United States v. Sullivan

• Decision Date: 28 August 2014
• Docket Number: 12–3670.,Nos. 12–3631,s. 12–3631
• Citation: 765 F.3d 712
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Daniel SULLIVAN and John J. Sullivan, Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

765 F.3d 712

UNITED STATES of America, Plaintiff–Appellee,

v.Daniel SULLIVAN and John J. Sullivan, Defendants–Appellants.

Nos. 12–3631, 12–3670.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 19, 2014.

Decided Aug. 28, 2014.

Timothy J. Storino, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff–Appellee.

Kent R. Carlson, Attorney, Carlson & Associates, Chicago, IL, for Defendant–Appellant Daniel Sullivan.

Michael I. Leonard, Attorney, Leonard Law offices, Chicago, IL, for Defendant–Appellant John J. Sullivan.

Before BAUER, FLAUM, and HAMILTON, Circuit Judges.

BAUER, Circuit Judge.

Defendants-appellants, Daniel Sullivan and John J. Sullivan, are brothers who owned a group of companies that offered remodeling services to homeowners: New Look Home Services, J & D Home Services, A–Z Home Services, and Contract Services. While the appellants provided honest work on construction jobs when their clients paid in cash, they fabricated a far more profitable, but illegal scheme. By promising homeowners that they could remodel their homes at a discount, the appellants duped numerous people into refinancing their homes and paying the loan proceeds directly to one of the appellants' companies. Once they had the money, the appellants left the job sites unfinished and the homeowners' finances in disrepair.

The appellants targeted neighborhoods on the South and West sides of Chicago. Some of the appellants' employees worked as telemarketers and cold-called homeowners. Daniel Sullivan told telemarketer Martin Kelliher to look for “elderly, ignorant homeowners,” and John Sullivan added that “[t]he more ignorant, the better. Also, the older, the better.” Reading from a script provided by the appellants, employees asked unsuspecting homeowners if they needed remodeling work; if they said yes, the employees offered free in-person estimates. The appellants also hired employees to distribute flyers advertising their discounted remodeling services door-to-door and used a company to mass mail flyers to residents of these target neighborhoods.

Once these advertising efforts stimulated leads, the appellants either visited the homeowners themselves or sent their salesmen, James Browning and Pat Rooney. John Sullivan told Browning to have customers sign blank contracts “in case we ever need to amend something to suit us better” or the blank contracts “could be used as a release.” John Sullivan maintained the predatory sales mantra, telling Browning that the small cash remodeling jobs “keep[ ] the track open, but the refinancing, we get rich with those.”

The appellants referred the homeowners to specific loan officers, usually Jeff Kleinberg and Angelo Petropoulos, who completed the refinancing. The appellants required the homeowners to sign letters of direction, so the title companies sent checks directly to the appellants' companies. With the checks from the refinance in hand, the appellants then required the homeowners to sign over the checks because they needed payment before the remodeling work could begin. The appellants hired subcontractors to do some of the work, but then abandoned the remodeling jobs before completion. From 2002 to 2006, the appellants collected over $1.2 million from over forty homeowners who were victims of the scheme.

In January 2011, a grand jury returned an indictment charging Daniel and John Sullivan with wire fraud in violation of 18 U.S.C. § 1343. They were prosecuted in the same trial. The government presented testimony from six victimized homeowners; testimony from J & D Home Services employees; testimony from a subcontractor who worked on J & D Home Services projects; documents from the appellants' business and personal records; and testimony from various bankers and investigators who verified the financial transactions. The jury found Daniel and John Sullivan guilty of two counts of wire fraud each.

At the sentencing hearing, the district court found that the loss calculation for the appellants' scheme was more than $400,000 but less than $1,000,000 and accordingly increased the appellants' offense level. The district court also applied five separate offense level enhancements because the appellants' conduct involved: (1) vulnerable victims; (2) a violation of a prior court order; (3) sophisticated means; (4) mass-marketing or ten to forty-nine victims; and (5) leadership or organization of the scheme. The district court sentenced each Sullivan brother to 168 months' imprisonment.

The appellants do not appeal their convictions but they challenge the length of their sentences. They argue that the district court's factual findings in the loss calculation and the application of the five other offense level enhancements were in error.

