U.S. v. Smith

• Decision Date: 17 September 1991
• Docket Number: No. 90-30060,90-30060
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Jerry D. SMITH, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 618

944 F.2d 618

UNITED STATES of America, Plaintiff-Appellee, v. Jerry D. SMITH, Defendant-Appellant.

No. 90-30060.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 4, 1991.

Decided Sept. 17, 1991.

David S. Marshall, Prince, Kelley, Newsham & Marshall, Seattle, Wash., for defendant-appellant.

John C. Carver, Asst. U.S. Atty., Seattle, Wash., for plaintiff-appellee.

Marc A. Boman, Perkins Coie, Seattle, Wash., for amicus curiae Federal Deposition Ins. Corp.

Appeal from the United States District Court for the Western District of Washington.

Before WALLACE, Chief Judge, O'SCANNLAIN, Circuit Judge, and BURNS, ^* District Judge.

WALLACE, Chief Judge:

Smith was convicted on numerous counts of conspiracy and bank fraud as a result of his criminal dealings with the Queen City Savings & Loan (Savings & Loan). The district court sentenced Smith to ten years in prison and ordered him to make restitution to the Federal Savings and Loan Insurance Corporation (FSLIC) in the amount of $12,792,160. Smith challenges only the restitution order in this appeal. The district court had jurisdiction pursuant to 18 U.S.C. §§ 3663 and 3664. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. § 1291. We affirm in part, reverse in part, vacate the order, and remand.

I

Savings & Loan was a state-chartered institution located in Seattle, Washington, the accounts of which were insured by the FSLIC, predecessor in interest to amicus FDIC. By March 1982, Savings & Loan was in serious financial trouble as a result of a number of bad loans. Smith presented himself as a potential purchaser of the institution.

At the height of his career in the late 1970's, Smith had accumulated a net worth of between $50 million and $90 million, and held substantial ownership interests in financial institutions throughout the Pacific Northwest. In 1980, however, Smith's fortunes worsened as his mortgage company in Eastern Washington collapsed. This loss left him in substantial debt, and his plans for a recovery included gaining control of Savings & Loan. Smith did not have the financial resources to purchase the institution himself. Instead, he convinced Block, a wealthy Canadian client, to make a tender offer for the stock of Savings & Loan. A majority of the shareholders accepted the offer, and Block purchased about 93 percent of the institution's stock. Federal regulators approved the purchase in the fall of 1982.

Although he did not own any of Savings & Loan's stock himself, Smith fostered the impression that he was the true purchaser of a controlling percentage of the stock. For example, between the time of Block's tender offer and the point at which Block took control, Smith attended numerous board meetings of Savings & Loan and gave direction on how to solve the institution's financial problems. In addition, on many occasions Smith led various Savings & Loan officials and patrons to believe that he was the actual purchaser of the institution's stock. Thus, although he held no official position at Savings & Loan and did not own a single share of stock, Smith was able to cultivate an image as a Savings & Loan insider that allowed him to influence the institution's financial decisions.

Thus, between 1982 and 1983, Smith persuaded Savings & Loan to extend five separate high risk loans to shell corporations controlled by him. Three of these transactions were land acquisition and development loans, while the remaining two were joint ventures in land purchase and development. Each of the five loans was secured by speculative real estate in the Midland-Odessa area of west Texas, the appraisal value of which was largely inflated by Smith for loan application purposes. The balance sheets and cash-flow projections for the borrowing corporations were most often fraudulent. Moreover, most of the loan proceeds, which were in each case designated for the development of the collateral property, were diverted to the personal control of Smith. Smith used these funds to pay his previous creditors and to finance other outside projects.

Predictably, all five loans fell into default, and the resulting losses pushed Savings & Loan into failure. In July 1984, Gibraltar Saving of California (Gibraltar) acquired Savings & Loan. Almost all of Savings & Loan's assets and liabilities were transferred to Gibraltar, and Gibraltar received a large payment of assistance from FSLIC. After this transfer, the sole remaining asset of Savings & Loan was the institution's claims against its former directors, officers, Smith and others. This asset was assigned to FSLIC during the transition period.

In 1987, the government indicted Smith and three others on sixteen counts of conspiracy, fraud, and bank fraud. A jury convicted Smith on 15 of the counts, and we affirmed the conviction and prison sentence. United States v. Smith, 891 F.2d 703 (9th Cir.1989), amended, 906 F.2d 385 (9th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 47, 112 L.Ed.2d 23 (1990). After numerous delays and two hearings, the district court arrived at the restitution figure and ordered Smith to pay it to FSLIC within five years of his release from prison.

