U.S. v. Serfling

• Decision Date: 05 October 2007
• Docket Number: No. 06-1613.,06-1613.
• Citation: 504 F.3d 672
• Parties: UNITED STATES of America, Plaintiffs-Appellees, v. Scott SERFLING, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

504 F.3d 672

UNITED STATES of America, Plaintiffs-Appellees, v. Scott SERFLING, Defendant-Appellant.

No. 06-1613.

United States Court of Appeals, Seventh Circuit.

Argued June 7, 2007.

Decided October 5, 2007.

Rehearing En Banc Denied November 5, 2007.

Lindsay Jenkins (argued), Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.

William J. Harte (argued), Harte & Associates, Chicago, IL, for Defendant-Appellant.

Before BAUER, ROVNER, and SYKES, Circuit Judges.

ROVNER, Circuit Judge.

Scott Serfling and codefendant Mary Capri engaged in a scheme to defraud Western United Life Assurance Company ("WULA") of nearly $12 million by procuring a loan through repeated false representations. Capri pleaded guilty, and a jury found Serfling guilty of two counts of wire fraud, 18 U.S.C. § 1343, and one count of mail fraud, id. § 1341. The district court entered judgment against Serfling and sentenced him to 78 months' imprisonment, three years' supervised release, and restitution in the amount of $6.75 million. On appeal, Serfling argues that his convictions must be vacated because the government withheld exculpatory evidence and engaged in prejudicial misconduct by making improper remarks during the trial. He contends as well that the district court erroneously excluded relevant testimony by a banking expert. Serfling also challenges his sentence, from the calculation of the guidelines range to the length of his prison term as compared to Capri's. For the reasons set forth in the following opinion, we affirm the judgment of the district court.

I.

Serfling worked as a car salesman at Celozzi Ford Dealership in Waukegan, Illinois. In 2000, the dealership's owner, Nicholas Celozzi, and Ford agreed to expand the operation and open a second dealership in Gurnee. Under the terms of their agreement, Ford would sublease the property from Celozzi for 25 years for $76,600 per month. The sublease agreement was to go into effect after construction of the dealership was complete and Celozzi obtained a certificate of occupancy from the county. Celozzi selected Serfling as a partner and financial advisor for the new project.

Construction of the new dealership commenced but stalled in early 2001 when various contractors and subcontractors stopped work because they had not been paid on schedule. In light of cost overruns, Serfling renegotiated the sublease agreement with Ford, which agreed to a rent increase. Months later, Serfling procured another rent increase, so that Ford would pay $99,800 per month to sublet the property upon completion of construction and the issuance of a certificate of occupancy. In November 2001, however, Ford reconsidered, and it terminated the lease agreement entirely.

Shortly after Ford canceled the contract, Serfling and Capri embarked on a plan to purchase the Gurnee property themselves. At that time the property was controlled by Fifth Third Bank, which had supplied a construction loan. First, Serfling and Capri had the property appraised by Robert Schmidt. Serfling told Schmidt that the property would be subject to a dealership lease, and in support of this representation he faxed Schmidt a "proposed" lease agreement between Ford Leasing Development Company and Celozzi/Serfling Ford, Inc., whereby Ford would lease the Gurnee property for $125,000 per month. In actuality no such agreement existed, but based on Serfling's representation, Schmidt valued the property at $15.7 million.

Serfling and Capri next shopped for a lender to finance their purchase of the Gurnee property. Acting as a broker, Capri enlisted a commercial loan broker, Francisco Gonzalez, to find a lender for a borrower she identified as Scott Serfling and his company, Serfin Trust LLC. In response to Gonzalez's request for documentation, Capri sent a package containing 1999 and 2000 tax returns for Serfling and Serfin Trust, signed by Serfling. In fact, Serfling had not filed tax returns as an individual or on behalf of Serfin Trust in 1999 or 2000. The package also included the "proposed" Ford lease agreement. That document was signed by Serfling and a "Susan Morgan" on behalf of Ford. Trial testimony revealed that no "Susan Morgan" worked for Ford.

Armed with the documentation he received from Capri, Gonzalez began shopping for a loan for Serfling. He found one at Old Standard Life Insurance, an affiliate of WULA. Loan officer John Byers testified that he believed that the loan would be a sound investment based on the financial strength of Serfling (evinced by his tax returns, and, later, bank statements) and the long-term lease with Ford. Eventually Byers, on behalf of Old Standard and WULA, agreed to loan Serfling and Serfin Trust $11,750,000.

