U.S. v. Riley

• Decision Date: 13 May 1998
• Docket Number: No. 97-30114,97-30114
• Citation: 143 F.3d 1289
• Parties: -2015, 98 Cal. Daily Op. Serv. 3693, 98 Daily Journal D.A.R. 4981 UNITED STATES of America, Plaintiff-Appellee, v. Otis C. RILEY, aka Brandon Allen Becker, III, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1289

143 F.3d 1289

81 A.F.T.R.2d 98-2015, 98 Cal. Daily Op. Serv. 3693,

98 Daily Journal D.A.R. 4981

UNITED STATES of America, Plaintiff-Appellee, v. Otis C. RILEY, aka Brandon Allen Becker, III, Defendant-Appellant.

No. 97-30114.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 6, 1998.

Decided May 13, 1998.

Thomas W. Hillier, II, Federal Public Defender, and Carol Koller, Asst. Federal Public Defender, Seattle, WA, for defendant-appellant.

Kenneth Parker, Asst. U.S. Atty., Seattle, WA, for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington; John C. Coughenour, District Judge, Presiding.

Before: HUG, JR., Chief Circuit Judge, REINHARDT, Circuit Judge, and REED, Senior District Judge. ^*

REINHARDT, Circuit Judge:

We consider in this case two issues related to Otis Riley's conviction for the offense of conspiracy to commit tax fraud. The first is whether the district court properly based Riley's offense level on the amount of the intended loss, rather than the amount of the actual loss. The second is whether the district court properly ordered restitution for losses not directly related to the criminal scheme with which he was charged and convicted. We conclude that the district court's determination of the offense level, which was based on the amount of intended loss, was proper. We agree with Riley, however, that the district court was without authority to order restitution for losses only tangentially related to the criminal scheme.

Background

Between 1993 and 1995, Otis Riley participated in a scheme to file fraudulent tax returns. Using various names (including his own), he opened several post office boxes throughout the state of Washington and elsewhere, and used these addresses on tax returns that he filed. The false returns contained fraudulent names and wage information. In all, 206 claims for refunds were filed, totaling over $249,000 in claimed tax refunds. With the assistance of a friend who worked as a teller for Seafirst Bank in Seattle, Washington, Riley and other coconspirators managed to cash 19 checks that had been issued by the U.S. Treasury (some of which had been altered), resulting in an actual loss of $71,804. All of the checks were cashed by the same friendly teller at Seafirst over the course of a few weeks, from mid-May to early June 1995.

Sometime in early June, after he had negotiated several checks at the bank, Riley bought a brand new Corvette at a price of about $85,000. Using money he had obtained from cashing the IRS checks, he made a $20,000 down payment on the car and obtained the balance of the purchase price through a loan from Seafirst. Riley's car loan application apparently contained false information, but he did not enlist the assistance of the friendly teller in securing the loan. The car itself provided all the security the bank requested.

In March 1996, Riley was arrested for tax fraud and, pending resolution of the case, was released to a halfway house on the condition that he surrender the Corvette and its keys. He failed to comply with the condition and instead promptly absconded. An indictment for failure to appear was issued against him and when he was eventually located in San Jose, California, the car was nowhere to be found.

Upon his rearrest, Riley pleaded guilty to the failure to appear charge. Following negotiations with the government, he also pleaded to charges of conspiracy to commit tax fraud. In his plea agreement on the conspiracy charge, Riley admitted to filing the false returns and cashing the IRS checks at Seafirst. He was not accused of and did not admit to any conduct relating to the obtaining of the car loan. Riley was sentenced for both the conspiracy to commit tax fraud and the failure to appear offenses. The district court imposed a sentence of 46 months imprisonment, to be followed by a three-year term of supervised release. The court also ordered Riley to pay $129,221.04 in restitution, which included the amount outstanding on the car loan.

In calculating the appropriate offense level under the sentencing guidelines, the district court determined that the amount of loss from the scheme was the intended loss of $249,605, the face amount of the tax refund claims that were filed. The district court rejected Riley's argument that the sentence should not be based on the intended loss, but instead on the actual loss of $71,804, and that alternatively the loss should be determined under some form of economic reality test. The district court also rejected Riley's contention that because the car loan was not part of the offense to which he pleaded guilty and was not relevant conduct for purposes of sentencing, it was inappropriate to order restitution of the loan proceeds.

Riley appeals, arguing that the district court erred in rejecting both of these arguments.

I. Actual or Intended Loss

Riley's first contention on appeal relates to the district court's determination that his sentence should be based on the intended loss from the scheme, and not the actual loss. Under § 2F1.1 of the sentencing guidelines, the offense level for a tax fraud conviction is determined in large part by assessing the amount lost--the higher the loss, the higher the offense level. Application note 7 provides that "if an intended loss that the defendant was attempting to inflict can be determined, this figure will be used if it is greater than the actual loss." U.S.S.G. § 2F1.1, application note 7.

In United States v. Lorenzo, 995 F.2d 1448, 1460 (9th Cir.1993), we specifically rejected the argument that in the context of a tax fraud scheme, " 'loss' under section 2F1.1 means only actual loss." Instead, we held in Lorenzo that the sentencing court should use the amount of the intended loss (where higher) in determining the proper sentence. We reaffirmed this position in United States v. Robinson, 94 F.3d 1325, 1328 (9th Cir.1996).

Nevertheless, Riley contends that some of our recent decisions have signaled a shift in fraud cases to the so-called "economic reality approach," under which a court bases its sentence in part on the amount of actual loss. In support of this contention, Riley cites to United States v. Harper, 32 F.3d 1387 (9th Cir.1994). As Harper and other similar cases make clear, however, the economic reality approach is simply one means of arriving at a fair measure of the actual or intended loss. The approach is particularly useful in certain types of fraud cases in which the value of the property obtained, or sought to be obtained, by means of the fraud bears little or no relation to the amount of loss the defendant actually inflicted or intended to inflict. ¹ See, e.g., United States v. Allison, 86 F.3d 940, 944 (9th Cir.1996) (calculating the loss from credit card fraud by subtracting payments the defendant made to the credit card accounts). In those fraud cases, the intended losses cannot be calculated as in theft cases, that is, by simply looking at the value of the object of the fraud. Instead, the intended loss calculation requires a more sophisticated examination of other factors, including the amount of actual loss. In any event, the objective under the economic reality approach is to arrive at a fair assessment of the loss the defendant actually inflicted or intended to inflict, as contemplated by the guidelines.

In this case, it is clear that the amount set forth on the face of the claims for refund is the precise amount of loss Riley intended to inflict. All that is required is a simple mathematical calculation, and there is no reason to use any more sophisticated method of determining the loss. Accordingly, we conclude that the district...