The government has the burden of proving a defendant's relevant conduct by a preponderance of the evidence at sentencing. United States v. Schroeder, 536 F.3d 746, 753 (7th Cir.2008). We review the district court's factual findings during sentencing for clear error, and “we will only reverse if we are left with the definite and firm conviction that a mistake has been made.” United States v. Love, 680 F.3d 994, 999 (7th Cir.2012) (quoting United States v. Radziszewski, 474 F.3d 480, 486 (7th Cir.2007)). We address each of the appellants' arguments in turn.

A. The Loss Calculation

At sentencing, the court calculates the actual or intended loss amount associated with a defendant's fraud and applies whichever is greater. U.S.S.G. § 2B1.1 cmt. app. n. 3(A). The court's loss calculation amount only needs to be “a reasonable estimate of the loss.” Id. § 2B1.1 cmt. app. n. 3(C). To succeed on appeal, a defendant must show that the court's loss calculation “ ‘was not only inaccurate but outside the realm of permissible computations.’ ” United States v. Hassan, 211 F.3d 380, 383 (7th Cir.2000) (quoting United States v. Jackson, 25 F.3d 327, 330 (6th Cir.1994)).

The appellants contend that each remodeling job varied in terms of scope and amount of work completed. Therefore, they argue that the district court overestimated the loss amount by accepting the government's contention that every refinance job was fraudulent without making a definite finding of each victims' actual losses.

For its proffer on forfeiture, the government totaled the gross income from the appellants' refinance jobs from 2002 to 2006, then deducted the labor and material costs. The government based the labor costs on the trial testimony of Kryzsztof Koterba, the appellants' primary subcontractor, who said the most the appellants ever paid him on a project was $8,000; the government based the material costs on an account the appellants had at a store called Remodelers Supply. The government concluded that the appellants caused a loss of $756,924.90.

To debunk the government's calculation, appellants' counsel argued that the evidence at trial did not support the notion that “every refi is a bad refi.” Counsel addressed the work performed at one victim's house, arguing that “[i]f you look at the pictures ... there's a lot of concrete laid and a walkway ... There was a new boiler put in. These things cost a lot of money.” Counsel disputed labor costs by stating that subcontractors other than Koterba worked for the appellants. Counsel also attacked the accuracy of the government's deduction for material costs, noting that “sometimes [the appellants] went to Home Depot. They didn't always buy materials at Remodelers [Supply].” Counsel closed with a general argument that “[a]ny time you do a remodeling job ... I think if you hire a contractor, you can reasonably expect them to double the price of materials and double the price of their labor ...” and concluded that the appropriate forfeiture amount should be between $80,000 and $100,000.

The district court, for the most part, accepted the government's calculation. The district court reasoned that actual, not intended loss was appropriate “since subcontractors were used, [and] that amount of services needs to be deducted from the loss.” However, the district court increased the deduction for material costs by ten percent, “to allow for those costs that were incurred at other places, such as Home Depot.” Given that the maximum estimated labor and material costs per job was about $15,000, the district court excluded all refinance jobs less than $15,000 before calculating actual loss. The district court found a forfeiture and loss amount of $748,601.90, which increased the appellants' offense levels by fourteen points.

We find that the district court reasonably estimated the loss attributed to the appellants' scheme. While subcontractor Koterba testified that the most he ever received was $8,000, the district court used the more conservative $15,000 to determine the universe of transactions that should be considered fraudulent. This step was done before calculating actual loss to ensure that only fraudulent proceeds were thrown into the pot all. This made the overall calculation even more conservative and thus especially reasonable.

The appellants submitted no evidence of their net proceeds from the refinance projects, no invoices from Koterba or other subcontractors, nor any receipts for the materials they purchased from other locations. The appellants' counter-arguments were “wholly unsubstantiated statements” that do not “ ‘undermine, nor even question, the court's acceptance of the government's proof of loss.’ ” United States v. Borrasi, 639 F.3d 774, 784 (7th Cir.2011) (quoting United States v. Sensmeier, 361 F.3d 982, 989 (7th Cir.2004)). There was no error in the district court's decision to base its loss calculation on the reasonably reliable evidence submitted by the government “rather than a sum ascertained by conjecture.” Radziszewski, 474 F.3d at 487.

B. Vulnerable Victim Enhancement

The application of the vulnerable victim enhancement is appropriate when “the defendant knew or should have known that a victim...