U.S. v. Schaefer

• Decision Date: 13 September 2004
• Docket Number: No. 03-1189.,03-1189.
• Citation: 384 F.3d 326
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Ronald T. SCHAEFER Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

384 F.3d 326

UNITED STATES of America, Plaintiff-Appellee, v. Ronald T. SCHAEFER Defendant-Appellant.

No. 03-1189.

United States Court of Appeals, Seventh Circuit.

Argued January 5, 2004.

Decided September 13, 2004.

Appeal from the United States District Court for the Southern District of Indiana, S. Hugh Dillin, J.

COPYRIGHT MATERIAL OMITTED

Richard N. Goldberg (argued), Department of Justice, Washington, DC, for Plaintiff-Appellee.

Christopher R. McFadden (argued), Sidley, Austin, Brown & Wood, Chicago, IL, for Defendant-Appellant.

Before CUDAHY, POSNER and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

I.

This is a successive appeal. The facts underlying Ronald Schaefer's conviction are set forth in our prior opinion, United States v. Schaefer, 291 F.3d 932 (7th Cir. 2002) (Schaefer I), and since they are not directly relevant to this appeal, we will not repeat them here. Suffice it to say that Schaefer was convicted by a jury in April 2000 of five counts of fraud in connection with the sale of Walt Disney animation cels, which are painted drawings of popular animated characters on clear plastic or acetates. One count of conviction was subsequently vacated by Judge S. Hugh Dillin, who was presiding over the case at the time, because the government improperly withheld potentially exculpatory evidence in violation of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). (See 11/25/2002 Order at 4.) Judge Dillin sentenced Schaefer to 37 months' imprisonment in accordance with his determination that the total loss stemming from Schaefer's fraudulent activities (both charged and uncharged) was $231,000, resulting in an 8-level enhancement and a total offense level of 20, with a corresponding 1997 Sentencing Guidelines range of 33-41 months.

The $231,000 loss was calculated by applying the government's suggested multiplier of 55% to an estimate of the value of the artwork purchased by Schaefer's customers between 1994 and 1999 — $420,000. The 55% multiplier was derived by determining the percentage of the total value of animation art Schaefer sold to three representative customers¹ that was attributable to fraud. In other words, only $38,500, or 45%, of the $84,249 that these three customers paid Schaefer was attributable to the actual market value of the artwork they purchased; the remainder of the price was attributable to Schaefer's fraudulent misrepresentations. (PSR at 33.²) The $420,000 figure is Schaefer's total income from the sale of animation art between 1994 and 1999 (id. at 30), which corresponds to the total amount purchasers paid Schaefer for animation artwork during that time. Judge Dillin, however, did not include specific factual findings in making his loss determination for sentencing purposes. On appeal, we held that conduct, to be relevant conduct, had to be unlawful. Schaefer I, 291 F.3d at 939-40. There were no findings that Schaefer's conduct had met this test. Id. at 945. However, we noted that the extrapolation/multiplier methodology was not itself inherently unreasonable. Id. at 944. We therefore vacated Schaefer's sentence and remanded the case, which was reassigned to Judge Barker,³ for a determination of "how much of Schaefer's business was tainted by unlawfulness." Id. at 945. We suggested that the simplest way for the government to justify the $231,000 loss calculation would be by pointing out "how the specific elements of mail and wire fraud, which were the crimes specified in the fourteen-count indictment, were an integral part of Schaefer's artwork business from 1994 to 1999." Id. at 938. Alternatively, Schaefer's conduct could be shown to violate other criminal statutes (e.g., state criminal fraud provisions). Id.

