U.S. v. Cutler

Decision Date17 March 2008
Docket NumberDocket No. 05-2516(L).,Docket No. 05-6178-cr(XAP).,Docket No. 05-3303r(L).
Citation520 F.3d 136
PartiesUNITED STATES of America, Appellant, v. James CUTLER, Defendant-Appellee. United States of America, Appellee-Cross-Appellant, v. Sanford Freedman, Defendant-Appellant-Cross-Appellee.
CourtU.S. Court of Appeals — Second Circuit

Justin S. Weddle, Assistant United States Attorney, New York, NY, (Michael J. Garcia, United States Attorney for the Southern District of New York, Stanley J. Okula, Jr., Peter G. Neiman, Assistant United States Attorneys, New York, NY, on the brief), for Appellant in No. 05-3303.

Stanley J. Okula, Jr., Assistant United States Attorney, New York, NY, (Michael J. Garcia, United States Attorney for the Southern District of New York, Justin S. Weddle, Barbara A. Ward, Celeste L. Koeleveld, Assistant United States Attorneys, New York, NY, on the brief), for Appellee-Cross-Appellant in No. 05-6178.

William J. Schwartz, New York, NY, (Jason M. Koral, Kronish Lieb Weiner & Hellman, New York, NY, on the brief), for Defendant-Appellee James Cutler in No. 05-3303.

Audrey Strauss, New York, NY, (Andrew T. Gardner, Lisa H. Bebchick, Sloan S. Johnston, Fried, Frank, Harris, Shriver & Jacobson, New York, NY, on the brief), for Defendant-Appellant-Cross-Appellee Sanford Freedman in No. 05-6178.

Before: JACOBS, Chief Judge, KEARSE and POOLER, Circuit Judges.

Judge POOLER concurs in a separate opinion.

KEARSE, Circuit Judge:

Defendants James Cutler and Sanford Freedman, following a jury trial in the United States District Court for the Southern District of New York, Loretta A. Preska, Judge, were convicted, along with others, on various charges relating to extensive bank frauds and tax frauds. Issues raised in an appeal by Freedman have been dealt with in a summary order filed today, see United States v. Freedman, Nos. 05-2516, -6068. This opinion deals with an appeal by the government, No. 05-3303, challenging the sentence imposed on Cutler, and a cross-appeal by the government, No. 05-6178, challenging the sentence imposed on Freedman.

Cutler was convicted on one count of conspiracy to commit bank fraud, in violation of 18 U.S.C. § 371; two counts of bank fraud, in violation of 18 U.S.C. § 1344; one count of making false statements, in violation of 18 U.S.C. § 1014; one count of tax fraud conspiracy, in violation of 18 U.S.C. § 371; and two counts of tax evasion, in violation of 26 U.S.C. § 7201. He was sentenced principally to a prison term of one year and one day, to be followed by five years' supervised release, and was ordered to pay restitution in the amount of $29,775,000 and to forfeit $1,381,974. Freedman was convicted on one count of conspiring, in violation of 18 U.S.C. § 371, to defraud financial institutions and the Internal Revenue Service ("IRS") through false statements in violation of 18 U.S.C. § 1014, bank fraud in violation of 18 U.S.C. § 1344, and mail fraud in violation of 18 U.S.C. § 1341; four counts of bank fraud, in violation of 18 U.S.C. § 1344; six counts of making false statements, in violation of 18 U.S.C. § 1014; and one count of perjury, in violation of 18 U.S.C. § 1623. Freedman was sentenced principally to a three-year term of probation and was ordered to perform 700 hours of community service per year during the probationary period, to pay restitution in the amount of $14,600,000, and to forfeit $3,013,739.48.

The government contends that under the 1997 version of the Sentencing Guidelines ("Guidelines"), which was applied to both defendants, and to which reference is made throughout this opinion, a proper sentencing calculation for Cutler would have resulted in a recommended prison term in the range of 78-97 months. It contends that the district court abused its discretion in granting downward departures to reach a range of 12-18 months and that the prison term imposed, one year and one day, was substantively unreasonable. As to Freedman, the government contends that proper sentencing calculations would have resulted in a Guidelines-recommended prison term in the range of 108-135 months. The government contends that the district court erred in certain Guidelines-application rulings and abused its discretion in granting downward departures, and that the sentence imposed—in failing to order a substantial term of imprisonment—was substantively unreasonable. For the reasons that follow, we vacate both sentences and remand for resentencing.

I. BACKGROUND

The prosecutions that are the focus of these appeals arose out of the business and financial dealings in the early 1990s of codefendants Stanley S. Tollman and Monty D. Hundley, hotel magnates whose principal business organization in the 1980s, Tollman-Hundley Hotels ("Tollman-Hundley"), owned a network of hotels, including the Days Inn of America ("Days Inn") chain and more than 100 individual hotels. Hundley was tried with Cutler, codefendant Howard Zukerman, and Freedman and convicted on 28 counts relating to these matters. Tollman left the United States just prior to his scheduled arraignment in this case and remains a fugitive.

Cutler was Tollman-Hundley's chief financial officer. Zukerman was vice president for finance. Freedman was Tollman-Hundley's executive vice president for development and its general counsel. Government exhibits ("GX") showed that Freedman also owned various percentages (generally between 2.5 and 4.75 percent) of most of the business entities owned by Tollman and Hundley. (See, e.g., GX 601 (Freedman's 1993 application for a Mississippi gaming license); GX 601-B (Tollman's 1995 application for a Mississippi gaming license).)

The evidence as to the principal events, taken in the light most favorable to the government, is described below.

