U.S. v. Carrozzella

• Citation: 105 F.3d 796
• Decision Date: 15 January 1997
• Docket Number: No. 435,D,435
• Parties: UNITED STATES of America, Appellee, v. John A. CARROZZELLA, Defendant-Appellant. ocket 96-1215.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 796

105 F.3d 796

UNITED STATES of America, Appellee, v. John A. CARROZZELLA, Defendant-Appellant.

No. 435, Docket 96-1215.

United States Court of Appeals, Second Circuit.

Argued Oct. 23, 1996.

Decided Jan. 15, 1997.

F. Timothy McNamara, Hartford, Connecticut, for Defendant-Appellant.

Nora R. Dannehy, Assistant United States Attorney, D.Connecticut, New Haven, Connecticut, (Christopher F. Droney, United States Attorney, of counsel), for Appellee.

Before VAN GRAAFEILAND, WINTER and JACOBS, Circuit Judges.

WINTER, Circuit Judge:

John A. Carrozzella appeals from a sentence of, inter alia, 110 months imprisonment imposed by Judge Thompson after Carrozzella pleaded guilty to one count of conspiracy to commit mail fraud, in violation of 18 U.S.C. § 371, and to three counts of mail fraud, in violation of 18 U.S.C. § 1341. On appeal Carrozzella challenges: (i) a two-level enhancement of offense level for violation of a judicial process under Guidelines § 2F1.1(b)(3)(B) based on his filing of false accounts with a Connecticut probate court; (ii) a four-level enhancement under Guidelines § 3B1.1(a) for being an organizer or leader or organizer of "otherwise extensive" criminal activity; and (iii) a loss calculation of over $10 million, resulting in an enhancement of 15 levels under Guidelines § 2F1.1(b)(1)(P). For the reasons set forth below, we reverse the enhancement under Section 2F1.1(b)(3)(B), remand the enhancement under Section 3B1.1(a) for further findings, and affirm the calculation of loss.

BACKGROUND

Carrozzella was an attorney in Wallingford, Connecticut, at one time in a partnership with Thomas J. Richardson and later in a solo practice. Carrozzella induced individuals, often clients of his law firm, to entrust money to him for investment. The government suggests that misrepresentations, particularly regarding tax-free income, induced some victims to turn over the funds. Carrozzella maintains that the investors knew that they were putting money into discretionary accounts, although he appears to have promised fixed rates of return.

Carrozzella invested the money in real estate, stocks, and bonds. The investments were in his name or in the name of partnerships in which he was involved. Carrozzella controlled all pertinent checking and savings accounts and all pertinent recordkeeping. It appears that some of the accounts in which the investment funds were kept and disbursed also were used for the law firm's revenues and disbursements.

Beginning at least as early as 1987, the investments began to perform poorly and were lost or significantly diminished. All agree that Carrozzella committed fraud in reports concerning the performance of the investments. Instead of disclosing their perilous state, Carrozzella represented that the investments were doing well in monthly letters to the investors. He also continued to solicit new funds notwithstanding the investments' depressed state because he needed fresh money for the scheme to continue. Some investors had directed that their "interest" not be reinvested. Periodic payments of "interest" had to be made to them lest they demand return of the principal, actions that would likely have caused the scheme to collapse. There were also real estate taxes and mortgage payments to be made. Carrozzella may also have paid off gambling debts. He therefore continued to persuade clients and others to entrust new money to him, right up until days before he resigned from the bar.

Carrozzella also filed false accounts with Connecticut probate courts. For example, in 1989, he represented to the father of a client that he would establish a trust to hold funds from a judgment received by the client for serious injuries suffered in an automobile accident. Carrozzella used the money to purchase real estate in his own name or in the name of partnerships in which he was involved and to make interest payments to prior investors. In June 1995, Carrozzella submitted to a Connecticut probate court an account in which he stated under oath that the trust contained $830,379.72 for distribution. The statement was wrong by some $830,379.72. Similarly, on May 3, 1995, Carrozzella had submitted an account to a probate court for another trust of which he was a fiduciary, stating under oath that a trust According to the presentence report as adopted by the district court, Thomas Richardson, Carrozzella's law partner, was aware of the scheme and participated in it. According to the report, Carrozzella also used the "unknowing services" of a personal secretary, three firm secretaries, and a bookkeeper. At the hearing on Carrozzella's objections to the presentence report, the prosecutor suggested that the bookkeeper was a knowing participant who had been given immunity. Apart from the statement itself, there is no factual basis for that assertion in the record. We may infer that the bookkeeper was aware of Carrozzella's investments on behalf of others and of the investments' perilous state. However, the record does not disclose whether she was informed of Carrozzella's fraudulently sanguine reports to investors. If she was so informed, the inference that she had to have known of the falsity of those representations would be overwhelming. The district court found that there were three knowing participants--apparently Carrozzella, Richardson, and the bookkeeper--and that Carrozzella also used the services of employees of the law firm, an accounting firm, stockbrokers, and partners in various real estate ventures in carrying out the fraud.

contained $345,316.04. That statement was wrong by some $345,316.04.

