United States v. Lonich

• Decision Date: 10 January 2022
• Docket Number: Nos. 18-10299,18-10394,Nos. 18-10304,18-10395,18-10408,Nos. 18-10301,Nos. 18-10303,Nos. 18-10300,Nos. 18-10298,18-10405,18-10407,18-10390,s. 18-10298,s. 18-10299,s. 18-10300,s. 18-10301,s. 18-10303,s. 18-10304
• 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

23 F.4th 881

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

Nos. 18-10299

18-10408

Nos. 18-10300

18-10394

Nos. 18-10301

18-10407

Nos. 18-10303

18-10405

Nos. 18-10304

18-10390

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 10, 2021 San Francisco, California

Filed January 10, 2022

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. Koeninger (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.

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

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 SVB to approve, over a period of years, millions of dollars in bank loans to Madjlessi and entities he controlled. These loans exceeded SVB's legal lending limit—the maximum amount that California law permits a bank to lend a borrower or his affiliates.

Cutting and Melland recommended that SVB approve these loans without disclosing to the bank's loan committee that Madjlessi was the beneficiary. Madjlessi then used the fraudulently obtained loans to pay the interest on preexisting SVB loans. In one instance, Melland secured a loan for Madjlessi only after Madjlessi (through a $50,000 payment from his wife) agreed to invest in Melland's side business, an energy drink start-up known as Magnus Innovations Group.

In connection with this scheme to keep Madjlessi's businesses afloat through fraudulent loans, Cutting and Melland also conspired to conceal from the Federal Deposit Insurance Corporation (FDIC) SVB's overall financial exposure to Madjlessi. Ultimately, Cutting and Melland enabled Madjlessi and his related entities to receive over $35 million in loans from SVB (although the government did not claim all these loans were fraudulent).

In the second scheme, which we will call the "101 Houseco scheme," Madjlessi and Lonich conspired with Cutting and Melland to gain control of Park Lane Villas East (PLV East), a Madjlessi real estate development in Santa Rosa, California. By March 2009, Madjlessi had defaulted on a separate $32 million loan from another bank, IndyMac, secured by PLV East. IndyMac was in FDIC conservatorship, and the FDIC scheduled a sale of Madjlessi's defaulted note at an auction.

FDIC rules prohibited Madjlessi and his related entities from participating in the auction. Nevertheless, the defendants used a straw buyer, James House, and a sham entity, 101 Houseco, LLC, to buy the IndyMac note at the auction and thereby secure control of PLV East. House, the straw buyer, was a contractor to whom Madjlessi owed around $200,000. House took part in the scheme so that Madjlessi would pay the $200,000.

The defendants created 101 Houseco, LLC solely for bidding on the note, naming House as its owner on paper. Lonich also had House fax to DebtX, the company managing the FDIC auction, an eligibility certification in which House falsely certified that he was not using the auction to "benefit directly or indirectly" anyone "who otherwise would be ineligible to purchase assets from the FDIC." To fund the deposit on the sale, Lonich had Melland transfer $100,000 from Madjlessi's daughter's account into House's business account, further concealing Madjlessi's role from DebtX. To finance the rest of the purchase of the note, Melland and Cutting fraudulently secured for 101 Houseco a $5.4 million loan from SVB. Using the loan proceeds, 101 Houseco successfully bid $4.2 million to obtain Madjlessi's defaulted IndyMac note, which had a face value exceeding $27 million.

After the auction, SVB's loans to House continued under the guise of allowing House to construct the Park Lane Villas. SVB continued to increase the loan amount until it reached $9.4 million. Of this $9.4 million, about $4.5 million was passed to Madjlessi through one of his construction companies. Madjlessi kept his side of the bargain with House, paying him the $200,000 owed for past contracting work. In line with the plan, Lonich later transferred effective control of 101 Houseco to Madjlessi. Lonich became 101 Houseco's sole manager. Madjlessi's wife became the beneficiary of the trust that held a 99% interest in 101 Houseco.

Madjlessi and Lonich wanted to refinance PLV East through Fannie Mae or Freddie Mac programs for multi-family housing. In the meantime, however, Fannie Mae had repossessed several condos in PLV East and was selling them at auction. Fannie Mae preferred buyers who would occupy the condos over outside investors. To get around Fannie Mae's preferences, Madjlessi and Lonich used straw buyers—including House, Madjlessi's personal assistant, and the assistant's two sons—to purchase the condos. The straw buyers then transferred the units to 101 Houseco.

Madjlessi and Lonich arranged the financing for these straw purchases through Cutting and Melland. Lonich drafted asset verification letters falsely stating that the buyers had sufficient assets with SVB to fund the purchases in full. Cutting and Melland then gave these letters back to Lonich on SVB letterhead with Cutting's signature.

After the FDIC and the California Division of Financial Institutions (DFI) examined SVB, DFI gave SVB the lowest rating it could give a bank without closing it. In August 2010, California's Commissioner of Financial Institutions seized control of SVB, ordering that the bank be liquidated and its assets turned over to the FDIC.

When federal agents interviewed House, he admitted wrongdoing and agreed to cooperate. In subsequent secretly recorded meetings, Lonich advised House on how he should testify before a grand jury. House later pleaded guilty to bank and wire fraud charges for making false statements in connection with the 101 Houseco application for the SVB loan and the bid on the FDIC-owned note.

B

In March 2014, a federal grand jury returned a 29-count indictment against Cutting, Melland, Lonich, and Madjlessi for the 101 Houseco scheme (Madjlessi died soon after). In October 2016, the grand jury returned a superseding indictment adding charges for defendants' legal lending limit scheme and their concealing from the FDIC SVB's risk exposure to Madjlessi.

In the fall of 2017, and after a 31-day jury trial, the jury convicted defendants on nearly all counts. This chart summarizes the convictions:

...

Count	18 U.S.C. §	Offense	Defendants
1	371	Conspiracy to commit bank fraud	Cutting, Lonich, and Melland
2	1344	Bank Fraud	Cutting, Lonich, and Melland
3–4	1005	Making a false bank entry for certain Madjlessi-related loans	Melland (Cutting acquitted)
5	1005	Making a false bank entry for certain other Madjlessi-related loans	Cutting and Melland
6	371	Conspiracy to make false statements to the FDIC	Cutting and Melland
7	656	Misapplication of bank funds	Cutting and Melland
8	1007	Making a false statement to the FDIC	Cutting and Melland
9	215	Receiving a gift for procuring loans	Melland
10	1349, 1343	Conspiracy to commit wire fraud	Cutting, Lonich, and Melland
11–15	134