United States v. Schmitz

• Decision Date: 29 May 2013
• Docket Number: No. 11–3269.,11–3269.
• Citation: 717 F.3d 536
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Francis Alan SCHMITZ, Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

717 F.3d 536

UNITED STATES of America, Plaintiff–Appellee,

v.Francis Alan SCHMITZ, Defendant–Appellant.

No. 11–3269.

United States Court of Appeals, Seventh Circuit.

Argued June 5, 2012.

Decided May 29, 2013.

Edward G. Kohler (argued), Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff–Appellee.

Carol A. Brook, Paul Flynn (argued), Attorney, Office of the Federal Defender Program, Chicago, IL, for Defendant–Appellant.

Before BAUER, ROVNER, and HAMILTON, Circuit Judges.

ROVNER, Circuit Judge.

Defendant–Appellant Francis Alan Schmitz pleaded guilty to a charge of mail fraud and was ordered to serve 84 months in prison, a term slightly below the low end of the sentencing range advised by the Sentencing Guidelines. Schmitz contends that the district court committed two errors in sentencing him: (1) a procedural error, when it failed to address his contention that “factor creep” in the Guidelines has inflated beyond reason the sentencing range for white collar frauds, and particularly for someone of his age and health; and (2) relied on an erroneous understanding of the timespan of the fraud to which he pleaded guilty. Finding that the district court committed no procedural or factual error in sentencing Schmitz, we affirm.

I.

Pursuant to a written plea agreement, Schmitz pleaded guilty to one count of a criminal information charging him with mail fraud affecting a financial institution, in violation of 18 U.S.C. § 1341. (A second count charging him with committing bank fraud in violation of 18 U.S.C. § 1344 was dismissed on the government's motion at sentencing.) Beginning in or about July 2003, Schmitz had convinced a series of financial institutions and others to lend him money, ostensibly to invest in real estate development, by telling these institutions that he was the beneficiary of a multi-million dollar trust fund whose assets were available as collateral for the loans. In fact, there was no trust and no trust assets. But Schmitz concocted a convincing trail of paper and digital documents (including trust account statements, tax returns, emails, and letters) making it appear as if there were, going so far as to create a phony financial services firm (with a website and virtual office space) that purportedly held assets of the fictitious trust, and then to file suit in state court against two (fictitious) employees of the (non-existent) firm claiming that they had mishandled the (non-existent) trust. Ultimately, Schmitz was able to obtain more than $6 million from seven banks and two additional lenders. He used just under half of that total to pay off previous lenders, in Ponzi-like fashion. The rest—roughly $3.1 million—he used to benefit himself and his personal business ventures, and this amount marked the extent of the lenders' collective loss.

The plea agreement anticipated that Schmitz's adjusted offense level would be 28, after a three-level reduction for acceptance of responsibility; that his criminal history category would be I; and that his Guidelines sentencing range would be 78 to 97 months. Despite a skirmish at sentencing as to whether Schmitz had forfeited his entitlement to credit for acceptance of responsibility by submitting to the court a version of his offense that minimized his culpability, the court granted him the three-level reduction after he withdrew his statement and determined his adjusted offense level to be 28, as the parties had anticipated. However, because Schmitz began the charged fraud in 2003, while he was still on supervised release in connection with a prior state conviction, seeU.S.S.G. § 4A1.1(d) (specifying two additional criminal history points if the defendant committed the offense of conviction while under any criminal justice sentence), the parties agreed, and the court found, that his criminal history category should be II. The resulting advisory Guidelines range was 87 to 108 months in prison.

Schmitz sought a substantially below-Guidelines sentence of 36 months, and among his arguments in support of a reduced sentence were two that are relevant to this appeal. He contended that the Guidelines specified an excessive sentence for someone convicted of a white collar crime like fraud, and that because his age (60) combined with a variety of health conditions meant he had both a shorter life expectancy and a lower risk of re-offending, a sentence within the advisory range was greater than necessary to serve the statutory sentencing goals set forth in 18 U.S.C. § 3553(a)(2).