A. The $100 Million Bank Fraud Scheme

By the late 1980s, Tollman and Hundley each had an estimated net worth of over $100 million, gained largely from the Tollman-Hundley venture. Tollman and Hundley had financed the growth of their hotel network by borrowing hundreds of millions of dollars from banks and others. Although they usually borrowed the money through limited liability entities, they also gave their creditors personal guarantees.

In the early 1990s, many of the Tollman-Hundley properties were unable to meet their debt service obligations, and a voluntary restructuring of the debt ensued. Part of the restructuring required Tollman and Hundley to sign deficiency notes instead of guarantees. These notes made Tollman and Hundley personally obligated to Tollman-Hundley creditors for much of its debt. (See Trial Transcript ("Trial Tr.") at 4256 (contrasting guarantees, which are obligations to pay "in case someone else doesn't," with deficiency notes, which "[a]re direct obligations to pay").) Ultimately, Tollman and Hundley emerged from the restructuring of the Tollman-Hundley debt personally responsible for approximately $100 million of the debt. Freedman participated in the negotiations that led to this restructuring.

1. Coordination and Misrepresentations by Freedman

Also in the early 1990s, Tollman and Hundley negotiated an agreement to sell key assets of Days Inn to Hospitality Franchise Systems ("HFS" (now known as Cendant Corporation)), in exchange for the right to receive a specified amount of HFS stock over a several-year period if Days Inn franchises met certain financial targets (the "earn-out agreement"). The performances of those franchises ultimately resulted in Tollman and Hundley receiving HFS shares worth "somewhat in excess of 100 million dollars." (Trial Tr. 3155; see also GX 1504 (citing 16 other exhibits) showing net proceeds totaling more than $107 million from the sales of the HFS stock accruing to Tollman and Hundley.)

Due in large part to the more than $100 million in HFS stock earn-out rights accruing to Tollman and Hundley during the course of the earn-out agreement, Tollman and Hundley appeared to have the capacity to pay off their approximately $100 million in deficiency-note debts to the Tollman-Hundley creditors in full. Instead, Tollman and Hundley planned to use the proceeds from their HFS stock to fund a riverboat casino venture in Mississippi. However, the large outstanding Tollman-Hundley debt, along with the obligations of Tollman and Hundley on the deficiency notes (the first payments on which were due on June 1, 1993), had the potential to lay claim to $100 million of the proceeds from the HFS stock and to cast a pall on their casino plans. Accordingly, Tollman and Hundley embarked on a plan in early 1993, assisted principally by Freedman, Zukerman, and Cutler, to induce the Tollman-Hundley creditors to settle for far less than the balances due on the loans.

In the spring of 1993, the coconspirators did the following. Tollman and Hundley assigned their rights under the HFS earn-out agreement to Bryanston Group, Inc. ("Bryanston" or "Bryanston Group"). Bryanston Group was owned principally by Tollman and Hundley; Freedman owned 4.75 percent and was its executive vice president. The assignment agreement was signed for Bryanston by Freedman.

In addition, Tollman, Hundley, Zukerman, and Freedman contacted Tollman-Hundley's creditors and represented that Tollman and Hundley were having "great financial problems" (Trial Tr.2071) and would be unable to satisfy their deficiency-note obligations. Richard Werner, a manager at Marine Midland Bank (now HSBC), testified that beginning early in 1993, he had several discussions on that subject, meeting principally with Zukerman and Freedman. (See id. at 2068-69.) Zukerman told the bankers that the cash flow from the hotels owned by Tollman-Hundley was insufficient to satisfy all the debts and that Tollman-Hundley itself and Tollman and Hundley individually would consider filing for bankruptcy if they were not able to get all the creditor banks to enter into repayment agreements; Zukerman said they "were in deep...

To continue reading

Request your trial
16 cases
  • U.S. v. Gallant
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • 20 Agosto 2008
    ... ... Haddock, 12 F.3d at 961. Because the district court failed to make any sort of findings regarding actual or intended loss, the record before us is not sufficient to conclude that the defendants' gain was a reasonable measure of loss. See Galloway, 509 F.3d at 1253 (concluding that where ... Cf. United States v. Cutler, 520 F.3d 136, 168-69 (2d Cir.2008) (holding that district court erred in rejecting, on the basis of the defendant's perceived culpability, a loss ... ...
  • U.S. v. Cavera
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 4 Diciembre 2008
    ... ... But when we do hear a case en banc, and we are in substantial agreement, an en banc opinion gives us the opportunity to speak somewhat more broadly, for the purpose of giving guidance to district courts in this Circuit and to future panels of this ... See, e.g., United States v. Cutler, 520 F.3d 136, 164, 167 (2d Cir.2008). 7 ...         This degree of deference is only warranted, however, once we are satisfied that the ... ...
  • U.S. v. Gardellini
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • 14 Noviembre 2008
    ... ... 2008) (affirming 120-month sentence where applicable Guidelines range was 168-210 months); cf. United States v. Cutler, 520 F.3d 136 (2d Cir.2008) (finding 366-day sentence with supervised release substantively unreasonable where applicable Guidelines range was 78 to ...         If, as the Supreme Court tells us, the explanation duty is motivated in part by concern for public perceptions, surely a district court cannot assume those perceptions away as a basis ... ...
  • U.S. v. Legros, Docket No. 05-2828-cr.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 17 Junio 2008
    ... ... We review sentences for reasonableness ... 529 F.3d 474 ... under an abuse-of-discretion standard. United States v. Cutler, 520 F.3d 136, 156 (2d Cir.2008). The abuse-of-discretion standard incorporates de novo review of questions of law (including interpretation of the ... ...
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT