United States v. Causey

• Decision Date: 28 March 2014
• Docket Number: No. 13–1321.,13–1321.
• Citation: 748 F.3d 310
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Randall B. CAUSEY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

748 F.3d 310

UNITED STATES of America, Plaintiff–Appellee,

v.Randall B. CAUSEY, Defendant–Appellant.

No. 13–1321.

United States Court of Appeals,Seventh Circuit.

Argued Nov. 8, 2013.

Decided March 28, 2014.

Jill R. Koster, Attorney, Office of the United States Attorney, Hammond, IN, for Plaintiff–Appellee.

Richard Brian Woodward, Attorney, Woodward, Buls, Blaskovich & King, Merrillville, IN, for Defendant–Appellant.

Before POSNER, ROVNER, and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge.

Randall Causey was part of a conspiracy that preyed on novice real estate investors during the housing bubble in 2005–06, defrauding both borrowers and lenders alike. A five-day trial revealed that Causey and his co-conspirators would do just about anything to complete a sale and make a profit, whether it was making promises they had no intention of keeping or falsifying receipts, incomes or other information on loan forms. Causey, who was the only co-conspirator that did not plead guilty, was convicted and sentenced for his role in the fraud.

Causey raises five issues—four evidentiary and one sentencing—on appeal. First, he argues the court improperly admitted irrelevant and prejudicial photographs taken of the houses around the time of trial rather than at the time of the sale. We reject this argument because the photographs gave the jurors a sense of the size, location and style of the house, and the jurors were repeatedly reminded when the pictures were taken. Second, evidence of a fraudulent sale that took place outside of the conspiracy was properly admitted because Causey placed his intent to defraud and knowledge of the fraudulent scheme at issue by claiming he was an innocent pawn, and this sale demonstrated his fraudulent knowledge and intent. Third, a defense witness's testimony was properly excluded as undisclosed expert testimony because the witness had no personal knowledge of the transactions at issue and was asked instead about industry norms, which is only permissible if a witness is qualified as an expert. Fourth, Causey argues the district court erred in allowing an unqualified co-conspirator to give broad expert testimony and allowing her to testify as both a fact and expert witness without a limiting instruction. Since the witness was never referred to as an expert in front of the jury, there was extensive cross examination about her credentials and the basis for her opinion, and her opinion was not significant to the government's case, we reject Causey's arguments. Finally, a two-level sentencing enhancement for being an “organizer, leader, manager, or supervisor of the conspiracy” was properly assessed because Causey was responsible for recruiting the buyers into the conspiracy and exercised control over them during their involvement, which included submitting fraudulent paperwork during closings, and some buyers were also uncharged criminally responsible parties.

We affirm the district court on each of these issues.

I. BACKGROUND

Sheila Chandler learned how to falsify documents and close fraudulent loans as a mortgage broker in Gary, Indiana. She became familiar with the Gary real estate market, including a house's actual value, and, more importantly for her purposes, what the house would appraise for after a little cosmetic work. Sensing an opportunity, she devised a scheme to defraud both lenders and buyers. As part of that scheme, she approached Gordon Rainey in 2005 and suggested he start a construction company to make minimal changes to the houses and then charge inflated amounts that would be pocketed at closing. Defendant Randall Causey was living at Rainey's house at the time and asked if he could be involved, and Causey and Rainey subsequently co-founded and jointly owned a construction company called Netlink. With that, the conspiracy was off and running. By the time the three were arrested, they had executed the mortgage scheme twenty-five times between July 2005 and August 2006 in and around the Gary area.

The scheme worked as follows: First, the group needed buyers who were real estate novices. Causey used charm and false promises to recruit five of the seven buyers who purchased eighteen of the twenty-five Gary properties listed in the indictment. With a buyer in place, Chandler would fill out a mortgage application, falsifying income, down payments and any other information to make the buyer a viable loan candidate. She would then order appraisals, title work, and pre-approval from the lender. The conspirators would use “trainee” appraiser Henry Sterk to appraise most of the houses at a greatly inflated price. The next step was to close on the house. Chandler gave false information to the lenders on the HUD–1 statements, which itemize all charges imposed upon a borrower and seller for the transaction. Once the amounts on the HUD–1 were paid, the title company told Chandler how much remained of the loan. Chandler then made up false construction invoices for that remainder. After the closing, the conspirators divvied up the money paid for the false invoices. Chandler received $2,000 cash per house, while Causey received somewhere between $3,000 and $5,000.

