U.S. v. Studley

• Decision Date: 13 February 1995
• Docket Number: D,No. 532,532
• Parties: UNITED STATES of America, Appellee, v. Brian STUDLEY, Defendant-Appellant. ocket 94-1228.
• Court: U.S. Court of Appeals — Second Circuit

Page 569

47 F.3d 569

UNITED STATES of America, Appellee, v. Brian STUDLEY, Defendant-Appellant.

No. 532, Docket 94-1228.

United States Court of Appeals, Second Circuit.

Argued Nov. 22, 1994.

Decided Feb. 13, 1995.

Norman Trabulus, Mineola, NY, for defendant-appellant.

Douglas T. Burns, Asst. U.S. Atty., Brooklyn, NY (Zachary W. Carter, U.S. Atty., Emily Berger, Asst. U.S. Atty., of counsel), for appellee.

Before: OAKES, JACOBS and CALABRESI, Circuit Judges.

OAKES, Senior Circuit Judge:

Brian Studley appeals from an April 28, 1994, judgment of conviction, after a guilty plea, of one count of mail fraud in violation of 18 U.S.C. Sec. 1341, entered in the United States District Court for the Eastern District of New York, Arthur D. Spatt, J. Studley was sentenced to ten months of incarceration, followed by two years of supervised release, and was required to pay a special assessment of $50.

The sentence was based on the district court's determination that activities of other offenders were "jointly undertaken" with Studley within the meaning of U.S.S.G. Sec. 1B1.3(a)(2) and thus were attributable to Studley for sentencing purposes as relevant conduct. The issue on appeal is whether the district court used the proper legal standard in making this determination. As set forth below, we hold that the district court did not apply the correct legal standard and thus did not make the findings of fact necessary to determine whether the defendant participated in jointly undertaken criminal activity. We vacate the sentence and remand for further fact-finding and for resentencing in accordance with this opinion.

I. Background

On July 29, 1993, Brian Studley pled guilty to fraudulently inducing a customer to pay a $249 application fee for a loan the customer would never actually receive, thereby committing one count of mail fraud. The fraud took place while Studley worked as a salesperson in a telemarketing operation which employed between ten and twenty sales representatives, all of whom were making similar false representations to customers. In Studley's Presentence Report, the Probation Department recommended to the court that Studley be held accountable for the entire loss caused by the telemarketing operation during the term of his employment, just under $120,000, as it was relevant conduct pursuant to U.S.S.G. Sec. 1B1.3(a)(2).

Studley objected to this recommendation in a letter dated January 17, 1994. He argued that the actions of the other employees of the telemarketing operation were not "jointly undertaken criminal activity" within the meaning of section 1B1.3(a)(2), and therefore should not be attributed to Studley. Studley argued that he should be liable only for the estimated $5,000--$10,000 loss he caused himself.

The district court held a sentencing hearing on March 11, April 8 and April 15, 1994, in order to determine the scope of Studley's relevant conduct. The first day of the hearing was dedicated to the issue addressed in this appeal: whether Studley should be held accountable for the loss caused by the operation as a whole, or only for the loss caused directly by Studley. At the outset of the hearing the judge read from the relevant sections of the Presentence Report and the defendant's letter to the court requesting the hearing, but the court did not set out the legal standard by which its decision would be made.

A. The Events

The facts proffered by the government at the sentencing hearing and set forth in Studley's Presentence Report prepared by the Probation Department are not disputed by Studley in this appeal:

Pacific Consulting, Inc. ("Pacific") was a telemarketing company established by a man named Howard Adler ¹ for the sole purpose of carrying out a fraudulent loan scheme. Adler leased office space in a commercial building and furnished a reception area, offices and several rooms of telephone banks. Pacific, under the guidance of Adler, placed advertisements in newspapers throughout the United States offering individual loans in exchange for advance fees. The advertisement included a telephone number that potential borrowers could call to apply for a loan. Adler hired employees to answer the telephone calls from applicants, and instructed his employees to require applicants to submit an application fee in order to be considered for a loan. Although there is some evidence that Adler initially had a relationship with a lending company, only six of the approximately 1,100 applicants actually received loans during the twelve weeks Adler was in business. During that time, Pacific took in an estimated $273,153 in application fees. According to the Postal Inspectors who investigated the case, Adler was in total control of the proceeds of the operation and was in control of the criminal activity.

