U.S. v. Leahy

• Decision Date: 24 March 2006
• Docket Number: No. 03-4490.,No. 03-4560.,No. 03-4542.,03-4490.,03-4542.,03-4560.
• Citation: 445 F.3d 634
• Parties: UNITED STATES of America v. Paul J. LEAHY Appellant United States of America v. Timothy Smith Appellant. UNITED STATES OF AMERICA, v. Dantone, Inc. Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 634

445 F.3d 634

UNITED STATES of America v. Paul J. LEAHY Appellant United States of America v. Timothy Smith Appellant.

UNITED STATES OF AMERICA, v. Dantone, Inc. Appellant.

No. 03-4490.

No. 03-4542.

No. 03-4560.

United States Court of Appeals, Third Circuit.

Argued June 8, 2005.

March 24, 2006.

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COPYRIGHT MATERIAL OMITTED

Robert E. Welsh, Jr. (Argued), Lisa A. Mathewson, Welsh & Recker, P.C., Philadelphia, PA, for Appellant Paul J. Leahy.

Jeffrey M. Miller (Argued), Nasuti & Miller, Philadelphia, PA, for Appellant Timothy Smith.

Ian M. Comisky (Argued), Matthew D. Lee, Blank Rome LLP, Philadelphia, PA, for Appellant Dantone, Inc.

Patrick L. Meehan, United States Attorney, Laurie Magid, Deputy United States Attorney for Policy and Appeals, Robert A. Zauzmer (Argued), Assistant United States Attorney, Senior Appellate Counsel, Mary E. Crawley (Argued), Assistant

United States Attorney, Office of the United States Attorney, Philadelphia, PA, for Appellee United States of America.

Before FUENTES, VAN ANTWERPEN, and BECKER, Circuit Judges.

FUENTES, Circuit Judge.

I. Introduction

For a period of almost three years, the Defendants, Dantone, Inc., and its two senior managers Paul Leahy and Timothy Smith, were retained by several banks to auction repossessed automobiles at the highest price and reimburse the proceeds, minus fees and expenses, to the banks. With respect to at least 311 automobiles, however, the Defendants did not auction the cars to the highest bidder and remit the proceeds to the banks as promised. Rather, they kept those cars for their own inventories, resold them at higher prices, falsely misrepresented to the banks that they had been auctioned for less, and pocketed the difference between the false and actual prices. A jury found Smith, Leahy, and Dantone guilty of engaging in, and aiding and abetting, bank fraud in violation of 18 U.S.C. § 1344 and 18 U.S.C. § 2.

This matter presents several issues on appeal. First, we address several contentions that the District Court erroneously instructed the jury as to the Government's burden under the bank fraud statute. Second, we consider whether there was sufficient evidence to sustain the Defendants' convictions. Third and finally, we address the scope of the federal bank fraud statute, 18 U.S.C. § 1344, and clarify the intent and loss elements required to support a conviction under the statute.¹

Because we ultimately reject the Defendants' arguments with respect to the scope of the bank fraud statute, the District Court's jury instructions, and the sufficiency of the evidence, we will affirm their judgments of conviction. We also decide that, to the extent that the Defendants contend that the imposition of their sentences pursuant to the U.S. Sentencing Guidelines (the "Guidelines" or "U.S.S.G") are in error after Booker, such issues are best determined by the District Court in the first instance. See United States v. Davis, 407 F.3d 162 (3d Cir.2005).

Accordingly, we will vacate the Defendants' sentences and remand for further proceedings consistent with this opinion. Because the forfeiture and restitution orders are inextricably intertwined with the District Court's loss findings under the Guidelines, we will vacate and remand those orders as well.

II. Background

A. Facts

On May 15, 2001, a federal grand jury sitting in the Eastern District of Pennsylvania returned a ten count indictment charging Defendants Smith, Leahy, and Dantone with bank fraud, in violation of 18 U.S.C. § 1344, and aiding and abetting, in violation of 18 U.S.C. § 2 (the "Indictment"). Dantone is a privately held corporation which owns and operates a public automobile auction in Conshohocken, Pennsylvania, known as Carriage Trade Auto Auction ("Carriage Trade"). Dantone's sole shareholder and president was Dominic Conicelli, Sr. During all times relevant to the Indictment, Smith was the general manager of Carriage Trade, while Leahy was the assistant manager or operations manager.

The Indictment alleged that between approximately 1993 and 1996, Dantone entered into agreements with ten financial institutions (collectively, "the banks") to auction automobiles and remit the full proceeds of the actual sales, minus auction fees and expenses.² Of the ten banks at issue in this case, nine consigned cars that had been repossessed following the owners' default on a loan obligation, while the tenth, Continental Bank, consigned repossessed cars as well as cars that had been returned at the expiration of lease agreements.