The first of these arguments was focused on the substantial lengthening of the Guidelines sentencing range for fraud, larceny, and similar offenses that has occurred over the last two decades. The longer sentences for such offenses are in the main the result of a three-fold increase in the number of specific offense characteristics (from six to 18) incorporated into the fraud guideline, seeU.S.S.G. § 2B1.1(b), a phenomenon that has been described as “factor creep,” see R. Barry Ruback & Jonathan Wroblewski, The Federal Sentencing Guidelines: Psychological and Policy Reasons for Simplification, 7 Psychol. Pub. Policy & L. 739, 752–53 (2001), coupled with a substantial increase in the number of points imposed for the amount of the loss, a longstanding and central offense characteristic in fraud and theft cases, see§ 2B1.1(b)(1). ¹ Schmitz contended that the harsher penalties for fraud offenses represented a departure from the philosophy animating the original version of the Guidelines, namely that a short but definite period of incarceration would suffice as a deterrent to most white collar offenders. The sentencing range produced by Schmitz's offense characteristics exemplified the new, more punitive philosophy: With a criminal history category of II, under the 1987 Guidelines, Schmitz's sentencing range would have been 24 to 30 months. ² Under the 2000 Guidelines, it would have been 47 to 57 months. ³ Under the 2009 Guidelines, which were used to calculate Schmitz's advisory sentencing range, the range was 87 to 108 months. In short, the range increased by more than 300 percent in the 24 years since the original version of the Guidelines was issued. Schmitz asserted that in adopting much longer sentences, the Sentencing Commission had failed to fulfill its institutional role by shifting sentencing policy to a more punitive model without the support of any empirical data demonstrating the value of such substantial increases. Like Schmitz, we shall refer to this argument as his “factor creep” argument.

Schmitz secondarily argued that for a person of his age and with his health conditions, a within-Guidelines sentence would occupy virtually all of the remaining productive years of his life. Schmitz was 60 years old at time of sentencing, with an average remaining life expectancy of 20.6 years. However, Schmitz also had been diagnosed with high blood pressure, high cholesterol, coronary heart disease, and an enlarged prostate. Schmitz was taking medications for each of these conditions, including Lisinopril and hydrochlorothiazide (for high blood pressure), Simvastatin (for high cholesterol), low-dose aspirin (for the heart), and Terazosin (for the prostate); and he presented no evidence that any of his conditions was life-threatening or life-shortening even with medication. He nonetheless argued that these conditions distinguished him from other persons convicted of fraud offenses for sentencing purposes in that they reduced his life expectancy as well as his likelihood of re-offending. In Schmitz's view, there was no empirical data to suggest that for someone of his age and health, a within-guidelines sentence was no greater than necessary to achieve deterrence and the other sentencing goals set forth in 18 U.S.C. § 3553(a).

The district court implicitly rejected the first of these arguments and expressly rejected the second. Judge Pallmeyer observed that she agreed with Schmitz's contention that it is the fact rather than length of incarceration that matters for the purpose of deterring white collar criminals (R. 72 at 34–35), which suggests that she had taken note of his policy-based challenge to the fraud guideline. Beyond that one remark, however, she did not address the merits of the challenge. She did address Schmitz's health issues, observing that these conditions were not uncommon for someone of his age, and expressed confidence that adequate treatment was available in prison for them. R. 72 at 33–34.

In passing sentence, Judge Pallmeyer took note of the Guidelines range and indicated that the defense might be right when it contended that a criminal history category of II overstated the extent of Schmitz's criminal background. After addressing Schmitz's health concerns, the judge noted the aggravating and mitigating factors that she found relevant. She remarked that Schmitz's fraud had been “longstanding and very comprehensive” (R. 72 at 34); that it had been implemented in a sophisticated way; and that it had injured his family as well as the victims of the offense. On the plus side, she found that Schmitz's remarks at sentencing reflected a genuine acknowledgment of responsibility for his crime. She also commended Schmitz's efforts, during the period of his pre-sentence detention, to teach his fellow inmates how to read. Schmitz's “positive contribution” in the latter regard convinced her that a sentence just below the low end of the Guidelines range was appropriate. As noted earlier, the judge ultimately ordered Schmitz to serve a term of 84 months.

II.

Schmitz's first contention is that the district court committed procedural error by failing to address his argument that the court should abandon the fraud guideline in determining a reasonable sentence, in that the Sentencing Commission had neglected its institutional role and had allowed factor creep to substantially increase the penalties for fraud offenses without empirical data to suggest...