United States v. Calderon

Decision Date03 December 2019
Docket NumberNos. 17-1956,17-2866,17-1969,17-2844,August Term 2018,s. 17-1956
Citation944 F.3d 72
Parties UNITED STATES of America, Appellee, v. Pablo CALDERON, Brett C. Lillemoe, Defendants-Appellants.
CourtU.S. Court of Appeals — Second Circuit

For Appellee: Michael S. McGarry (John Pierpont, Sandra S. Glover, on the brief), Assistant United States Attorneys, for John H. Durham, United States Attorney for the District of Connecticut, New Haven, CT.

For Defendant-Appellant Brett C. Lillemoe: David C. Frederick (Brendan J. Crimmins, Andrew E. Goldsmith, Benjamin S. Softness, on the brief), Kellogg, Hansen, Todd, Figel & Frederick PLLC, Washington, D.C.

For Defendant-Appellant Pablo Calderon: Douglas M. Tween, Linklaters LLP, New York, NY, submitted an opening brief; Pablo Calderon, Darien, CT, submitted a reply brief pro se and argued orally.

Before: Kearse, Pooler, and Livingston, Circuit Judges.

Debra Ann Livingston, Circuit Judge:

Defendants-Appellants Brett C. Lillemoe ("Lillemoe") and Pablo Calderon ("Calderon") (together, "Defendants") appeal from their convictions for conspiracy to commit wire and bank fraud, 18 U.S.C. § 1349, and wire fraud, 18 U.S.C. § 1343, following a jury trial in the United States District Court for the District of Connecticut (Hall, J. ). The Defendants’ convictions arose from their involvement in a scheme to defraud two financial institutions—Deutsche Bank and CoBank—in connection with an export guarantee program administered by the United States Department of Agriculture ("USDA"). The Defendants falsified shipping documents and presented these documents to the banks, thereby facilitating the release of millions of dollars in USDA-guaranteed loans to foreign banks.

The Defendants argue that the Government failed to produce sufficient evidence at trial to support their convictions. Specifically, they argue that the Government failed to demonstrate that, in altering these shipping documents, the Defendants made material misrepresentations that deprived the banks of economically valuable information, as required to support a conviction for wire or bank fraud, or conspiracy to commit those offenses. They also argue that the district court erred in giving the jury a "no ultimate harm" instruction, see infra Part II.A, plainly erred in charging the jury on the elements of bank fraud, 18 U.S.C. § 1344(2), and abused its discretion in giving the jury a modified Allen charge, see infra Part III. Finally, they assert that the district court abused its discretion in ordering the Defendants to pay over $18 million in restitution pursuant to the Mandatory Victims Restitution Act of 1996 ("MVRA"), 18 U.S.C. § 3663A.

We conclude that there was sufficient evidence presented at trial to support the jury’s conclusion that the Defendants violated the wire fraud and conspiracy statutes. We also hold that the district court did not err in giving the jury a "no ultimate harm" instruction, did not plainly err in charging the jury on the elements of bank fraud, and did not abuse its discretion in giving a modified Allen charge to the jury. Finally, however, we conclude that the district court abused its discretion in holding that the USDA was entitled to a restitution amount of $18,501,353 under the MVRA because the Defendants did not proximately cause financial losses equating to that amount. Accordingly, for the reasons given herein, we reverse the orders of restitution, vacate so much of the judgments as order restitution, and remand for the entry of amended judgments without such orders.

I. Factual Background2

International business transactions involving the sale of physical goods are presently carried out by use of unique documents and contracts that serve to mitigate risk among the geographically disparate parties. Such transactions remain highly dependent upon the compilation and presentation of certain physical documents at different stages in the sales process. Indeed, so crucial are the documents underlying these sales that "international financial transactions" have long been said to "rest upon the accuracy of documents rather than on the condition of the goods they represent." Banco Espanol de Credito v. State St. Bank & Tr. Co., 385 F.2d 230, 234 (1st Cir. 1967). The Defendants falsified bills of lading, one such category of shipping documents, so as to render them compliant with contractual and regulatory requirements before their presentation to two U.S.-based financial institutions.

