United States v. Lonich

• Decision Date: 10 January 2022
• Docket Number: 18-10301,18-10408,18-10394,18-10405,18-10407,18-10395,18-10299,18-10304,18-10298,18-10300,18-10303,18-10390
• Parties: United States of America, Plaintiff-Appellee, v. David Lonich, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Brian Scott Melland, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. David Lonich, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Brian Scott Melland, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Sean Clark Cutting, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Sean Clark Cutting, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

United States of America, Plaintiff-Appellee,
v.
David Lonich, Defendant-Appellant.

United States of America, Plaintiff-Appellee,
v.
Brian Scott Melland, Defendant-Appellant.

United States of America, Plaintiff-Appellee,
v.
David Lonich, Defendant-Appellant.

United States of America, Plaintiff-Appellee,
v.
Brian Scott Melland, Defendant-Appellant.

United States of America, Plaintiff-Appellee,
v.
Sean Clark Cutting, Defendant-Appellant.

United States of America, Plaintiff-Appellee,
v.
Sean Clark Cutting, Defendant-Appellant.

Nos. 18-10298, 18-10395, 18-10299, 18-10408, 18-10300, 18-10394, 18-10301, 18-10407, 18-10303, 18-10405, 18-10304, 18-10390

United States Court of Appeals, Ninth Circuit

January 10, 2022

Argued and Submitted February 10, 2021 San Francisco, California

Appeal from the United States District Court for the Northern District of California Nos. 3:17-cr-00139-SI-3, 3:17-cr-00139-SI-2, 3:14-cr-00139-SI-2, 3:14-cr-00139-SI-4, 3:14-cr-00139-SI-3, 3:17-cr-00139-SI-1 Susan Illston, District Judge, Presiding

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George C. Harris (argued), The Norton Law Firm PC, Oakland, California, for Defendant-Appellant David Lonich.

Juliana Drous (argued), Law Office of Juliana Drous, San Francisco, California, for Defendant-Appellant Brian Scott Melland.

Steven J. Keoninger (argued), Assistant Federal Public Defender; Steven G. Kalar, Federal Public Defender; Office of the Federal Public Defender, San Francisco, California; for Defendant-Appellant Sean Clark Cutting.

Francesco Valentini (argued), Trial Attorney; Brian C. Rabbitt, Acting Assistant Attorney General; United States Department of Justice, Criminal Division, Appellate Section, Washington, D.C.; Adam A. Reeves and Robert David Rees, Assistant United States Attorneys; David L. Anderson, United States Attorney; United States Attorney's Office, San Francisco, California; for Plaintiff-Appellee.

Before: Andrew D. Hurwitz and Daniel A. Bress, Circuit Judges, and Clifton L. Corker, ^[*] District Judge.

SUMMARY ^[**]

Criminal

The panel affirmed Sean Cutting's, Brian Melland's, and David Lonich's convictions, but vacated their sentences and remanded for resentencing, in a complex case arising from fraudulent schemes concerning bank loans and real estate in Sonoma County, California.

The panel held the Sixth Amendment's Speedy Trial Clause was not violated. Defendants claimed a Speedy Trial Clause violation as to all charges first brought in the October 2016 superseding indictment. Defendants then argued this court should reverse their convictions as to the charges in the original March 2014 indictment because of "prejudicial spillover" from evidence used to prove the charges in the allegedly unconstitutional superseding indictment. The panel had no occasion to consider defendants' "prejudicial spillover" theory because the panel held that the government's decision to file new charges in the superseding indictment did not infringe defendants' Speedy Trial Clause

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rights. As to the first factor in the balancing test set forth in Barker v. Wingo, 407 U.S. 514 (1972), the length of the delay, the parties disagreed on when defendants' Speedy Trial Clause rights attached for the new charges first brought in the superseding indictment. Defendants argued the original indictment should be used as the start date for the new charges in the superseding indictment. The government contended the date it filed the superseding indictment should be used. The panel did not need to resolve that debate because it concluded that, even assuming the clock started at the time of the original indictment, there was no Speedy Trial Clause violation because the delay caused no relevant prejudice to defendants.

Defendants challenged the jury instructions on the money laundering (18 U.S.C. § 1957) and misapplication of bank funds (18 U.S.C. § 656) charges, contending that the instructions' overarching definition of "knowingly" conflicted with the required mental states for the two charged offenses. The panel held that the district court's general "knowingly" instruction was permissible and that defendants in any event did not show prejudice from the instruction.

Melland argued that there was insufficient evidence to support his conviction for bribery by a bank employee (18 U.S.C. § 215(a)(2)), which was based on his securing a $50, 000 investment in Melland's energy-drink start-up. The panel held that, as the parties effectively agree, the district court appropriately stated the law when it instructed the jury that, to find Melland "acted corruptly," as required under § 215(a)(2), the jury must determine he "intend[ed] to be influenced or rewarded in connection with any business or transaction of" a financial institution. Noting that the

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circumstantial evidence was plentiful, the panel held that there was sufficient evidence to support the conviction.

Lonich argued that there was insufficient evidence to support his conviction for attempted obstruction of justice (18 U.S.C. § 1512(c)(2)) by encouraging a straw buyer to mislead the grand jury about his role in a scheme to gain control of a real estate development. The panel held that § 1512(c)(2) requires a showing of nexus to an official proceeding, but rejected Lonich's argument that no reasonable jury could have found the required nexus here. Noting that neither party disputes using a "consciousness of wrongdoing" mens rea requirement for purposes of evaluating the sufficiency of the evidence, the panel held that a reasonable jury could find that the government met its burden of proof in demonstrating Lonich's criminal intent.

The panel held that defendants' sentences must be vacated. The district court applied several enhancements that dramatically increased defendants' recommended Guidelines sentencing ranges. These enhancements were premised on a critical factual finding: that defendants caused Sonoma Valley Bank (SVB) to fail, making defendants responsible for associated losses. Addressing the standard of proof that the government was required to meet to demonstrate whether defendants caused SVB to fail, the panel focused on factors five and six of the non-exhaustive factors set forth in United States v. Valencia, 222 F.3d 1173 (9th Cir. 2000). Given the extremely disproportionate sentences that the disputed enhancements produced, the panel held that a clear and convincing evidence standard applies to the factual underpinnings for these enhancements. The panel concluded that the government did not demonstrate by clear and convincing evidence that defendants caused SVB to fail, where the district court made

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no independent findings about the cause of the bank's collapse beyond adopting the Presentence Investigation Reports (PSRs) and rejecting defendants' objections without explanation, and neither the PSRs nor the additional materials the government now cites sufficiently show that defendants were responsible for SVB failing, especially given indications in the record that other factors internal and external to the bank may have contributed to the bank's collapse. This meant that the government did not sufficiently support defendants' 20-level loss enhancement under U.S.S.G. § 2B1.1(b)(1)(K). The panel wrote that its determination that the government did not adequately prove defendants caused SVB to fail means that enhancements under U.S.S.G. § 2B1.1(b)(2)(A)(i) (ten or more victims) and § 2B1.1(b)(17)(B)(i) (jeopardizing the safety and soundness of a financial institution) are infirm as well. The panel wrote that the same is true of defendants' approximately $20 million restitution orders, which were likewise premised on the government's theory that defendants caused the bank to fail. The panel vacated defendants' sentences and remanded for resentencing on an open record.

The panel rejected defendants' remaining challenges to their convictions in a memorandum disposition.

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OPINION

BRESS, CIRCUIT JUDGE.

This complex criminal appeal arises from fraudulent schemes concerning bank loans and real estate in Sonoma County, California. The three defendants, Sean Cutting, Brian Melland, and David Lonich, appeal their convictions and sentences, raising numerous issues for our review.

We affirm defendants' convictions. Among other things, we hold that the government did not infringe defendants' rights under the Sixth Amendment's Speedy Trial Clause; that the district court's jury instructions for money laundering and misapplication of bank funds do not require reversal; and that sufficient evidence supported Melland's conviction for bribery by a bank employee and Lonich's conviction for attempted obstruction of justice.

However, we vacate defendants' sentences and remand for resentencing. The defendants' advisory Sentencing Guidelines ranges increased substantially based on sentencing enhancements that hinged on finding that defendants caused the Sonoma Valley Bank to fail. We hold that because the government has not sufficiently demonstrated that defendants caused the bank's failure, the enhancements are not supported by the record.^[1]

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I. Facts and Procedural History

A

This case involves two overarching fraudulent schemes involving bank officers, a real estate developer, and the developer's lawyer. Defendants Sean Cutting and Brian Melland were officers at Sonoma Valley Bank (SVB). Cutting was SVB's Chief Lending Officer between 2005 and 2011. He joined its board of directors in 2008 and became its CEO in 2009. Melland was a commercial loan officer at SVB. Bijan Madjlessi was a real estate developer who died shortly after being indicted in this case. Defendant David Lonich worked as Madjlessi's in-house lawyer between 2009 and 2012.

Defendants' extensive fraudulent schemes took place over many years. In the first scheme, which we will call the "legal lending limit scheme," Cutting and Melland conspired with Madjlessi and Lonich to induce...