court reversed a sentence due to an insufficient indicia of reliability in regard to the drug amount. See, e.g., United States v. Simmons, 964 F.2d 763 (8th Cir. 1992) (sentence vacated because drug quantity finding was based on testimony of drug addict with impaired memory); United States v. Shacklette, 921 F.2d 580 (5th Cir. 1991) (sentence vacated because district court relied solely on probation’s officer’s conclusory statement as to drug quantity involved); United States v. Cammisano, 917 F.2d 1057 (8th Cir. 1990) (sentence vacated because uncorroborated testimony of FBI agents that defendant was member of organized crime was not sufficiently reliable); United States v. Robison, 904 F.2d 365 (6th Cir. 1990) (sentence vacated because drug quantity estimates provided by witness who was heavy drug user lacked sufficient indicia of reliability)].
United States v. Domnenko
2014 WL 4056536 (7th Cir. 2014)
District court failed to adequately explain loss amount
The defendant, Viktor, was a partner in a real estate investment group that originally owned a
house in Wheaton, Illinois. The house was sold to Victor’s wife (and co-defendant) for $750,000, after she procured two loans from WAMU for $749,000 and $240,000 by submitting false information in her loan application. The extra money was to be considered “upgrade fees.” In total, the defendant and his company received around $260,000 from the deal. The defendant and his wife lived in the house for four months and made all of the mortgage payments, but then decided to sell. They contacted a friend (Okulaja) who, with the help of others, agreed to arrange the sale of the house to “Valle.” However, it turned out that the real Valle was the victim of identity theft and the actual purchaser was Scott Priest, who purchased the house with a loan from Countrywide Insurance in the amount of $1,090,573. After the closing, the defendant’s wife signed over her $129,000 proceeds check to Okulaja. “Valle” made no payments on the mortgage and Countrywide ultimately sold the house for $487,500. The defendant and his wife were convicted on three counts of wire fraud. The PSR determined the amount of loss was $603,073.06 (the difference between the value of “Valle’s” loan and what the house eventually sold for) and recommended a 14- point enhancement since the loss was over $400,000. The defendants objected, arguing that they should not be held liable for the $600,000 loss because it was not “reasonably foreseeable” that that amount would result from their actions. The district court, without explicitly rejecting or accepting the argument, sentenced the defendants based on the PSR’s loss calculation. On appeal, The Seventh Circuit explained that a “reasonably foreseeable pecuniary harm means pecuniary harm that the defendant knew or, under the circumstances, reasonably should have known, was a potential result of the offense.” Here, the PSR did not explain how the loss was a “reasonably foreseeable” result of the defendants’ fraud. Further, there is no evidence that the defendants knew that “Valle” was a fictitious buyer and the district court erred by not explaining why the enhancement was proper, “specifically why the $600,000 was reasonably foreseeable” to either defendants. The loss must be reasonably foreseeable, which requires some causation analysis, and that was not done here. See United States v. Whiting, 471 F.3d 792 (7th Cir. 2006) (there must be both “but for” and “legal” causation for the enhancement to apply).
