United States v. Lindley , 695 F.3d 44 ( 2012 )

United States Court of Appeals
For the First Circuit
Nos. 10-2243, 10-2266, 10-2313, 10-2350, 11-1130
UNITED STATES OF AMERICA,
Appellee,
v.
DANIEL APPOLON; ERNST APPOLON; LATOYA HALTIWANGER;
J. DANIEL LINDLEY; and ERIC L. LEVINE,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, U.S. District Judge]
Before
Torruella, Boudin, and Lipez, Circuit Judges.
Jeanne M. Kempthorne for appellant Daniel Apollon.
Mark E. Howard for appellant Ernst Appolon.
Tina Schneider for appellant Latoya Haltiwanger.
James C. Rehnquist for appellant J. Daniel Lindley.
Dana A. Curhan for appellant Eric L. Levine.
Vijay Shanker, Attorney, United States Department of Justice,
Criminal Division, Appellate Section, with whom Carmen Milagros
Ortiz, United States Attorney, Victor A. Wild, Ryan M. DiSantis,
and Mary Beth Murrane, Assistant United States Attorneys, Lanny A.
Breuer, Assistant Attorney General, and Greg D. Andres, Acting
Deputy Assistant Attorney General, were on brief, for appellee.
September 19, 2012
LIPEZ, Circuit Judge. Appellants Daniel Appolon
("Daniel"), Ernst Appolon ("Ernst"), Latoya Haltiwanger, J. Daniel
Lindley, and Eric L. Levine were players in the Boston real estate
market. Along with six coconspirators, appellants devised and
executed a mortgage fraud scheme which netted them illegal profits
of nearly $2 million between May 2005 and June 2006. The scheme
itself was uncomplicated: appellants and their coconspirators
arranged for straw buyers to purchase real property at the asking
price, falsified mortgage loan applications for the straw buyers to
obtain financing for an artificially-inflated purchase price, and
pocketed the difference. The loans secured by each of the
properties involved in appellants' scheme eventually went into
default, and most of the properties were forced into foreclosure at
huge losses for the lenders.
Appellants and their coconspirators were indicted by a
federal grand jury on May 15, 2008. Appellants were each charged
with one count of conspiring to commit wire fraud in violation of
18 U.S.C. § 371 and with multiple counts of committing wire fraud
in violation of 18 U.S.C. § 1343. (Daniel was charged with five
counts of wire fraud, Ernst with thirty-four, Haltiwanger with
seven, and Lindley and Levine each with forty-one.) In addition,
Lindley and Levine were charged with nineteen counts of money
laundering in violation of 18 U.S.C. § 1957. All of the counts in
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the indictment included a charge of aiding and abetting in
violation of 18 U.S.C. § 2.
On June 2, 2010, after a six-week jury trial in the
United States District Court for the District of Massachusetts,
appellants were found guilty of the charges against them, except
that Lindley was found not guilty of eleven counts of wire fraud
and four counts of money laundering.1 Each appellant was sentenced
to a term of imprisonment, followed by a period of supervised
release.2
Appellants now raise a series of challenges to the
district court's management of this case, evidentiary rulings, jury
instructions, sentencing calculations, and other orders. Included
in our analysis of these challenges is a rejection of Haltiwanger's
argument that a district court may not undermine a jury's
nullification power by explicitly instructing the jury that it has
a duty to return a guilty verdict if it is convinced beyond a
1
Five of appellants' coconspirators pleaded guilty before
trial. The sixth, Ralph Appolon, was tried separately because his
attorney withdrew shortly before trial. He was convicted on
February 22, 2011, and his appeal is currently pending before this
court. See United States v. Appolon, No. 11-1627.
2
Daniel was sentenced to forty-two months of imprisonment and
three years of supervised release; Ernst to one hundred and twenty
months of imprisonment and three years of supervised release;
Haltiwanger to thirty months of imprisonment and two years of
supervised release; Lindley to seventy-two months of imprisonment
and three years of supervised release; and Levine to one hundred
and forty-four months of imprisonment and two years of supervised
release.
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reasonable doubt of a defendant's guilt. We also explain the
proper method of calculating loss in a mortgage fraud case such as
this.
After carefully considering each challenge, we affirm.
I.
We provide here only a brief synopsis of the essential
facts of this case, in the light most favorable to the jury's
verdict, see United States v. Mubayyid, 654 F.3d 35, 41 (1st Cir.
2011), reserving additional detail for the analysis that follows.
Levine, a real estate attorney who had been suspended
from the practice of law, shared office space in Boston with
Lindley, another attorney. During Levine's suspension, he
transferred components of his real estate practice in early 2005 to
Lindley, who thereafter handled all property closings for Levine.
Levine and Lindley sometimes worked with Haltiwanger, a residential
mortgage broker at Topdot Mortgage Company, and with Ernst, a
realtor at New England Merchants and a principal at Oligarchy
Funding. Daniel, Ernst's brother, recruited clients and did odd
jobs for New England Merchants.
