United States v. Chaika

• Decision Date: 01 October 2012
• Docket Number: No. 11–3355.,11–3355.
• Citation: 695 F.3d 741
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Troy David CHAIKA, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

695 F.3d 741

UNITED STATES of America, Plaintiff–Appellee,

v.Troy David CHAIKA, Defendant–Appellant.

No. 11–3355.

United States Court of Appeals,

Eighth Circuit.

Submitted: May 18, 2012.

Filed: Oct. 1, 2012.

Julius Anthony Nolen, argued, Minneapolis, MN, for appellant.

Lisa D. Kirkpatrick, USA, argued, St. Paul, MN, for appellee.

Before LOKEN and BEAM, Circuit Judges, and PERRY,^* District Judge.

LOKEN, Circuit Judge.

When the market for luxury homes in the Twin Cities dramatically slowed, real estate agent Troy Chaika and Dustin LaFavre formed Superior Investment Group (SIG) to acquire unsold homes at discounted prices, seek out buyers and arrange mortgage loans that would finance significantly inflated purchase prices, and use the inflated mortgage loan proceeds to pay fees to SIG and a Chaika-owned company and provide cash back to the buyers. SIG did not disclose to mortgage lenders that buyers would receive significant portions of the loan proceeds. The artificially inflated prices were supported by false mortgage loan documents, including duplicate HUD forms to conceal price differentials; false appraisals; and bank statements that misrepresented buyers' incomes and net worth. After the fraudulent transactions, many buyers could not afford the inflated mortgage payments, resulting in foreclosure sales at prices well below the unpaid mortgage balances.

Chaika and LaFavre arranged more than one hundred residential property transactions involving undisclosed cash payments to buyers, despite receiving legal advice that concealing these kickbacks from mortgage lenders was fraud. The FBI and U.S. Postal Service began investigating SIG's practices in 2009. Chaika was charged with seven counts of wire fraud, two counts of mail fraud, and one count of conspiracy to commit wire fraud and mail fraud in violation of 18 U.S.C. §§ 1341, 1343, and 1349. LaFavre pleaded guilty to fraud conspiracy, agreed to cooperate, and testified against Chaika at trial. A jury convicted Chaika of all counts. He appeals the conviction, arguing the district court erred by not permitting him to impeach LaFavre with a prior conviction for a sex offense, and by permitting the government to introduce expert testimony by three witnesses. He also appeals the 102–month sentence, arguing it is substantively unreasonable, and the district court's entry of a post-sentencing Order of Restitution making Chaika and LaFavre jointly and severally liable to pay $7,430,858.30 in restitution to a partially-disclosed list of victims. We vacate the Order of Restitution and otherwise affirm.

I. The Federal Rule of Evidence 609(a) Issue

Prior to trial, the government filed a motion in limine to preclude Chaika from impeaching LaFavre at trial with an eight-year-old state court conviction for felony sexual misconduct and the state court's revocation of LaFavre's probation in 2008. Four months before trial, after a contested motions hearing, the district court granted the government's motion, explaining:

With respect to Mr. LaFavre, I'm going to also not let that sexual conduct conviction come in. I think that it is highly prejudicial. I think that under [Rule] 403 [of the Federal Rules of Evidence] its prejudicial effect clearly outweighs its usefulness. I think, as the Government has pointed out, you have plenty of ammunition, so to speak, to deal with Mr. LaFavre. He has pled guilty here. He has an agreement with the Government which he's going to hope by his testimony and cooperation will reduce his sentence. And clearly that can be brought to the jury's attention in some detail.

On appeal, Chaika argues the district court abused its discretion by not allowing use of this evidence for impeachment purposes.² He relies on Rule 609(a)(1)(A) of the Federal Rules of Evidence, which provides that evidence of a criminal conviction for a crime punishable by more than one year in prison “must be admitted, subject to rule 403 ... in a criminal case in which the witness is not a defendant” for the purpose of “attacking [the] witness's character for truthfulness.” ³ The limitation in Rule 403 permits a court to exclude such evidence “if its probative value is substantially outweighed by a danger of ... unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.”

