U.S. v. Boccagna

• Decision Date: 13 June 2006
• Docket Number: Docket No. 04-5099-cr.
• Parties: UNITED STATES of America, Appellee, v. Francis BOCCAGNA, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 107

450 F.3d 107

UNITED STATES of America, Appellee, v. Francis BOCCAGNA, Defendant-Appellant.

Docket No. 04-5099-cr.

United States Court of Appeals, Second Circuit.

Argued: June 9, 2005.

Decided: June 13, 2006.

Richard H. Rosenberg (Michael O. Hueston, on the brief), New York, NY, for Defendant-Appellant.

Peter A. Norling, Assistant United States Attorney (Nicole Boeckmann, Assistant United States Attorney, on the brief), for Roslynn R. Mauskopf, United States Attorney for the Eastern District of New York, Brooklyn, NY, for Appellee.

Before JACOBS, SACK, and RAGGI, Circuit Judges.

REENA RAGGI, Circuit Judge.

Defendant Francis Boccagna pleaded guilty in the United States District Court for the Eastern District of New York (Joanna Seybert, Judge) to one count of making a false statement to a federally insured lending institution in violation of 18 U.S.C. § 1014. Sentenced to a term of three years' probation, Boccagna appeals only from the part of his judgment of conviction that, pursuant to the Mandatory Victims Restitution Act of 1996 ("MVRA"), Pub.L. No. 104-132, 110 Stat. 1214, 1227 (codified principally at 18 U.S.C. §§ 3663A and 3664), orders him to pay $18,629,716 in restitution to the United States Department of Housing and Urban Development ("HUD"), the guarantor on various defaulted loans obtained pursuant to the charged criminal scheme. Boccagna challenges his restitution order on three grounds. First, he asserts that the order violates the Sixth Amendment as construed in United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005), because the award is based on facts that were neither proved beyond a reasonable doubt to a jury nor admitted by him in his plea allocution. Second, Boccagna argues that HUD was, in any event, not entitled to any restitution because its claimed out-of-pocket losses were more than offset by the fair market value of the foreclosed collateral that it acquired upon payment of the defaulted loans. See 18 U.S.C. § 3663A(b)(1)(B)(ii). Boccagna asserts that the district court erred as a matter of law in calculating offset value by reference to the nominal sale price at which HUD subsequently transferred title to the collateral to a city development agency. Finally, Boccagna submits that the district court's inclusion in its restitution order of certain expenses incurred by HUD in order to acquire title to the foreclosed collateral impermissibly compensated HUD for consequential damages.

Our recent decision in United States v. Reifler, 446 F.3d 65 (2d Cir.2006), conclusively resolves the first of these issues. Reifler holds that judicial factfinding relevant to an MVRA restitution order does not implicate Sixth Amendment rights. See id. at 120. Accordingly, without further discussion, we hereby reject as without merit Boccagna's constitutional challenge to the restitution order.

Insofar as Boccagna also challenges the district court's valuation of real property to be offset against HUD's out-of-pocket loss, we observe that, for purposes of valuing property — whether lost or recouped — under the MVRA, fair market value will generally provide the best measure to ensure restitution in the "full amount" of the victim's loss. 18 U.S.C. § 3664(f)(1)(A). At the same time, however, we recognize that, in some circumstances, for example, where property is unique or where no active market exists for its purchase, other measures of value may better serve the MVRA's compensatory purpose. For this reason, we decline to hold that, as a matter of law, only fair market value may be used in calculating property values under the MVRA. Nevertheless, we conclude that the nominal sale price of property with a higher fair market value cannot be used to calculate offset value because such a calculation impermissibly awards a victim restitution in excess of its compensable loss. See United States v. Nucci, 364 F.3d 419, 423 (2d Cir.2004). Accordingly, we hereby vacate so much of the judgment of conviction as orders Boccagna to pay HUD $18,629,716 in restitution, and we remand for recalculation of restitution in a manner consistent with this opinion.

I. Factual Background

A. HUD-Insured 203(k) Mortgage Loans

From November 1997 through December 1999, Francis Boccagna and various confederates participated in an elaborate scheme fraudulently to obtain millions of dollars through private real estate mortgage loans insured by HUD under its 203(k) loan program. See 24 C.F.R. §§ 203.50, 203.440 et seq. The 203(k) program is HUD's primary vehicle for stimulating the private rehabilitation and development of residential properties, consistent with HUD's stated mission to "increase home ownership, support community development and increase access to affordable housing free from discrimination." See Appellee Br. 6-7.