Per their agreements, the banks consigned the automobiles to Carriage Trade to be auctioned to the highest bidder. Nine of the ten banks established a minimum or floor price for each car; if the highest auction price fell below the minimum, the car could not be sold without the bank's consent. The banks typically would set the minimum price based on the condition of the car and in consultation with the auction's employees. The tenth bank, rather than setting minimum bids, informed Carriage Trade personnel of the amounts owed by the bank's customers on the defaulted car loans. Evidence at trial indicated that it was routine for the banks to face a deficiency balance on the outstanding loan even after the car had been auctioned, from which it could be inferred that the amount of the minimum bid set by the banks was typically lower than the outstanding loan obligation on the car. For the most part, the cars were sold "as is." When Carriage Trade sold automobiles at auction on behalf of one of the banks, Carriage Trade would send checks representing the proceeds of the sale, a bill of sale, and documents showing the expenses incurred by the auction in selling the automobiles. If the car was one which had been repossessed by the bank, the money made from the sale of the car at auction could then be put toward satisfying the outstanding loan. The banks assumed or were told that the checks received from the Carriage Trade auction represented the highest bid, minus fees and expenses.

The Indictment alleges that Dantone, Smith and Leahy defrauded the banks by not actually selling certain automobiles at an auction to the highest bidder or at the prices the Defendants represented to the banks. Instead, the Defendants diverted the cars into Carriage Trade's inventory, apparently repaired and/or reconditioned them in limited instances, and then sold them under the Carriage Trade name at a "second sale" at prices equal to or higher than the minimum established by the banks. The Defendants deceived the banks with respect to at least 311 cars, pocketing the difference between the prices they falsely represented to the banks and the real prices they obtained for the cars at the second sale. Typically, the Defendants used two methods to sell the cars for themselves. Most of the cars were sold through the Carriage Trade auction to good faith purchasers who did not know that the Defendants had misappropriated the cars for their own inventories. The Defendants also sold a smaller number of cars in a private auction to a select group of car dealers, who were invited to bid on the cars. The scheme began to unravel, however, when Edward Stigben, a co-schemer with the Defendants, was approached by the FBI regarding an on-going investigation of Carriage Trade; Stigben eventually received immunity from the Government in exchange for his testimony at trial regarding the fraudulent scheme.

A 2 1/2 week jury trial began on December 2, 2002. The Government introduced the testimony of bank representatives as well as employees of Carriage Trade. The Government also introduced a ledger maintained by Leahy (the "Leahy ledger") which detailed the profits realized by Dantone as a result of the Defendants' deceptive conduct. In addition, the Government introduced, for each of the 311 cars, the two sets of documents that Carriage Trade prepared: the false bill of sale and accompanying paperwork which the Defendants sent to the bank along with a check, and the true bill of sale and accompanying paperwork that was generated when the Defendants sold the cars for their own benefit.

On December 20, 2002, the jury returned a verdict of guilty on all counts as to each Defendant.

B. Sentencing

Thereafter, the District Court initiated sentencing proceedings against the Defendants. Because the Defendants' conduct involved a fraudulent scheme in violation of 18 U.S.C. § 1344, they were sentenced under U.S.S.G. § 2F1.1, the Guidelines provision applicable to crimes of fraud and deceit. Section 2F1.1 provides for a base offense level of six with enhancements to the offense level based on the amount of loss to the victim attributable to the fraudulent conduct. At the Defendants request, the District Court held a four hour evidentiary hearing to determine the amount of loss to the victim banks for purposes of the Guidelines. The Defendants, relying on United States v. Dickler, 64 F.3d 818 (3d Cir.1995), argued that the loss to the banks was zero, or in the alternative, far less than the $418,657 amount relied on by the Government. In particular, the Defendants contended that they had significantly enhanced the values of the consigned automobiles by refurbishing them and by extending certain guarantees and perks such as credit terms to purchasers under the Carriage Trade name. They argued that any such "improvements" in value to the cars should not be credited as loss to the banks for purposes of the Guidelines. At the end of the hearing, the District Court essentially adopted the Government's position, finding that the loss to the banks was $408,970, which was calculated by subtracting from the total gain to the Defendants — the $418,657 amount representing the difference between the false sales price and the actual sales price for the 311 cars — the following: (1) $5,000 for a reimbursement payment that Carriage Trade made to one of the banks (Midlantic Bank) after...