Judge Barker reviewed the record and the parties' briefs and submissions and heard oral argument from the parties. She then found, by a preponderance of the evidence, that all of the charged conduct was criminal because it constituted mail or wire fraud; that all of Schaefer's uncharged conduct was equally criminal because Schaefer used the same methods and means throughout his dealings in animation art as he did with respect to the conduct charged; and that Schaefer's intentions and methods in dealing in animation art were part of an overall scheme to defraud. But despite concluding that all of Schaefer's conduct was unlawful, and in the face of our suggestion in Schaefer I that the 55% multiplier and extrapolation were reasonable ways to estimate the loss stemming from Schaefer's fraudulent conduct, Judge Barker found that the 55% multiplier was too speculative to allow losses to be calculated with particularity. (11/25/2002 Order at 9.) Therefore, she declined to use it in determining loss for the purpose of sentencing. (Id.) Instead, Judge Barker determined that the total loss from sales to the three representative victims that could be identified with particularity was $81,801. She then used $81,801 as the relevant conduct amount "because it is the calculation that the Court can most straightforwardly and accurately perform and document from the evidence and about which we have the most confidence in terms of a sum certain." (Id. at 8-9.) She then sua sponte added a 3-level upward departure to Schaefer's sentencing level because "the identifiable losses grossly and substantially understate the actual monetary losses resulting from Defendant's criminal behavior": one level because Schaefer's overall earnings of $420,000 during the period 1994-1999 were virtually all fraudulently generated; one level because of the extent of the intended loss as evidenced by the seizure of $500,000 in inventory; and one level because of the loss to purchasers from unrealized appreciation⁴ in value. (Id. at 11-12.) The resulting sentencing range included the sentence of 37 months that Judge Dillin had ordered, and Judge Barker reimposed that sentence.

However, Judge Barker's sentencing methodology also gives Schaefer a whole new set of issues to appeal. He chips away at Judge Barker's determination that his victims suffered $81,801 in identifiable losses by arguing that that amount incorrectly includes uncharged transactions (half of which he alleges involved no fraud, despite the district court's conclusion to the contrary) as well as the loss attributable to Count Two, which had been vacated on Brady grounds. He also argues that the district court erred in departing upward three levels given Judge Barker's finding that it is "speculative" to claim that Schaefer's customers suffered more than $81,801 in losses, and because the Guidelines already took into account the circumstances cited for the departures. In the wake of the Supreme Court's decision in Blakely v. Washington, ___ U.S. ___, 124 S.Ct. 2531, 159 L.Ed.2d 403 (2004) and our application of its principles to the federal sentencing guidelines in United States v. Booker, 375 F.3d 508 (7th Cir.2004), cert. granted 2004 WL 1713654 (U.S. Aug.2, 2004), Schaefer filed a supplemental brief arguing that resentencing is required because in calculating his sentence, the district court relied on facts not found by a jury.

II.

These days it should come as no surprise that our discussion commences with the Supreme Court's recent decision in Blakely and our reading of Blakely in Booker. As we recently observed, "the constitutional validity of the Guidelines is in doubt." United States v. Shearer, 379 F.3d 453, 2004 WL 1795085, at *3 (7th Cir. August 12, 2004). We continued:

Under Blakely as interpreted in Booker, a defendant has the right to have a jury decide factual issues that will increase the defendant's sentence. As Booker holds, the Guidelines' contrary assertion that a district judge may make such factual determinations based upon the preponderance of the evidence runs afoul of the Sixth Amendment.

Id. In accordance with both Booker and Shearer, we must remand the present case to the district court for resentencing.

III.

Although Blakely and Booker necessitate our remand of this case to the district court for resentencing, we will nonetheless address Schaefer's arguments under the Guidelines relating to the loss calculations and upward departures employed by the district court. We do so in the interest of judicial economy in the event that the Supreme Court may subsequently decide some other fate for the federal Guidelines than that indicated in Booker.

A. Loss calculations

We review the district court's calculation of loss caused by a defendant's fraudulent conduct for clear error. United States v. Sykes, 357 F.3d 672, 675 (7th Cir.2004); Schaefer I, 291 F.3d at 936-37. "To find clear error we must be persuaded that the sentencing court made a fundamental error which resulted in a complete miscarriage of justice." United States v. Hatchett, 31 F.3d 1411, 1423-24 (7th Cir.1994). "Reversal is warranted only if the district court's loss calculation evokes a `definite and firm conviction that a mistake has been made.'" Schaefer I, 291 F.3d at 937 (citations omitted).

On remand, Judge Barker reviewed the record and the parties' briefs and submissions and heard oral argument from the parties. She found, by a preponderance of the evidence, that all of the charged conduct (both counts of conviction and counts of acquittal) was criminal because it constituted mail or wire fraud. (11/25/2002 Order at 6-7.) She then found that all of Schaefer's uncharged conduct was also criminal because Schaefer used the same methods that he used with respect to the charged conduct. (Id. at 7.) She concluded that "the whole of Defendant's art selling business activities during the years 1994 through 1999 comprised a fraudulent scheme perpetrated by him against numerous customers/purchasers, virtually all of whom became victims through Defendant's acts of mail and wire fraud." (Id. at 2.)

Judge Barker also noted that relevant conduct, to qualify as such, must be within the scope of the scheme to defraud. In that...