U.S. v. Rothwell, 04-5018.

• Decision Date: 29 October 2004
• Docket Number: No. 04-5018.,04-5018.
• Citation: 387 F.3d 579
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. James Ronnie ROTHWELL, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

387 F.3d 579

UNITED STATES of America, Plaintiff-Appellee, v. James Ronnie ROTHWELL, Defendant-Appellant.

No. 04-5018.

United States Court of Appeals, Sixth Circuit.

Argued: June 8, 2004.

Decided and Filed: October 29, 2004.

Appeal from the United States District Court for the Eastern District of Tennessee, Curtis L. Collier, J ARGUED: William T. Alt, Chattanooga, Tennessee, for Appellant. Gary Humble, United States Attorney, Chattanooga, Tennessee, for Appellee. ON BRIEF: William T. Alt, Chattanooga, Tennessee, for Appellant. Gary Humble, Harry S. Mattice, Jr., United States Attorneys, Chattanooga, Tennessee, for Appellee.

Before: MARTIN and SUTTON, Circuit Judges; QUIST, District Judge.^*

OPINION

QUIST, District Judge.

This appeal raises a question of interpretation of the United States Sentencing Guidelines. The issue is whether the district court erred in determining the amount of loss attributable to the defendant, James Ronnie Rothwell ("Rothwell") a contractor with a Small Business Administration disaster relief loan, who filed a false request for progress payments ("Borrower's Progress Certification") in the amount of $103,370. Rothwell later ostensibly expended in excess of the fraudulently obtained funds to complete the construction project. For the reasons set forth below, we reverse the decision of the district court.

I. Facts

In November 1996, Rothwell, a general contractor by occupation, purchased two adjacent properties in Chattanooga, Tennessee. One of the properties, located at 2312 28th Street, had a building on it which was destroyed by a storm in March 1997. Rothwell applied for, and was granted, a disaster relief loan from the SBA to replace the 2312 28th Street property. The SBA determined the replacement value of the building to be $470,021. Costs of debris removal and working capital totaled $107,533. The SBA approved a loan in the total amount of $577,600, to be used only on the 2312 28th Street property. The SBA later approved an increase in the loan amount to a total of $784,600.

As is typical with construction loans, advances of the loan proceeds were made during the course of the construction of the building at 2312 28th Street. The applications for progress payments were supported by invoices and payroll records and by the signature of Rothwell certifying that the submitted documents reflected expenses actually incurred in the effort to reconstruct the damaged property. At the time the building at 2312 28th Street was being reconstructed, Rothwell began to erect an identical building on the site adjacent to 2312 28th Street.

The parties agree that on at least two occasions, Rothwell submitted at least four invoices that did not represent costs incurred on the 2312 28th Street property. The SBA advanced about $103,370 in reliance upon the false invoices and certification.¹ In all likelihood, at least a portion of the money advanced in reliance upon the false certification was used to build the property adjacent to 2312 28th Street.

The SBA disbursed a total of $670,148 on the 2312 28th Street property loan, and Rothwell claims that he spent a total of $742,118.59 (inclusive of the SBA loan) on the building. Thus, in spite of the false certification and invoices, Rothwell claims that he ultimately replaced the funds that he fraudulently obtained from the SBA and that such funds were used in the construction of the building, as envisioned under the terms of the SBA loan agreement, because his total expenses exceeded the loan amount by $71,971. Rothwell made 23 monthly installment payments on the loan, but he defaulted on the loan when he was unable to find tenants for the buildings. The SBA foreclosed on the property and, on October 5, 2001, sold the property for $125,000.² Therefore, the SBA's loss on the project was about $545,000.

Rothwell was indicted for three counts of mail fraud and one count of false statement in connection with the SBA loan. Rothwell pled guilty to Count 4 for having made a false, fictitious, and fraudulent material statement and representation in violation of 18 U.S.C. § 1001. The charge and the conviction related solely to the false Borrower's Progress Certification by which Rothwell obtained the $103,370.

The Presentence Investigation Report stated that the amount of the loss to be determined under U.S.S.G. § 2B1.1(b) should be $103,370, the amount the SBA paid in reliance upon Rothwell's false certification and invoices. Rothwell objected, arguing that the SBA's loss on the project was not $103,370 because the money that he obtained by false statements had actually been spent on the project prior to the Government's discovery of the fraud. Therefore, Rothwell concluded, the intended loss under the applicable Guideline was zero. The Government advocated that the actual loss be set at the amount paid by the SBA in reliance upon the false certification and invoices — $103,370.