At a hearing on Carrozzella's objections to the presentence report, Richard Finkel, a forensic accountant, estimated the amount of loss due to Carrozzella's scheme. The accountant testified that in his opinion the amount of money initially entrusted to Carrozzella--the "opening balance"--was $8,001,125.34. The accountant determined that subsequent deposits by clients amounted to $5,041,124.01 and that their withdrawals totalled $4,451,139.75. In calculating the loss, the district court relied upon our decision in United States v. Brach, 942 F.2d 141 (2d Cir.1991), holding that sums returned to victims are not to be subtracted from the amount wrongfully taken. Using that approach, the loss would be some $13 million plus. However, the court also noted that an additional $1.7 million was lost in amounts Carrozzella handled for trusts, estates, and conservatorships. The court therefore concluded that a loss between $10 million and $20 million had occurred.

The district court concluded, inter alia, that Carrozzella should receive: (i) a two-level upward adjustment under Guidelines § 2F1.1(b)(3)(B) for "abuse" of the Connecticut probate court's process based on the false accounts to that court, (ii) a four-level upward adjustment under Guidelines § 3B1.1(a) for having been the leader or organizer of a criminal activity that was "otherwise extensive," and (iii) an enhancement of 15 levels under Guidelines § 2F1.1(b)(1)(P) for a loss of over $10 million.

DISCUSSION

A. Violation of Judicial Process

Carrozzella argues that the district court erred in applying a two-level enhancement under Guidelines § 2F1.1(b)(3)(B) for "violation of any judicial or administrative order, injunction, decree, or process not addressed elsewhere in the guidelines." It is conceded that Carrozzella violated no court order, injunction, or decree directed specifically to him in filing false accounts with a Connecticut probate court. Nevertheless, the district court concluded that Carrozzella's conduct fell within Section 2F1.1(b)(3)(B) because it constituted an "abuse" and "violation" of the Connecticut probate "process." We disagree.

Carrozzella's conduct does not fit at all comfortably within Guidelines § 2F1.1(b)(3)(B). We note initially that the term "abuse" of process used by the district court is not found in that Section. The Section adjusts the offense level only for a "violation of any judicial ... process." The term "abuse" of process, which the district court used interchangeably with "violations" appears to have crept into the lexicon of Section 2F1.1(b)(3)(B) through cases in other circuits involving bankruptcy fraud. See United States v. Lloyd, 947 F.2d 339, 340 (8th Cir.1991) (per curiam); see also United States v. Michalek, 54 F.3d 325, 331-32 (7th Cir.1995); United States v. Bellew, 35 F.3d 518, 519 (11th Cir.1994) (per curiam). We discuss these cases below and note at this point only that use of the term "abuse" for "Abuse of judicial process" seems to us a term that encompasses a far greater range of conduct than does the term "violation of any judicial process." "Abuse of process" includes any serious misuse of judicial or administrative proceedings intended to inflict unnecessary costs or delay on an adversary or to confer undeserved advantages on the actor. It would include baseless complaints, motions, or defenses. It might also, but not inexorably, encompass fraudulent filings in, or representations to, courts or agencies. False accounts to probate courts, false filings with the Securities Exchange Commission, and even false tax returns filed with the Internal Revenue Service might qualify as abuses of judicial or administrative processes.

purposes of Section 2F1.1(b)(3)(B) is worth reexamining before it is uncritically adopted by us.

The term "violation of any judicial process"--the actual Guidelines language--seems considerably narrower. "Violation" strongly suggests the existence of a command or warning followed by disobedience. This analysis in turn suggests that the term "process"--the command or warning violated--is used, not in the sense of legal proceedings generally, but in the sense of a command or order to a specific party, such as a summons or execution issued in a particular action. See Bryan A. Garner, A Dictionary of Modern Legal Usage 698 (2d ed.1995). See also Second...