U.S. v. Harper

• Decision Date: 15 August 1994
• Docket Number: No. 93-10495,93-10495
• Citation: 32 F.3d 1387
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Kent HARPER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1387

32 F.3d 1387

UNITED STATES of America, Plaintiff-Appellee, v. Kent HARPER, Defendant-Appellant.

No. 93-10495.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 13, 1994.

Decided Aug. 15, 1994.

David Lee Titterington, Deputy Federal Public Defender, Phoenix, AZ, for defendant-appellant.

Peter S. Sexton, Asst. U.S. Atty., Phoenix, AZ, for plaintiff-appellee.

Before: FERNANDEZ, RYMER, and T.G. NELSON, Circuit Judges.

FERNANDEZ, Circuit Judge:

Kent Harper was convicted of mail fraud, equity skimming and conspiracy to commit mail fraud and equity skimming. See 18 U.S.C. Secs. 371 and 1341; 12 U.S.C. Sec. 1709-2; 18 U.S.C. Sec. 2. He claims that the district court erred in determining the amount of his victims' losses when it calculated his Guideline score. Thus, he appeals from his sentence. ¹ Because we agree with his contention, we vacate his sentence and remand for resentencing.

BACKGROUND

Harper and his co-conspirator, Larry Spotswood, formed K & L Investments for the purpose of conducting a mail fraud and equity skimming enterprise. They mailed letters to homeowners who were behind on their mortgage payments and whose loans were federally insured. The homeowners were tricked into believing that if they sold their homes to K & L they would no longer be obligated on the mortgages, and their credit histories would not show that they had been foreclosed upon. This proposition was attractive to the homeowners because their equity in the properties was nothing or negative at that time. That is to say, the unencumbered fair market value of the property did not exceed the amount of the encumbrances.

Though the proposition was attractive, it was too good to be true. In fact, K & L did not assume the mortgages and had no intention of doing so. The homeowners remained bound to the terms of the mortgages and to all responsibilities that they had to the lenders before the sales were made to K & L. Harper's true intention was to gain possession of the properties, rent them out, keep the rents, and let the lenders foreclose. Of course, he had no intention of making payments on the mortgages and, basically, did not make any. Over a period of fifteen months K & L acquired some 150 to 300 homes. All of them were eventually foreclosed upon.

A phase of the scheme--the moneymaking part--required renting the properties during the period between the time K & L gained control and before it lost control. In order to do that, K & L offered good deals to renters and pretended that the renters could stay in the homes for an extended period. The renters did pay their rent, but they were put out of the properties as soon as the lenders could foreclose and take over. Having been assured of long-term occupancy, some of the renters actually made improvements to the homes. Of course, in general, the renters did receive some value for their money--a roof over their heads at a very reasonable price. According to the books and records of K & L, which probably understated the income, over $160,000 in rent was collected during the progress of the scheme.

The district court determined that the loss to the victims from the scheme was the average fair market value of the unencumbered properties plus the total amount of the rent collected by K & L. As a result, the court multiplied the lowest number of homes (150) by their average fair market value ($40,000) for a total of $6,000,000. It then added the estimated rent collections ($160,000) and reached a grand total of $6,160,000. Using that number, the court applied United States Sentencing Commission, Guidelines Manual, Sec. 2F1.1(b)(1) ² and increased Harper's offense

level by 14 points. It is from that calculation that Harper appeals.

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction pursuant to 18 U.S.C. Sec. 3231. We have jurisdiction pursuant to 18 U.S.C. Sec. 3742 and 28 U.S.C. Sec. 1291.

We review the district court's interpretation of the Sentencing Guidelines de novo. United States v. Hayes, 7 F.3d 144, 145 (9th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 1403, 128 L.Ed.2d 76 (1994). We review the district court's factual findings for clear error. United States v. Chapnick, 963 F.2d 224, 226 (9th Cir.1992).

DISCUSSION

The parties do not dispute the applicability of U.S.S.G. Sec. 2F1.1 to Harper's offenses. That guideline sets a base offense level of 6--Sec. 2F1.1(a)--and provides for an increase in the level "[i]f the loss exceeded $2,000...." Sec. 2F1.1(b)(1). The table which is a part of Sec. 2F1.1(b) increases the number of points as the amount of the loss increases.