A. Letters of Credit in International Sales

Understanding the Defendants’ scheme requires a basic comprehension of the use of letters of credit in international sales, in this case sales of agricultural goods. "Originally devised to function in international trade, a letter of credit reduce[s] the risk of nonpayment in cases where credit [is] extended to strangers in distant places." Mago Int’l v. LHB AG , 833 F.3d 270, 272 (2d Cir. 2016) (internal quotation marks and citation omitted). As relevant here, the process begins with the contract for the sale of goods negotiated between a domestic exporter and a foreign importer. A typical contract at issue in this prosecution would be one for the sale of soybeans between an American exporter and a Russian importer.

To avoid the risk of nonpayment by the foreign importer, the American exporter bargains for and includes in the contract a term that requires payment by a confirmed and irrevocable letter of credit. The foreign importer then applies to an "issuing bank" (usually a foreign bank) to receive that letter of credit. The foreign-based bank then "issues" the letter of credit in favor of the American exporter, also referred to as the "beneficiary." The letter of credit itself constitutes an "irrevocable promise to pay the [ ]beneficiary when the latter presents certain documents ... that conform with the terms of the credit." Alaska Textile Co. v. Chase Manhattan Bank, N.A. , 982 F.2d 813, 815 (2d Cir. 1992). At the same time, the domestic exporter often works with a domestic bank (also referred to as the "confirming" bank) and assigns its right to payment on the letter of credit to that domestic bank in exchange for immediate payment of the contract price. The payment on the part of the confirming bank to the beneficiary triggers the issuing bank’s obligation to reimburse the confirming bank. Thus, the domestic exporter receives immediate payment for the sale from the domestic bank, and the domestic bank is repaid over time and with interest by the foreign bank. The letter of credit thereby mitigates risk by assigning the rights and obligations of the original contract to financial institutions rather than individual importers and exporters. Alaska Textile, 982 F.2d at 815.

To obtain immediate payment of the contract price upon assigning its right to payment to a domestic bank, an exporter must compile a complete set of documents and present them to that confirming bank. Among the documents necessary to cause a bank to release funds in conformity with a letter of credit is the final contract of relevance here, the "bill of lading." The bill of lading is a contract between either the exporter or the importer and an international carrier of goods, obligating the carrier to transport the goods to the importer’s location or some other distant place. A bill of lading "records that a carrier has received goods from the party that wishes to ship them, states the terms of carriage, and serves as evidence of the contract for carriage." Norfolk S. Ry. Co. v. James N. Kirby, Pty Ltd. , 543 U.S. 14, 18–19, 125 S.Ct. 385, 160 L.Ed.2d 283 (2004).3 The Defendants’ presentation of documents, including bills of lading, to confirming banks for inspection in order to induce the banks to honor their obligations under various letters of credit provided the basis for the prosecutions here.

When a confirming bank examines documents submitted to it for the purpose of obtaining payment on a letter of credit, the confirming bank has two duties: (1) to determine whether these documents conform to the terms of the letter of credit; and (2) to respond if it finds any discrepancies. J.A. 893. The confirming bank never sees the goods at issue, only the documents (including the bill of lading). J.A. 391. Because of this, it inspects the documents rigorously to determine that they comply exactly with the requirements of the letter of credit—for the documents are its only protection. Id.

Indeed, under the law of the majority of jurisdictions (including this one) if the documents provided by the seller to the confirming bank did not "strictly" comply with the requirements of the letter of credit, the issuing bank is entitled to refuse to honor the letter of credit, and the confirming bank is therefore unable to recover the money "assigned" to it by the seller. See Voest-Alpine Int’l Corp. v. Chase Manhattan Bank, N.A. , 707 F.2d 680, 683–85 (2d Cir. 1983) ; see also Mago Int’l , 833 F.3d at 272 (noting that the "absolute duty" to honor the letter of credit "does not arise unless the terms of the letter have been complied with strictly" (internal quotation marks and citation omitted)). "This rule [of strict compliance] finds justification in the bank’s role in the transaction being ministerial, and to require it to determine the substantiality of discrepancies would be inconsistent with its function." Alaska Textile , 982 F.2d at 816. If the documents were nonconforming but honored, an issuing bank could sue a confirming bank for "wrongful honor." See, e.g., Bank of Cochin, Ltd. v. Mfrs. Hanover Tr. Co. , 808 F.2d 209 (2d Cir. 1986) (dismissing on the ground of estoppel only because the issuing bank did not comply with the requirements of the International Chamber of Commerce’s Uniform Customs and Practice for Documentary Credits ("UCP"), Article 8, calling for timely notice of discrepancies in the documents).

As the Defendants themselves note, in a letter of credit...

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