United States v. Domnenko

• Citation: 763 F.3d 768
• Decision Date: 18 August 2014
• Docket Number: 13–1005.,Nos. 13–1004,s. 13–1004
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Viktor and Lilya DOMNENKO, Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

763 F.3d 768

UNITED STATES of America, Plaintiff–Appellee,

v.Viktor and Lilya DOMNENKO, Defendants–Appellants.

Nos. 13–1004, 13–1005.

United States Court of Appeals,Seventh Circuit.

Argued March 31, 2014.

Decided Aug. 18, 2014.

Derek Owens, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff–Appellee.

Lauren Faust Kaeseberg, Attorney, Sheldon Sorosky, Attorney, Kaplan & Sorosky, Chicago, IL, for Defendants–Appellants.

Before WOOD, Chief Judge, and WILLIAMS, and HAMILTON, Circuit Judges.

WILLIAMS, Circuit Judge.

Viktor and Lilya Domnenko committed fraud twice in relation to the same house, once while buying it and once while selling. When purchasing the house, they submitted loan documents containing false incomes, doctored bank statements, and failed to disclose that the transaction was far from arm's length since Viktor's company was selling and his wife was buying. And, the Domnenkos had a deal with Viktor's company that they would purchase the house for $750,000 and any money paid to the company above that amount would go directly to Viktor. So, the approximate $1 million in loans the Domnenkos received resulted in roughly $250,000 extra that was not disclosed on the settlement papers as going to the Domnenkos, even though it actually did. As a result of that $1 million loan, the Domnenkos were able to sell the house four months later for close to the same inflated amount, rather than the actual $750,000 that they paid for it, without raising any eyebrows. They also failed to disclose on the HUD–1 forms in the second transaction that they would be giving kickbacks from the sale to the buyer's side. Based on those facts, we reject their argument that the evidence failed to support their convictions for wire fraud. However, just because they were involved in a fraudulent scheme does not necessarily mean it was reasonably foreseeable that all the subsequent economic damages would occur, especially when there was no evidence that they knew they were selling the house to what turned out to be a fictional buyer. For that reason, we remand for further explanation by the district court as to why the loss of roughly $600,000 was “reasonably foreseeable” and why the 14–point sentencing enhancement was proper.

I. BACKGROUND

Because the Domnenkos challenge their convictions based on the sufficiency of the evidence, we draw all reasonable inferences from the facts in the light most favorable to the government. See United States v. Torres–Chavez, 744 F.3d 988, 993 (7th Cir.2014).

This case stems from two separate sales of the same house located in Wheaton, Illinois. Viktor Domnenko was a partner in JVS, a real estate investment group that originally owned the property. JVS sold the house on February 21, 2007 to Viktor's wife, Lilya Domnenko. Although Lilya's name was going to be on all the paperwork, Viktor told his partners that he would be the actual purchaser, agreed to a purchase price of $750,000, and testimony at trial showed that he pulled the strings behind the purchase. Lilya obtained two loans from Washington Mutual Bank (“WAMU”) to buy the house, but those loans were secured based on documents that included the following misrepresentations: (1) Lilya's monthly income from Viktor's construction company was $37,500 (but she actually earned only $1,000 per month according to Viktor and Lilya's jointly filed and signed tax returns); (2) Lilya owned a First Eagle National bank account with a listed balance of $175,000 (but the balance was actually $109); and (3) Lilya individually owned another bank account at Fifth Third Bank (but it was actually jointly owned with Viktor). In addition, none of the settlement papers included the fact that Viktor was a partner at JVS and therefore was essentially on both sides of the transaction.

Based on the fraudulent loan documents, WAMU gave Lilya two loans in the amounts of $749,000 and $240,000 and she purchased the property. That is obviously above the $750,000 amount Viktor agreed to pay JVS. Pursuant to Viktor and JVS's agreement, any amount above their agreed upon $750,000 sales price was to be considered “upgrade fees” and was to revert back to Viktor and another one of his companies. The JVS minutes disclosed the terms of this “upgrade fees” deal and the HUD–1 reflected that JVS, as the seller, was to receive money back from the deal. But, the HUD–1 did not explicitly say Viktor would be receiving roughly $250,000 back and the bank did not know since Viktor was not disclosed as a member of JVS. So, the disclosed transaction on the settlement forms was that JVS was going to receive an extra quarter million dollars; the undisclosed transaction is that every cent of that was going back to the buyer. In all, including the profits he made on the sale as a partner of JVS and the “upgrade fees”, Viktor and his company ended up receiving about $260,000 from the deal.