As a condition of closing on the loan, WULA requested bank statements from Serfling, who resisted this request in a telephone conversation with a WULA representative. Ultimately, however, Serfling relented, and Capri faxed statements from Firstar Bank to Gonzalez, who relayed them to WULA employee Shelli Findley. According to the statements, Serfling had more than $10,000,000 in a personal account, and Serfin Trust had a balance of nearly $1,000,000. Trial testimony later revealed that neither Serfling or his company ever held accounts at Firstar Bank.

As WULA continued to investigate the potential borrowers, it attempted to contact "Susan Morgan" to verify the terms of the Ford lease. An underwriter for WULA spoke on the telephone with a woman identifying herself as Susan Morgan. At trial, Serfling stipulated that the telephone number provided on the phony lease agreement for "Susan Morgan" was registered to Capri. WULA also continued to request, as a condition of closing the loan, a copy of a certificate of occupancy for the Gurnee property. WULA insisted that $100,000—a sum more than adequate to cover remaining construction costs—be placed in escrow for release after the certificate was issued. For his part, Serfling demanded that $200,000 of the loan proceeds be dispersed to him directly in order to pay other expenses relating to the property.

Serfling also provided WULA with the name of a construction company, which, he said, would finish building the dealership. WULA attempted to contact the company numerous times but could not reach anyone at the phone number Serfling supplied. Unsurprisingly, Serfling stipulated at trial that the company did not exist. Capri and Serfling also fabricated an insurance company to satisfy WULA that the Gurnee property was appropriately covered.

In March 2002, WULA was prepared to close on the loan, and it wired the loan proceeds to the title company in Chicago that was handling the closing. Serfling was not present for the closing, but he sent signed and notarized copies of the necessary closing documents to the title company from Las Vegas, where he then lived. Serfling also sent instructions, including a directive that $620,000—an amount including the funds earmarked for the insurance premium, brokers' fees, and construction costs—be paid to him directly in addition to the $200,000 that had already been agreed to. WULA rejected this demand, and Serfling sent new instructions that the insurance premium could be paid to the (phony) insurer, the brokers paid directly, and the construction funds placed in escrow. Finally, the loan closed.

Upon receiving his $200,000 in loan proceeds via wire transfer, Serfling promptly spent it. He repaid part of a loan from a friend and settled other personal debts, and he paid his bill with the business-services provider he and Capri had used during the loan negotiations. He also paid a debt to the Rampart Casino in Las Vegas and opened a line of credit at the Sun Coast Hotel and Casino. Serfling did not use any of the proceeds for costs associated with the Gurnee property. Meanwhile, in his capacity as the "new owner," Serfling enlisted a former colleague to be the "caretaker" of the property.

Predictably, when the first loan payments came due, Serfling did not pay. An investigation was launched and a grand jury ultimately indicted him for wire fraud and mail fraud. Serfling pleaded not guilty, and the case was set for trial. Before trial, he moved in limine to bar the government from referring to gambling or casinos as part of its case. After a hearing, the district court ruled that the government could submit, as evidence of Serfling's motive to defraud WULA, evidence of debts existing at the time of the fraud. However, the court ruled, the government could not mention that the debts related to gambling. As for other amounts Serfling spent at casinos with the proceeds of the loans, the district court determined that those sums were irrelevant to motive and would be unfairly prejudicial.

In another evidentiary decision, the district court barred testimony by Serfling's banking expert. Serfling wanted the expert to testify that with due diligence, WULA would have discovered the fraudulent documentation used to procure the loan. He also hoped that the banking expert would reinforce his theory of defense, which was that the fraud had been executed by Capri and Fifth Third Bank wholly unbeknownst to Serfling. Serfling's banking expert would testify that if WULA had engaged in a reasonable investigation, Serfling would have been alerted to the attempted fraud in his name before the loan closed. The district court was doubtful that the subject matter was suitable for expert testimony but determined in any event that Serfling essentially aimed to blame the victim of the fraud, and so the testimony was not appropriate under United States v. Coffman, 94 F.3d 330, 333-34 (7th Cir.1996).

Trial commenced on September 19, 2005, and lasted two weeks. The jury returned a verdict of guilty on each of the three counts, and the parties prepared for sentencing. The probation office prepared a presentence report ("PSR") recommending, in relevant part, that Serfling's offense level be based on a...