U.S. v. Wells

Citation177 F.3d 603
Decision Date23 April 1999
Docket NumberNo. 94-2695,94-2695
PartiesUNITED STATES of America, Plaintiff-Appellee, v. James E. WELLS, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Matthew R. Bettenhausen, David A. Glockner (argued) Barry Rand Elden, Chief of Appeals, Office of the United States Attorney, Criminal Division, Chicago, IL, for Plaintiff-Appellee.

James I. Marcus (argued), Williams & Marcus, Chicago, IL, for Defendant-Appellant.

Before POSNER, Chief Judge, BAUER and COFFEY, Circuit Judges.

COFFEY, Circuit Judge.

In 1980, Defendant-Appellant James Wells ("Wells") hired an arsonist to torch one of Wells' businesses. Thereafter, Wells filed a claim with, and collected funds from, his insurance company. Ten years later, Wells became Chairman of the Board and Chief Executive Officer of Cosmopolitan National Bank in Chicago ("CNB"), at which time he proceeded to divert bank funds to build a restaurant which he owned. During his reign as CEO, Wells also bribed the then Illinois State Treasurer to conduct more business with the bank.

An FBI investigation followed, and on April 22, 1993, Wells pleaded guilty to a four-count superseding information pursuant to a written plea agreement, pleading guilty to: bribery (Count One); bank fraud (Count Two); arson (Count Three); and tax evasion (Count Four). The district court sentenced Wells concurrently to a 78-month term of imprisonment on Counts One, Two and Four, and a fifteen year term of imprisonment on Count Three, with all periods of confinement to run concurrently with each other. In addition, the judge ordered Wells to pay restitution: $1.5 million to Crum & Forster, an insurance company he defrauded (ordered on Count Three: arson) and $141,000 to the FDIC which he also defrauded (ordered on Count Two: bank fraud). On appeal, Wells challenges the validity of the district court's orders of restitution. We A FFIRM.

I. BACKGROUND

From 1986 until 1990, James E. Wells was Chairman of the Board and Chief Executive Officer of CNB, a federally chartered bank insured by the FDIC. In the early 1990's, the FBI conducted an investigation into Wells' questionable financial activity while he was at the helm of CNB. On April 15, 1992, a federal grand jury returned an indictment against Wells charging him with a total of fourteen counts including bribery, bank fraud, passport fraud, tax evasion, false statements on tax returns and illegal structuring of cash transactions. On September 16, 1992, a superseding indictment charged Wells with mail fraud. Finally, on April 22, 1993, the government filed a four-count superseding information against Wells. The information alleged violations of 18 U.S.C. § 666 (bribery); 18 U.S.C. § 1344 (bank fraud); 18 U.S.C. § 844(i) (arson); and 26 U.S.C. § 7201 (tax evasion).

Also on April 22, 1993, Wells entered a guilty plea to the four-count superseding information pursuant to a written plea agreement ("the Plea Agreement"). Wells admitted in the Plea Agreement that from 1987-1989, acting in his official capacity as CEO of CNB, he granted more than $2.3 million in loans and overdraft credit to an unqualified trucking company owned by the then Illinois State Treasurer Jerome Cosentino. Wells admitted that he extended credit to Cosentino's unqualified company in hopes of inducing Cosentino to deposit and maintain substantial Illinois state funds at CNB. In fact, CNB went from zero state deposits prior to May of 1987, to having $23 million in state deposits in May of 1989.

Wells also acknowledged in his written plea agreement that in 1989-1990, he defrauded CNB of approximately $141,000 by diverting bank funds from the construction of a CNB branch bank at 1400 North Lake Shore Drive in Chicago to the construction of an adjoining restaurant owned by Wells. Wells convinced the CNB Board of Directors to build a CNB branch bank next door to a building owned by him, and also arranged for his own construction company, known as Wells Construction Co., to serve as the general contractor for the bank branch. Wells jointly oversaw the construction of the branch bank and the restaurant facility, and directed the construction company to bill CNB for work performed not only on the branch bank, but also on Wells' restaurant. In furtherance of this fraudulent scheme, Wells failed to disclose to the CNB Board that he was using bank construction funds to build and furnish his restaurant. The CNB, which was insured by the FDIC, ended up paying approximately $141,000 for work performed on the restaurant.