In considering whether to admit evidence of a prior conviction to impeach a witness, “[t]he weighing of probative value against prejudicial effect is committed to the sound discretion of the trial court.” United States v. Foley, 683 F.2d 273, 278 (8th Cir.), cert. denied,459 U.S. 1043, 103 S.Ct. 463, 74 L.Ed.2d 613 (1982). In criminal cases, decisions from other circuits have upheld exclusion of a government witness's prior conviction for sexual assault or rape if the district court conducted a proper Rule 403 analysis and concluded that impeachment with the prior sexual offense would be unfairly prejudicial, the offense had minimal relevance to the witness'shonesty, and the defendant had ample other bases to challenge the witness's truthfulness. SeeUnited States v. Jackson, 549 F.3d 963, 978–79 (5th Cir.2008), cert. denied,––– U.S. ––––, 130 S.Ct. 51, 175 L.Ed.2d 43 (2009); United States v. Begay, 144 F.3d 1336, 1338–39 (10th Cir.1998).⁴ These decisions reflect our view that Rule 403 affords a district court broad discretion to balance probative value against the danger of unfair prejudice in a particular case. See, e.g., United States v. Banks, 553 F.3d 1101, 1107 (8th Cir.2009); United States v. Morris, 327 F.3d 760, 762 (8th Cir.), cert. denied,540 U.S. 908, 124 S.Ct. 282, 157 L.Ed.2d 197 (2003); Porous Media Corp. v. Pall Corp., 173 F.3d 1109, 1117–18 (8th Cir.1999).

Here, the district court carefully balanced probative value and the risk of unfair prejudice in exercising its Rule 403 discretion. While LaFavre was a key government witness, his prior sexual offense was unrelated to the mortgage fraud at issue and did not require proof of “a dishonest act or false statement.” Rule 609(a)(2). As the district court noted in its pretrial ruling, to the extent LaFavre's truthfulness would be a trial issue, the ability to impeach him with his guilty plea, promise to cooperate, and hoped-for leniency was far more potent “ammunition.” Though Chaika asserts on appeal that the refusal to allow this additional basis for impeachment “deprived defendant of his right to a fair trial,” at trial he did not ask the court to revisit its pretrial ruling in light of LaFavre's specific testimony. Indeed, when Chaika later testified in his own defense, he admitted participating in the fraudulent nondisclosures that LaFavre and other government witnesses had described, claiming that he did so without the requisite intent to defraud. On this record, there was no abuse of the Rule 403 discretion expressly granted the district court in Rule 609(a)(1)(A).

II. The Government's Expert Witnesses

Prior to trial, Chaika moved to exclude the government's expert witnesses, arguing their testimony was not necessary to the jury's understanding of the case. SeeFed. R. Ev. 702(a) (a qualified expert may testify if the expert's knowledge “will help the trier of fact to understand the evidence or to determine a fact in issue”). The district court ruled that it would permit expert testimony to explain the structure of the mortgage loan industry and how a mortgage fraud scheme could operate:

I think the jurors are entitled to know how certain transactions, if they are fraudulent, how they are put together, what are the indicia; just like in a drug transaction how drug dealers deal with cash and scales and with guns and all that sort of thing, so they can then listen to the testimony and see whether part or all of it fits. But don't let that witness go over the line and say in the next question now here is what happened in this case.

At trial, the government introduced testimony by three experts, banker and mortgage loan advisor Keenan Raverty, I.R.S. Special Agent Andy Gibart, and mortgage broker and consultant Ellen Bach. Chaika argues the combined testimony was unnecessarily prejudicial because it “gave the imprint of approval to the government's theory that the real estate transactions completed by the defendant and others were fraudulent rather th[an] good faith efforts to comply with the law.” The government's case was not that complex, he asserts (“a fraud is a fraud, and a lie is a lie”). The abundant expert testimony took from the jury “their duty to evaluate credibility and find facts.”

We review this issue for abuse of discretion, according “substantial deference” to the district court's decision to admit expert testimony. United States v. Roach, 644 F.3d 763, 763–64 (8th Cir.2011) (standard of review). Here, Raverty described how a typical home loan is structured based on his many years in the mortgage finance business. Testimony giving the jury an understanding of the relationships and documents common in legitimate mortgage transactions was obviously relevant to their understanding of the evidence. Special Agent Gibart, part of a multi-agency Mortgage Fraud Task Force, then testified how fraud can be perpetuated within that lending structure. “It is well within the discretion of a district court to allow law enforcement officials to testify as experts concerning the modus operandi of [criminals] in areas concerning activities which are not something with which most jurors are familiar.” United States v. Brenton, 168 Fed.Appx. 747, 749 (8th Cir.), cert. denied,549 U.S. 934, 127 S.Ct. 316, 166 L.Ed.2d 237 (2006), quoting United States v. Solorio–Tafolla, 324 F.3d 964, 966 (8th Cir.2003); see United States v. Liner, 435 F.3d 920, 924 (8th Cir.2006) (expert testimony regarding “fraudulent high-yield investment schemes”). Mortgage consultant Bach, owner of a brokerage business that financed four transactions presented to the jury, testified as an...