To procure a 203(k) loan, a prospective buyer must submit both a mortgage application to an approved private lender and a 203(k) application to HUD. The private lender grants the mortgage contingent on HUD approving the 203(k) application and agreeing to guarantee the loan. Once HUD's approval is secured, the private lender disburses money to the buyer in two steps. At step one, the buyer directly receives the amount of money necessary to purchase the residence at issue. At step two, another sum of money is placed into an escrow account, from which the buyer is authorized to make withdrawals to pay for the accrued costs of rehabilitation work. The regulations effectively limit the number of properties an individual such as Boccagna can acquire and rehabilitate through the 203(k) loan program. No such limitation, however, applies to not-for-profit organizations, which can be awarded multiple 203(k) loans to acquire and rehabilitate numerous low-to-moderate income properties.

B. The Fraud Scheme

In the late 1990s, Boccagna surveyed the New York City residential real estate market in search of undervalued distressed properties. Purchasing a host of these properties in his own name, Boccagna proceeded to "sell" them to not-for-profit organizations at inflated prices.¹ In the two-year period from January 1998 to December 1999, Boccagna "flipped" 162 residential properties, most located in Harlem, to not-for-profit organizations.

In fact, the transactions were shams. The not-for-profit organizations were mere nominal purchasers complicit with Boccagna and his confederates in a scheme to obtain millions of dollars in 203(k) loans under false pretenses. For each property "purchased" by a not-for-profit, Boccagna generally paid representatives of that organization $5,000 to $10,000 in kickbacks. Thereafter, Boccagna assumed sole responsibility for the maintenance and contracting costs on the acquired properties, as well as for repayment of the 203(k) mortgage loans. Boccagna's original plan was to use this loan money to rehabilitate the properties quickly and to sell them in the open market for a profit to be split between Boccagna and the nominal not-for-profit owners. The scheme soon ran into an insurmountable hurdle: New York City's zoning bureaucracy. Unable to secure the certificates required to effect a quick rehabilitation and resale of the properties, Boccagna instead found himself carrying high mortgage and maintenance costs on unprofitable realty. By early 2000, with his assets almost depleted, Boccagna decided to contact government authorities and to confess his misdeeds.

C. HUD's Acquisition and Disposition of Certain Mortgaged Properties

At some unspecified point after Boccagna approached the government, eighty-eight of the 162 fraudulently acquired properties were in foreclosure proceedings. As guarantor of the 203(k) mortgage loans, HUD eventually acquired title to fifty-three of these properties ("the foreclosure properties") by paying down the accelerated loan balances, as well as outstanding taxes, maintenance fees, and associated expenses. This resulting out-of-pocket loss to HUD totaled $20,609,746.

To dispose of the foreclosure properties in a manner consistent with its mission, HUD, in January 2002, entered into a Memorandum of Understanding with the New York City Department of Housing Preservation and Development ("HPD") whereby HPD agreed to purchase the foreclosure properties for what the government concedes were essentially nominal prices ranging from $1 to $120,000, for a total of $1,980,030. It was further agreed that HUD and HPD would jointly undertake to repair a total of 2,200 dwelling units in the foreclosure properties. HUD would pay relocation expenses for families that had to move during the renovation. Meanwhile, HPD agreed to afford all existing tenants in the foreclosure properties the opportunity to purchase renovated dwelling units at affordable prices and/or to provide federally funded rental assistance to qualifying tenants.

D. Boccagna's Plea and Sentencing

Meanwhile, on March 14, 2001, Boccagna pleaded guilty to one count of making false statements for the purpose of influencing the lending decisions of federally insured financial institutions, for which crime he faced a statutory maximum prison sentence of thirty years. See 18 U.S.C. § 1014. Pursuant to the MVRA, the district court was required, in sentencing Boccagna, to order him to pay restitution to any victim of his scheme that had sustained a pecuniary loss. See id. § 3663A.

In its Presentence Report ("PSR") to the district court, the Probation Department recommended that Boccagna be held accountable, both for purposes of Guidelines calculation, see U.S.S.G. § 2F1.1(b)(1)¶ (1998), and restitution, for a $15,683,074 loss to HUD. Although the Probation Department did not provide the court with numerical calculations supporting its recommendation, it stated that the reported loss "represent[s] the difference between the amounts paid out by HUD and the sales prices of the properties to the third parties." PSR ¶ 16. Both the defendant and the government filed written...