II

Smith first challenges the restitution order on the ground that it constitutes an impermissible application of the Victim and Witness Protection Act (Act), 18 U.S.C. §§ 3663-3664. ¹ We review the legality of a sentence de novo. United States v. Angelica, 859 F.2d 1390, 1392 (9th Cir.1988) (Angelica ).

A.

Smith alleges that many of the criminal acts and resultant losses occurred prior to January 1, 1983, the effective date of the Act. See id. at 1393. Because the restitution order is based on an amount of damages that includes losses incurred prior to the effective date, Smith contends that it is invalid.

We confronted this argument in Angelica, and concluded that the Act did apply to all losses resulting from a mail and wire fraud scheme that had begun before, and continued beyond, January 1, 1983. Because the scheme involved in Angelica was "similar to the ongoing offense of conspiracy," we refused to narrow the restitution order to encompass only losses incurred after the effective date. Id. Instead, "we look[ed] to the duration of the entire fraudulent scheme," and concluded that all of the victims' losses were subject to the restitution order. Id. Angelica controls this case. Smith was convicted of an ongoing criminal conspiracy, embracing all five loan transactions, that continued well beyond January 1, 1983. Thus, as in Angelica, the district court was correct in applying the Act to all losses resulting from the scheme.

Alternatively, Smith argues that we should reconsider Angelica in light of the Supreme Court's recent holding in Hughey v. United States, 495 U.S. 411, 110 S.Ct. 1979, 109 L.Ed.2d 408 (1990). Hughey is not on point. It merely holds that the Act authorizes restitution only for those losses caused by the offense of conviction, and not for losses resulting from other alleged conduct. Id. 110 S.Ct. at 1981. The entire restitution order in this case relates to losses arising from acts for which Smith was convicted, and thus satisfies Hughey. Hughey does not deal with the question of whether the restitution order may encompass losses incurred before January 1, 1983, and therefore does not impact on our holding in Angelica.

B.

Smith next contends that the district court erred in concluding that FSLIC was a "victim" which can receive restitution under the Act. 18 U.S.C. § 3663(a)(1). Because Savings & Loan, not FSLIC, was the entity that suffered the losses, Smith argues that FSLIC is unauthorized to receive payment. We have previously held, however, that a governmental entity is eligible to receive restitution as a "victim" under the Act. United States v. Ruffen, 780 F.2d 1493, 1496 (9th Cir.) (Ruffen), cert. denied, 479 U.S. 963, 107 S.Ct. 462, 93 L.Ed.2d 407 (1986). Although it was not directly harmed, FSLIC did suffer as a result of Smith's conduct, and the Act's legislative history makes it clear that the statute is intended to encompass both direct and indirect victims of criminal acts. See S.Rep. No. 532, 97th Cong., 2d Sess. 13, reprinted in 1982 U.S.Code Cong. & Admin.News 2515, 2519; see also United States v. Hairston, 888 F.2d 1349, 1354-55 (11th Cir.1989) (describing legislative history). The Fifth Circuit has twice held that FSLIC may receive restitution under the Act when, as in this case, it has acquired the claims of a defunct savings and loan. See United States v. Rochester, 898 F.2d 971, 980 n. 7 (5th Cir.1990) (Rochester); United States v. Ryan, 874 F.2d 1052, 1053 (5th Cir.1989) (Ryan ). These rulings are persuasive, and we conclude that FSLIC qualifies as a "victim" under the Act.

III

We deal next with Smith's argument that the restitution order violates his right to due process under the fifth amendment to the Constitution. We review de novo his claim that the sentence is constitutionally invalid. See United States v. Ahumada-Avalos, 875 F.2d 681, 684 (9th Cir.), cert. denied, 493 U.S. 837, 110 S.Ct. 118, 107 L.Ed.2d 79 (1989).

In analyzing the due process claim, "we consider the private and governmental interests at stake, the risk of an erroneous deprivation of the private interests through existing procedures, and the probable value of additional or substitute procedures." United States v. Keith, 754 F.2d 1388, 1392 (9th Cir.) (Keith), cert. denied, 474 U.S. 829, 106 S.Ct. 93, 88 L.Ed.2d 76 (1985). In essence, Smith argues that due process was violated because the criminal restitution process denied him some of the procedures that the alternative civil litigation process would have provided him. For example, Smith alleges that the availability of civil discovery procedures would have allowed the court to explore more fully the causes and extent of the economic losses in this case.

We confronted an identical due process argument in Keith, and concluded that ...