The question, then, is how much was the "loss," and that is not always easy to say. It is not easy here, although the Guidelines do give us some guidance. But before turning to those provisions, we must dispose of Harper's threshold suggestion that the homeowners could not have lost anything because the fact that their homes were in foreclosure, or about to be in foreclosure, meant that they had nothing to lose. We disagree. The homeowners did continue to have an interest in their properties, even if that interest did not have a cash value at that time. Indeed, Harper knew that. That is why he resorted to fraud in order to obtain what the homeowners did have. As Harper well knew, the homeowners would not have sold to him if he had not represented to them that they were getting something for their interests--that is, relief from the obligation of the mortgages and cleaner credit reports. They were, in a word, "owners," and they were not willing to relinquish that ownership to just anyone on just any terms. Thus, even if Harper paid the homeowners what their property was worth to them in terms of dollars--perhaps nothing--they were not willing to sell on those terms alone. "The strictures an owner puts on his willingness to sell an item are not mere ephemera. When a prospective buyer lies in order to evade those strictures, a fraud has been committed upon the owner of the item...." United States v. Bruchhausen, 977 F.2d 464, 469 (9th Cir.1992) (Fernandez, J., concurring; Kozinski, J., joining). Thus, Harper's approach will not work at quite so simple a level, but that does not mean that he has failed to touch a nerve when he argues that there was no monetary loss whatever. With that observation, we return to the Guidelines.

The United States Sentencing Commission recognizes that the concept of "loss" is not self-defining. In its discussion of fraud cases, it says:

Valuation of loss is discussed in the Commentary to Sec. 2B1.1.... As in theft cases, loss is the value of the money, property, or services unlawfully taken.... Frequently, loss in a fraud case will be the same as in a theft case. For example, if the fraud consisted of selling or attempting to sell $40,000 in worthless securities, or representing that a forged check for $40,000 was genuine, the loss would be $40,000.

U.S.S.G. Sec. 2F1.1, comment. (n. 7). In fraud cases, too, there may be further impediments to determining the victim's loss, and for that reason:

[T]he loss need not be determined with precision. The court need only make a reasonable estimate of the loss, given the available information. This estimate, for example, may be based on the approximate number of victims and an estimate of the average loss to each victim, or on more general factors, such as the nature and duration of the fraud and the revenues generated by similar operations. The offender's gain from committing the fraud is an alternative estimate that ordinarily will underestimate the loss.

U.S.S.G. Sec. 2F1.1, comment. (n. 8).

Still, there is a need to attempt to value what was taken from the victim because "Loss" means the value of the property taken, damaged, or destroyed. Ordinarily, when property is taken or destroyed the loss is the fair market value of the particular property at issue. Where the market value is difficult to ascertain or inadequate to measure harm to the victim, the court may measure loss in some other way, such as reasonable replacement cost to the victim. When property is damaged, the loss is the cost of repairs, not to exceed the loss had the property been destroyed.

"[t]he value of [the] property taken plays an important role ... for theft offenses, because it is an indicator of both the harm to the victim and the gain to the defendant." U.S.S.G. Sec. 2B1.1, comment. (backg'd). That method of valuation is described in U.S.S.G. Sec. 2B1.1, comment. (n. 2), which reads:

This approach works rather well in cases of theft and outright destruction of property. It is an excellent indicator of the harm to the victim and of the gain to the offender. Similarly, if the victim is relieved of cash, it is often easy to see that the amount of cash is the value of what was taken, whether it was taken by theft, destruction or fraud. See United States v. Wilson, 993 F.2d 214, 217 (11th Cir.1993).

The Guideline definition usually does work well in the case of theft, even if the stolen property is encumbered. One would be loathe to say that the fair market value of moveable goods had changed because an encumbrance of one type or another was upon the property. In a theft, the unwilling owner is relieved of the property and the thief is enriched by its value. One can readily assess the seriousness of the defendant's conduct in that instance by looking to the fair market value of what was stolen. In the area of fraud, also, "[t]he Guidelines are concerned with assessing the seriousness of the defendant's conduct, given the wide array of conduct covered by fraud." United States v. Haggert, 980 F.2d 8, 13 (1st Cir.1992). Thus, as the court said in Haggert, there can be a vast difference between a person who obtains a contract by fraud with no intention of performing it and one who obtains a contract by fraud but who does intend to perform. Id. at 12-13. But does that mean that someone, like Harper, who...