Adler hired between ten and twenty sales representatives, including Studley, to process the telephone calls from would-be borrowers. Rolf Ihlenfeldt, a former sales representative of Pacific, was the government's sole witness at the sentencing hearing on the issue of whether Studley participated in jointly undertaken criminal activity. He testified that he applied for a telemarketing position at Pacific by answering an advertisement in New York Newsday, a paper of general circulation in the New York-Long Island area, for a position as a telemarketing representative.

Ihlenfeldt testified that Studley started working about one week after he did and quit five or six weeks later. Ihlenfeldt testified that Adler led the sales representatives to believe that the customers were actually receiving loans, telling them that the customers' loan applications were being processed in Cincinnati, Ohio. Ihlenfeldt learned otherwise when he and the other sales representatives began receiving telephone calls from angry customers. He testified that he learned the customers were not receiving loans after he had worked at Pacific for four or five weeks, but he later testified that he was aware before that time that the customers were not receiving loans.

Ihlenfeldt testified that when he was hired, Adler gave him a script to use when speaking to potential borrowers, which involved taking certain financial information and asking them how much they would like to borrow. The sales representative would then tell the customer that the representative would "go upstairs" and speak with the manager to see if the customer could be preapproved for a loan. If the customer met certain financial requirements, the sales representative, never having actually consulted with a manager, would call the customer back and inform the customer that he or she had been preapproved. The representative would then tell the customer that he or she should send $249 by overnight mail to Pacific to cover the cost of processing the loan.

The sales representatives worked together in two rooms which contained banquet tables and telephones. The phones worked on a "hunt" or roll-over system in which the call would ring on phone number one if that phone were free; if phone number one was busy, the call would bounce to phone number two and so on--a modern-day version of a "bucket-shop" operation.

The sales representatives were assigned to telephones based upon their sales performance, with the most productive sales representative on phone number one. Ihlenfeldt was the leading "salesman," and Studley, as the second most productive, was assigned to phone number two. While some sales representatives were paid a weekly base salary of $100, Studley was paid on a pure commission basis--$40 for each $249 application fee brought in. The sales representatives were instructed to use aliases, or "phone names" (Ihlenfeldt knew Studley by the name "Bobby Bates"), which, they were told, were used supposedly because they were more conducive to telephone sales.

Studley was employed at Pacific from July 17, 1991 to August 27, 1991, approximately five and one-half weeks. During this time, Studley collected between $5,000 and $10,000 in fees. It is not clear at what point during his employment Studley realized Pacific was not a legitimate operation, or when he knew he was participating in a scam. Ihlenfeldt testified that he and Studley did discuss the fact that customers were not receiving loans. Ihlenfeldt estimated that at the time of their conversation, two out of three of the calls received by the sales representatives were complaints from customers who had not received loans.

Ihlenfeldt and Studley agreed that Adler's operation was going to be short-lived because there were so many angry customers. Ihlenfeldt and Studley even talked about opening their own loan business, with a customer service department which would refund a customer's money if the customer did not receive a loan.

Ihlenfeldt also testified that Studley joked about the section of the script in which they pretended to "go upstairs" and talk to the manager to get preapproval for the loans. Studley went beyond the scope of the script, Ihlenfeldt testified, in order to induce customers to send the application fee--promising that the loan was guaranteed or stating that he was holding the loan check in his hand or that the customer would receive the loan within twenty-four hours.

Additionally, Ihlenfeldt testified that toward the end of Studley's employment, Studley defrauded Adler by asking customers to send the $249 application fee by Western Union, which Studley would keep in its entirety instead of passing it on to Pacific.

The district court found that Studley should have realized the operation was fraudulent from the outset because the script required him to tell customers he was consulting with a manager to get preapproval for the loans when in fact he was not. Studley does not contest this finding.

No evidence was presented, however, that Studley's involvement in Adler's operation extended in any way beyond his own sales efforts. No evidence suggested that he assisted other sales...