U.S. v. Erpenbeck
| Decision Date | 02 July 2008 |
| Docket Number | No. 06-4386.,No. 06-4248.,No. 06-4247.,No. 06-4389.,06-4247.,06-4248.,06-4386.,06-4389. |
| Parties | UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant, v. A. William ERPENBECK, Jr., Defendant-Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Cincinnati, Ohio, for Appellee.
ON BRIEF:
Eric W. Richardson, Glenn V. Whitaker, Michael J. Bronson, Vorys, Sater, Seymour & Pease LLP, Cincinnati, Ohio, for Appellant. Benjamin C. Glassman, Assistant United States Attorney, Cincinnati, Ohio, for Appellee.
Before: GILMAN, ROGERS, and McKEAGUE, Circuit Judges.
GILMAN, J., delivered the opinion of the court, in which McKEAGUE, J., joined. ROGERS, J. (pp. 444-45), delivered a separate opinion concurring in all of the majority opinion except for part II.C.1.b, the last sentence of part II.E.2 and part II.E.3.b.
A. William Erpenbeck, Jr. pled guilty to one count of bank fraud, in violation of 18 U.S.C. § 1344. Before he was sentenced, he also pled guilty to participating in a conspiracy to obstruct justice by interfering with his sentencing proceeding, in violation of 18 U.S.C. § 371. The court then sentenced Erpenbeck to 300 months of imprisonment for bank fraud with a concurrent sentence of 60 months for obstruction of justice. This resulted in a final sentence that was 65 months above the district court's calculation of the applicable Guidelines range for the bank-fraud charge.
Erpenbeck argues on appeal that his sentence is procedurally and substantively unreasonable and that the district court violated Rule 32(h) of the Federal Rules of Criminal Procedure by failing to provide him with proper notice that it was considering an upward departure. The government has conditionally cross-appealed, arguing that if we find that a resentencing is warranted, we should correct the district court's Guidelines determination as to the amount of actual loss and the number of victims. The government made clear in its briefs and at oral argument, however, that if we conclude that Erpenbeck's arguments are without merit, the government waives all of the issues raised in its cross-appeal. Because of our conclusion that Erpenbeck's arguments are without merit, and that any errors made by the district court in calculating Erpenbeck's sentence either militate in Erpenbeck's favor or are harmless, we AFFIRM the judgment of the district court.
Erpenbeck was the president of Erpenbeck Development Company and its affiliated companies (EDC). EDC, located in Edgewood, Kentucky, was once one of the largest developers of single-family homes and condominiums in the greater Cincinnati and northern Kentucky region. Erpenbeck's sister, Lori Erpenbeck, worked as a bookkeeper for EDC until January of 2002.
To finance its building program, EDC obtained construction loans from FDIC-insured banks. According to EDC's agreements with its construction lenders, EDC was supposed to pay the appropriate lender the portion of the construction loan applicable to each home or condominium when the property was sold. EDC's closing agent would utilize the closing proceeds to prepare a check in the agreed amount made payable to the construction lender. The check was then to be given to the construction lender so that the home buyer would take his or her property free of the construction lien (i.e., subject only to any long-term mortgage that might have been arranged by the buyer). If the construction lender was not paid, however, the buyer's house was saddled with two liens (the construction lien and the mortgage) and the buyer's mortgage was junior to the construction lien.
From 1999 until about March of 2002, EDC's spending exceeded its income. Erpenbeck and EDC's closing agents responded to this cash squeeze by depositing buyers' closing checks into EDC's own accounts rather than having the agents first disburse the proper amounts to the construction lenders. Many checks were diverted to EDC accounts at either Firstar Bank or People's Bank of Northen Kentucky (PBNK). On some occasions, where buyers paid cash and no permanent lender was involved, Erpenbeck or EDC employees simply used the cash for EDC's benefit.
EDC began to refer to the money that it received from buyers but did not apply to the construction loans as "holds" or "held loans." To prevent the construction lenders from discovering that a property had been sold and that a lien payoff was due to the lender, Erpenbeck and EDC employees continued to make interest payments on the loans. Homeowners often did not discover that a construction lien was still on their homes until they attempted to sell or refinance. When such a homeowner contacted EDC, EDC would quickly pay off the loan and clear the title, explaining to the buyer that the remaining lien was the result of a paperwork error.