Wells further admitted in the plea to the allegations contained in Count Three of the superseding information filed in April of 1993, and acknowledged that in November of 1979, he and a partner purchased a five-story warehouse in Chicago for $18,000, formed two business enterprises that operated out of the warehouse, and insured the building and business enterprises with Crum & Forster. In 1980, the defendant Wells hired an arsonist to torch the building, and thereafter filed arson insurance claims arising out of the fire. The insurance company eventually paid Wells $2,789,078 under the policies. 1

Finally, Wells admitted that in 1987, 1988, and 1989, he concealed income totaling more than $120,000 from the Internal Revenue Service. Wells directed the bookkeeper of another one of his companies, The Wells Co., to write checks payable to fictitious vendors. Wells in turn cashed these checks at CNB and used the funds for personal purposes, while deducting the checks as business expenses on the Wells Co.'s corporate income tax returns.

In addition to detailing the facts surrounding Wells' crimes, the Plea Agreement set forth that Wells could be ordered to pay restitution of up to $2,789,078 to Crum & Forster Insurance Company (on the arson count) and $141,980 to the FDIC (on the bank fraud count). Finally, the Agreement stated that Wells' total prison sentence on all counts would not exceed twenty years, and the government in turn would dismiss all counts charged in the superseding indictment. 2

On June 24, 1994, the court held a sentencing hearing and sentenced Wells to 78 months imprisonment on Counts One, Two and Four pursuant to the United States Sentencing Guidelines ("USSG"). The court added 15 years imprisonment on Count Three (which was not governed by the USSG because the arson offense was committed in 1980) 3, to be served concurrently to the 78-month sentence on Counts One, Two and Four. The court further ordered Wells to serve two years of supervised release to commence upon his release from confinement. Finally, the court directed that Wells pay restitution in the amount of $141,000 to the FDIC, as receiver to CNB (on Count Two (bank fraud)), and restitution in the amount of $1,500,000 to Crum & Forster (on Count Four (arson)). On appeal, Wells challenges the district court's order that Wells pay restitution in the amount of $1.5 million to Crum & Forster as well as the order to pay restitution in the amount of $141,000 to the FDIC.

II. ISSUES

(1) Did the district court have authority to order Wells to pay restitution to Crum & Forster based upon language set forth in the Plea Agreement; and

(2) Did the trial judge fail to consider Wells' ability to pay restitution to the FDIC and thereby abuse his discretion when he ordered Wells to make such payments?

III. DISCUSSION
A. Did the district court have authority to order Wells to pay restitution to Crum & Forster based upon language set forth in the Plea Agreement?

In imposing its sentence on Count Three (arson), the district court ordered Wells to pay restitution in the amount of $1.5 million to Crum & Forster, even though the court failed to order probation on the arson count. 4 Wells alleges that "[t]he law in effect at the time Wells committed the [arson in 1980] provided that restitution could only be ordered in cases where there was a sentence of probation." Wells argues that since the sentence on the arson count failed to recite a term of probation, the court lacked authority to order restitution on Count Three, and the restitution order is thus improper and should be vacated.

The government counters that the order of restitution was permissible under 18 U.S.C. § 3663(a)(3), which admittedly had not been enacted and thus was not in effect in 1980 (the date of the arson), but was enacted and was in effect in 1993 and 1994, when Wells pleaded guilty, entered into the Plea Agreement, and was sentenced. Section 3663(a)(3) authorizes a district court "to order restitution in any criminal case to the extent agreed to by the parties in a plea agreement." Wells expressly agreed in his Plea Agreement that "the amount of restitution which defendant could be ordered to pay to the Crum & Forster Insurance Companies, if able, is $2,789,078." As such, Wells explicitly agreed in his written Plea Agreement to be bound by the district court's restitution order, and the restitution order is valid. Wells retorts by claiming that if § 3663 is applicable to his case, then it constitutes an impermissible ex post facto law and thus its application to his case is improper.

Undoubtedly, "[a] federal court has no inherent authority to order restitution in a criminal case; it may do so only as expressly provided by statute." United States v. Lampien, 89 F.3d 1316, 1322 (7th Cir.1996) (quoting United States v. Gilberg, 75 F.3d 15, 22 (1st Cir.1996)) (emphasis added). "In fashioning a restitution order, a district court is therefore circumscribed by the substantive and procedural limitations outlined in the [governing statute.]" Id. (citations omitted). Moreover, because the authority to order restitution is created by statute, in the absence of statutory authority the parties may not manufacture it through a plea agreement. See, e.g., United States v. Bennett, 943 F.2d 738, 739 (7th Cir.1991) (district court could not exceed the sentencing authority of the Victim...

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