Causey was directly or indirectly responsible for recruiting five of the buyers, but we highlight the experiences of two purchasers relevant to the appeal, Beatrice Mengich and Toi Lisa Mark. Beatrice Mengich was brought into the scheme by her aunt, Lillian Kimutai, who met Causey on a singles telephone line. After Kimutai bought into Causey's sales pitch, but before she realized she had been defrauded, Kimutai recommended to Mengich that Mengich also invest in Gary real estate. It was not until Mengich, at twenty-three years old, was flown up from North Carolina to Northwest Indiana for the closing that she learned for the first time that arrangements had been made for her to buy four houses rather than one, as she had previously been told.

Toi Lisa Mark was originally from Gary and had a mutual friend with Causey named George Hawkins. Hawkins suggested Mark invest with Causey. Like with other buyers, Causey told Mark that if she bought houses, he would fix them up, Netlink would handle all the property management issues, and she could rent out the houses. Causey said he was looking out for her because of their mutual friend, and promised her at least $7,000 cash back. Mark eventually bought two houses in May 2006, sight unseen. At the closing, Mark pointed with concern to the paperwork showing that she made a “major down payment,” which she knew she had not, and Causey responded that he had taken care of it. Once Mark purchased the home, Causey became non-responsive.

As the scheme with Chandler and Rainey was winding down, Causey began recruiting buyers for a different scheme he was running with one of Chandler's former coworkers. One of those buyers was Kristen Dudley who bought a house in November 2006 when she was eighteen years old, sight unseen. When Dudley reached out to Causey later, he stopped taking her calls.

Ultimately, the authorities figured out the scheme and a grand jury returned a nine-count indictment against Causey, Chandler and Rainey, among others. They were charged with conspiring to commit wire fraud in violation of 18 U.S.C. § 1349, and eight counts of aiding and abetting the commission of, and committing the offenses of, wire fraud in violation of 18 U.S.C. § 1343. All except Causey pled guilty.

At trial, the government introduced twenty-five group exhibits of pictures of the properties taken between 2009 and 2012. The jury was repeatedly reminded that the photographs represented the houses near the time of trial and not how they appeared at the time of the conspiracy.

The government called Chandler to testify about her role in the fraud. She had also been disclosed before trial as a potential expert on real estate closings. Chandler testified about the market conditions in Gary, at one point saying the Gary housing market was inflated by 400%. Defense counsel did not object to this estimate, but cross examined Chandler extensively about her qualifications to give such an opinion and regarding the facts on which that opinion was based.

The government also called Mark, Mengich and Dudley to testify about their purchases. Defense counsel objected to Dudley's testimony as improper under Federal Rule of Evidence 404(b), arguing it was propensity evidence. The district court allowed the testimony, reasoning that it went to intent, knowledge, and absence of mistake and that the probative value was not substantially outweighed by the prejudicial value.

Once the government rested, defense counsel called Douglas Kvachkoff, the owner of the Indiana Title Network Company. He began to testify as to the contents of a closing folder he had with him, but when Kvachkoff admitted that he “did not personally obtain the funding number” on the folder and defense counsel began asking about how someone in the industry would get a funding number, the court barred the responses as improper expert testimony. Defense counsel proffered that Kvachkoff would have testified that a funding number is issued by lender once it has reviewed the settlement statement ( e.g., the HUD–1) and is a necessary precondition for the disbursement of the loan.

The jury returned a verdict finding Causey guilty on all counts. At sentencing, the judge adopted the Presentence Investigative Report prepared by the Probation office, and applied a two-level enhancement under United States Sentencing Guidelines (“U.S.S.G.”) § 3B1.1(c) for Causey's role as an “organizer, leader, manager, or supervisor of the conspiracy.” Causey objected, arguing that he was only a minor participant and instead deserved a two-level reduction. The district court found that the two-level enhancement was proper because Causey was a major player in the crime and sentenced Causey to 108 months' of imprisonment to be followed by three years supervised release.

This...