In addition to the held-loan scheme, Erpenbeck, along with PBNK officers John Finnan and Mark Menne, submitted false reports to other lenders in order to obtain additional loans for EDC. The men secured the loans by lying about the equity in EDC's development projects. In one instance, Erpenbeck obtained a loan from another bank by submitting a false statement of construction work. He went so far as to install fake manhole covers in the streets of a development to obtain a draw for a sewer system that did not exist.
Finnan and Menne also solicited other banks to purchase approximately $20 million worth of PBNK's construction loans to EDC. The government asserts that the men further conspired with Erpenbeck to obtain funds for EDC's operating accounts for the purpose of allowing Erpenbeck to cover EDC's various overdrafts, and that Finnan and Menne made the held-loan scheme possible by instructing PBNK employees to permit EDC to deposit checks into its own accounts that were made payable to other construction lenders.
In January of 2002, Provident Bank, one of the banks that had lent EDC money, discovered that EDC had sold 9 of 13 units in a Provident-financed project but had not paid off any of the construction loans. Soon other banks began to make similar discoveries. Erpenbeck met with the banks, pled accounting problems, and asked for additional time to pay off the loans. Finally, on March 22, 2002, Jim Hass, a former financial officer at EDC, informed Firstar Bank about the held-loan scheme at EDC. Erpenbeck turned himself in to the FBI that same day.
By the time Erpenbeck turned himself in, EDC had illegally diverted a total of $33.9 million. The scheme eventually defrauded 8 federally insured construction lenders, 32 other federally insured financial institutions that provided mortgage loan financing for the individuals who bought EDC properties, and a total of 260 individuals who purchased EDC properties on which the construction liens were not removed. When Erpenbeck's fraud was discovered, 224 individuals still had construction liens on their homes that totaled approximately $26 million. The government alleges that many individual homeowners suffered emotional distress, in addition to potential financial loss, upon discovering that they could lose their homes because of the construction liens.
After the fraud was discovered, the Federal Deposit Insurance Corporation (FDIC) began to investigate PBNK. PBNK was eventually required to charge off more than $6 million in loans to EDC and over $5 million in loans to Erpenbeck and his family members. The investigation also uncovered the $20 million in EDC loans that Finnan and Menne had persuaded other banks to buy. As a result of the scandal and the FDIC investigation, PBNK's board of directors sold PBNK to the Bank of Kentucky in order to keep it from closing outright.
Individuals with construction liens on their homes who had financed their purchase with a long-term mortgage also took action by bringing a class-action lawsuit against PBNK. The construction liens at issue in the lawsuit were ultimately released through a settlement agreement, referred to as the "Mitchell settlement." As part of the Mitchell settlement, PBNK put approximately $16.8 million into an escrow account. Money from the escrow account was then distributed to the construction lenders who had been defrauded by Erpenbeck's held-loan scheme. The construction lenders then discharged the liens on the homes of the individual homeowners defrauded by Erpenbeck. Five million of the $16.8 million settlement was paid by PBNK's insurance, $4 million was paid by various agents and title insurers, and the balance of the settlement, nearly $8 million, was paid by PBNK.
The class-action lawsuit settled only those liens where the homeowner had financed his or her home through a permanent lender. Individuals who paid cash for their homes were not included in the settlement. This partially explains the difference between the $16.8 million settlement and the approximately $26 million in total liens that were unpaid as of March 2002. In addition to the payments that various construction lenders received as part of the Mitchell settlement, each of them foreclosed on EDC property that had been pledged as collateral for the construction loans.
Erpenbeck was charged with and later pled guilty to bank fraud. He was released on bond in April of 2003. The government intended to call Erpenbeck's sister, Lori, to testify at his sentencing hearing in order to refute Erpenbeck's assertion that Lori was actually the person responsible for the fraud. On February 2, 2004, Erpenbeck's father, Anthony Erpenbeck, and Erpenbeck met with Lori in an attempt to persuade her to testify at the hearing in a way that would minimize Erpenbeck's culpability. Following the initial meeting, Lori contacted the FBI and wore a wire to additional meetings with Anthony and...
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