The district court first determined to look at actual loss rather than intended loss. But the district court did not simply determine the amount of the loss based upon the amount paid on the false certification during the course of the project. Rather, the district court accepted Rothwell's counsel's word that the taxpayers actually lost $500,000 on the project and then concluded, "I do think that it is fair to attribute to him some percentage of that actual loss. And I think that roughly 20 to 25 percent of that would be fair." That brought the district court to a loss of about $103,000, but by a different route than advocated by the Presentence Investigation Report.

Using the 2002 version of the Sentencing Guidelines, the district court then determined Rothwell's Guideline Offense Level to be 6 pursuant to U.S.S.G. § 2B1.1(a), with another 8 points added pursuant to U.S.S.G. § 2B1.1(b)(1)(E), which requires an 8 point enhancement if the loss sustained by the victim is more than $70,000 but less than $120,000. After deducting two points for acceptance of responsibility under U.S.S.G. § 3E1.1, the district court sentenced Rothwell to five months imprisonment, plus two years of supervised release with five months home detention. The district court also ordered restitution in the amount of $103,370.

Rothwell filed a timely appeal contesting only the district court's determination of the amount of loss attributable to his having filed the false certification and invoices to obtain the progress payments.

II. Discussion

Rothwell's argument on appeal is essentially the same as he presented to the district court: that the false certification made to the SBA "can only be seen to have caused a portion of the total loan to be advanced prematurely. As to those funds, he replaced them voluntarily." (Appellant's Br. at 7.) Rothwell further asserts that there was "no basis to causally connect [his] offense with the fact that there was an eventual default on the loan." (Id. at 11.) Therefore, he argues, there is no loss. And, if there is no loss, then he was wrongfully assessed the eight offense level points pursuant to U.S.S.G. § 2B1.1(b)(1)(E).

Under the Sentencing Guidelines, the district court is to determine the amount of loss by a preponderance of the evidence, and the district court's findings are not to be overturned unless they are clearly erroneous. United States v. Guthrie, 144 F.3d 1006, 1011 (6th Cir.1998). However, "whether those facts as determined by the district court warrant the application of a particular guideline provision is purely a legal question and is reviewed de novo by this court." United States v. Garner, 940 F.2d 172, 174 (6th Cir.1991).

U.S.S.G. § 2B1.1 is the Guideline to be used in determining Rothwell's sentence. This Guideline, as is pointed out earlier in this Opinion, adds levels depending upon the amount of loss caused by a defendant's fraud. U.S.S.G. § 2B1.1(b)(1). Application Note 2 to § 2B1.1 provides guidance for the determination of loss. The application note states that "loss is the greater of actual loss or intended loss." U.S.S.G. § 3B1.1, cmt. (n.2) (2002). "Actual Loss" is "the reasonably foreseeable pecuniary harm that resulted from the offense," and "Intended Loss" is "the pecuniary harm that was intended to result from the offense... includ[ing] intended pecuniary harm that would have been impossible or unlikely to occur." U.S.S.G. § 3B1.1, cmt. (n.2(A)(i) and (ii)). In situations where the losses occasioned by financial frauds are not easy to quantify, the district court need only make a reasonable estimate of the loss, given the available information. U.S.S.G. § 3B1.1, cmt. (n.2(C)). Such estimates "need not be determined with precision." United States v. Miller, 316 F.3d 495, 503 (4th Cir.2003).

As noted above, the district court determined the loss in this case by taking the $500,000 loss which the SBA realized on the foreclosure of the property and assigning a percentage of that loss as representing the portion of the actual loss caused by Rothwell's false statement to the SBA. The $103,370 which the district court determined to be the portion of the actual loss attributable to Rothwell was about equal to the intended loss identified in the Presentence Investigation Report. The district court's actual loss analysis was faulty, however, because it ignored the causation requirement inherent in the rules for determining loss. See United States v. Hicks, 217 F.3d 1038, 1048 (9th Cir.2000) ("Like the other courts to consider this provision, we believe that the term `resulted from' establishes a causation requirement."); United States v. Marlatt, 24 F.3d 1005, 1007 (7th Cir.1994) (applying a causation analysis to the...