United States v. Napolitan
2014 WL 3843971 (3rd Cir. 2014)
Wrong standard used in declining to apply firearm enhancement
After responding to a 911 call from the defendant’s home, four police officers met the
defendant’s girlfriend (Lisa) and she invited them inside, where they discovered, in plain sight, a loaded Browning .32 caliber handgun on the fireplace mantel, a box of sandwich baggies, a coffee grinder, a digital scale, and white powder residue. After getting a search warrant, the officers found a .22 caliber handgun sitting on top of a locked gun safe. They used a locksmith to open the gun safe and found several firearms, $9,235 in cash, the defendant’s checkbook, painkillers prescribed for the defendant, and nearly one kilogram of cocaine powder. The defendant was charged with possession with intent to distribute 500 grams or more of cocaine, and possession of a firearm in furtherance of a drug trafficking crime. At trial, although he
claimed that the gun safe and most of the contents belonged to him, the defendant testified that the drugs belonged to Lisa. At the close of the government’s case, the trial court granted the defendant’s motion for acquittal on the gun charge, and the jury found him guilty on the drug charge. The PSR recommended an enhancement under §2D1.1(b)(1), for possession of a firearm in connection with a drug offense. The district court refused to apply the enhancement, stating that the kind of firearms found were not the type typically used in connection with drug trafficking. The district court sentenced the defendant to 78 months, the bottom of his sentencing range. The government appealed claiming that the district court erred in not
applying the firearm enhancement. The Third Circuit explained that under the commentary to
§2D1.1(b)(1), the enhancement should apply “if the weapon was present, unless it is clearly improbable that the weapon was connected with the offense.” The court then outlined four factors relevant to whether it was clearly improbable that a gun was used in connection with a drug offense: “(1) the type of gun involved, with clear improbability less likely with handguns than with hunting rifles, (2) whether the gun was loaded, (3) whether the gun was stored near the drugs or drug paraphernalia, and (4) . . . whether the gun was accessible.” At sentencing, the government had addressed the four factors and argued that all four weighed in favor of the enhancement. The district court rejected these arguments, holding that the firearms present in the defendant’s home were not the type used by drug dealers. The appeals court reversed, concluding that the district court applied the wrong standard under §2D1.1(b)(1), noting that the government was not required to show that the firearms were “certainly” the type used by drug dealers. “Such a requirement tortures the clearly improbable standard and plainly sets the bar too high.” Instead, the government on had to show that the defendant “possessed” a dangerous weapon, by establishing “that a temporal and spatial relation existed between the weapon, the drug trafficking activity, and the defendant.” Once that was done, “the burden of production shifts to the defendant to demonstrate that the connection between the weapon and the drug offense was clearly improbable.” Rather than analyzing the four factors, the district court provided its own alternative grounds for denying the enhancement. Because the district court misapplied the controlling standard under §2D1.1, the sentence was vacated and remanded.
Circuit Split
In adopting this burden-shifting framework, the Third Circuit joined the majority of other circuits that have addressed the question. See, e.g., United States v. Ruiz, 621 F.3d 390 (5th Cir. 2010); United States v. Smythe, 363 F.3d 127 (2d Cir. 2004); United States v. Fudge, 325 F.3d 910 (7th Cir. 2003); United States v. Alexander, 292 F.3d 1226 (10th Cir. 2002); United
States v. Harris, 128 F.3d 850 (4th Cir. 1997); United States v. Hill, 79 F.3d 1477 (6th Cir. 1996); United States v. Hall, 46 F.3d 62 (11th Cir. 1995); United States v. Corcimiglia, 967 F.2d 724 (1st Cir. 1992); United States v. Restrepo, 884 F.2d 1294 (9th Cir. 1989). Only the Eighth Circuit has taken a different path, declaring that “[t]he government must . . . show
that it is not clearly improbable that the weapon was connected to the drug offense.” United States v. Peroceski, 520 F.3d 886 (8th Cir. 2008).
United States v. Zheng 2014 WL 3906492 (7th Cir. 2014) Enhancement for fraudulent use of foreign passport did not apply
The defendant was involved in a Chicago-baseddocument-fraud operation that made fake Chinese passports and other identification documents for customers seeking false documents used to obtain Illinois driver’s licenses and identification cards. The defendant pled guilty to aggravated identity theft and conspiracy to misuse Social Security numbers and commit passport fraud. The district court imposed a sentence of 61 months, which included a
two-level enhancement for fraudulent use of a foreign passport under §2L2.1(b)(5)(B). On appeal, the defendant argued that applying the enhancement amounted to “double counting.” The Seventh Circuit agreed, explaining that under 18 U.S.C. §1028A(a)(1), (c), a person commits aggravated identity theft when he knowingly transfers, possesses, or uses a means of identification without lawful authority “during and in relation to” a set of enumerated offenses. A conviction for violating §1028A adds a mandatory consecutive two-year term to whatever sentence the defendant received for the predicate crime. To avoid enhancing a sentence twice for the same offense conduct – once under the guideline for the predicate offense and again under §1028A – the guidelines direct judges not to apply any specific offense characteristic for the transfer, possession, or use of a “means of identification.” §2B1.6 cmt. n.2. Because a foreign passport is a “means of identification” under 18 U.S.C. §1028(d)(7), which is incorporated by reference in the application notes to §2B1.6, the district court should not have applied the two-level enhancement for fraudulent use of a foreign passport.