The Domnenkos lived at the property for about four months and made all the mortgage payments, but then decided to sell. Viktor told a friend, Olanrewaju Okulaja, that Viktor would be willing to give cash back to anyone who was willing to buy the house. Okulaja enlisted the help of some friends who hatched a plan, having Scott Priest pose as “Robert Valle” and buy the house. Robert Valle is a real individual who was not involved in the transaction, but the friends stole his driver's license and social security card and replaced Valle's pictures with Priest's, thereby creating a fake or fictional individual whom we will call “Robert Valle” or “Priest/Valle.” The Domnenkos and “Robert Valle” reached a deal and, in June 2007, Viktor, Lilya, Okulaja, and Priest (posing as Valle), among others, attended the closing. The closing documents did not disclose that the buyer or anyone on the buyer's side of the transaction would receive cash back or a finder's fee, even though such information is required on HUD–1 settlement documents and there was testimony from an employee at the lending institution that such information would have been material. “Robert Valle” received $1,090,573.06 in loans from Countrywide Insurance to complete the sale. After the closing, Viktor told Lilya to sign over her $129,490 proceeds check to Okulaja, which she did. Not surprisingly, “Robert Valle” defaulted on the loan without making a single payment and Countrywide was eventually forced to sell the house for $487,500.

Viktor and Lilya were each charged with three counts of wire fraud pursuant to 18 U.S.C. § 1343 and aiding and abetting wire fraud under 18 U.S.C. § 2. After a bench trial, the trial judge found Viktor and Lilya guilty on all three counts. The Presentence Investigation Report (“PSR”) determined that the loss to Countrywide was $603,073.06 (the difference between the value of “Priest/Valle's” loan and what the house eventually sold for) and recommended a 14–point enhancement pursuant to United States Sentencing Guidelines § 2B1.1(b)(1)(H) since the loss was over $400,000. Defense counsel for both Viktor and Lilya filed written objections to the enhancement, but the court never explicitly ruled on those objections. Defense counsel for each of the Domnenkos argued during the sentencing hearing that they should not be liable for the $600,000 loss because it was not “reasonably foreseeable” that damage would result from their actions, as is required for § 2B1.1(b)(1)(H) to apply. The district court did not explicitly reject or accept those arguments, but when the government asked to “confirm with your Honor that the Court has found the 14–point enhancement for the amount of loss,” the court responded “Yes” without more. The district court applied the 14–point enhancement and sentenced Viktor to 46 months imprisonment on each count to run concurrently, and Lilya to one year and one day's imprisonment on each count to run concurrently. This timely appeal followed.

II. ANALYSIS

The Domnenkos appeal their convictions, arguing the evidence was insufficient to support the conviction. They also appeal the 14–point enhancement, arguing that the $600,000 loss was not a “reasonably foreseeable” result of their fraud. As discussed below, we reject their first argument relating to the convictions but remand for further explanation as to why the loss amount was reasonably foreseeable, and therefore attributable, to the Domnenkos.

A. Evidence Sufficient to Support the Convictions

The Domnenkos first argue the evidence does not support the trial judge's verdict because they did not plan or plot together in relation to the first sale and therefore did not “scheme” to defraud. They also claim there was no fraud during the second sale because the purported kickback was actually repayment of a previous loan that was not tied to the sale and therefore did not need to be disclosed on the closing documents. Finally, they assert that when the two transactions are viewed together, even if the first sale was fraudulent, there was no “scheme” to defraud since a single fraudulent transaction does not constitute a “scheme.”

When faced with a challenge to the sufficiency of the evidence, we ask “whether, after viewing the evidence in the light most favorable to the government, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Torres–Chavez, 744 F.3d at 993 (emphasis in original, quotations omitted). The Domnenkos face “a nearly insurmountable hurdle.” Id. We will only reverse when the “record contains no evidence, regardless of how it is weighed, from which the [trier of fact] could find guilt beyond a reasonable doubt.” Id. (quotation omitted).

To establish wire fraud under 18 U.S.C. § 1343, the government must prove: (1) the Domnenkos' participation in a scheme to defraud; (2) their intent to defraud; and (3) the use of interstate wires in furtherance of the fraud. See United States v. Sheneman, 682 F.3d 623, 628 (7th Cir.2012). “ ‘Intent to defraud requires a...