In mid-2005, appellants hatched their mortgage fraud
scheme, which began with Ernst identifying properties for sale in
the Boston area and negotiating purchase prices with the sellers.
Assisted by Daniel and others, Ernst then recruited straw buyers
for these properties, targeting individuals with good credit scores
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who were willing to trade their complicity in appellants' scheme
for a cut of the profits. The standard pitch delivered to a straw
buyer was that, in exchange for the use of his or her name, the
straw buyer could expect to earn approximately $10,000 and would
not be responsible for any down payment or mortgage payments.
Next, aided by Lindsay MacPhee (Levine's administrative assistant),
Levine, Lindley, Ernst, and Haltiwanger prepared and filed
falsified mortgage loan applications, purchase-and-sale agreements,
and HUD-1 settlement statements on behalf of the straw buyers,
misrepresenting the straw buyers' eligibility for the loans and
overstating the purchase prices of the properties.3 (Haltiwanger
also served as a straw buyer for one property.) Once the falsified
applications were approved by unsuspecting mortgage lenders, the
loan proceeds were wired to Lindley's Interest on Lawyers Trust
Account ("IOLTA"), from which the actual purchase prices were paid
to the sellers and the excess was disbursed to the conspirators,
usually after passing through bank accounts held by Levine. The
loans secured by the properties were then permitted to default.
3
The Real Estate Settlement Procedures Act of 1974, 12 U.S.C.
§§ 2601-2617, requires that a HUD-1 settlement statement be used in
every real estate settlement "involving a federally related
mortgage loan in which there is a borrower and a seller." 24
C.F.R. § 3500.8(a). Among other things, the HUD-1 form is meant to
"conspicuously and clearly itemize all charges imposed upon the
borrower and all charges imposed upon the seller in connection with
the settlement." 12 U.S.C. § 2603; see also BancOklahoma Mortg.
Corp. v. Capital Tide Co., 194 F.3d 1089, 1096 (10th Cir. 1999)
("HUD-1 forms provide a detailed account of the disbursements of
money [that] borrowers are to receive.").
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Most of the properties were forced into foreclosure, and one was
burned for insurance money.
In all, twenty-one properties were involved in
appellants' scheme. For each of these properties, two separate
HUD-1 forms were created, with one form reflecting the actual
purchase price and the other reflecting the artificially-inflated
price listed on the falsified mortgage loan application. In
addition, separate closings, presided over by Lindley, were held
for many of the properties in order to distance the straw buyers
from the sellers and keep secret the existence of the scheme. By
June 2006, the conspirators had earned nearly $2 million in illegal
profits, commissions, and fees.
II.
Our analysis begins with Ernst's pretrial motion for
severance. It then turns to the sufficiency of the evidence, moves
to assorted evidentiary issues raised by appellants during trial,
proceeds to the district court's jury instructions and sentencing
calculations, and concludes with Levine's post-trial motion for an
evidentiary hearing or discovery.
A. Ernst's Motion for Severance
Levine was represented at trial by Isaac Borenstein of
the law firm Denner Pellegrino, LLP ("Denner Pellegrino").4 During
4
Levine was also represented by another Denner Pellegrino
attorney, Bruce Levin. Ernst does not challenge Levin's
participation in Levine's defense.
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jury selection, Ernst's counsel notified the district court that,
prior to trial, another Denner Pellegrino attorney, Jeffrey Denner,
had discussed with Ernst the possibility of representing him in
this case. Although Denner Pellegrino never took on Ernst's
representation, Ernst's counsel asserted that a severance of Ernst
from his co-defendants was necessary to preserve Ernst's
constitutional right to testify in his own defense, see Rock v.
Arkansas, 483 U.S. 44, 51 (1987), since Ernst's interests at trial
differed from Levine's, and Borenstein had the ability to cross-
examine Ernst with confidential information that he disclosed to
Denner.
Borenstein explained to the district court that he
brought Levine's representation with him when he joined Denner
Pellegrino from another law firm. When Borenstein arrived at
Denner Pellegrino, Denner informed him that he had previously had
a non-substantive conversation with "someone whose name [was]
Appolon" about taking over his representation in this case.
Borenstein and Denner then consulted with Levine, who waived any
potential conflict of interest. Borenstein represented to the
court that he had no further discussions with Denner "or anybody at
Denner Pellegrino" about Ernst and had acquired no confidential
information about him.
The district court then held an in camera hearing on the
conflict claim followed by fact-finding. In 2008, while awaiting
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trial, Ralph Appolon (Ernst's brother and coconspirator in this
case) became frustrated with his court-appointed counsel and
contacted Denner, who had represented him in 2005 in an unrelated
matter. Denner sent Paul Andrews, an associate at Denner
Pellegrino, to meet with Ralph and Ernst, who also was represented
by court-appointed counsel at the time. Denner also may have met
personally with Ralph. He did not meet with Ernst, however.
Neither Ralph nor Ernst retained Denner Pellegrino's services.
The district court found that it was unclear what exactly
transpired in these preliminary meetings. Ralph testified that he
provided one of the Denner Pellegrino attorneys with detailed
written notes that he and Ernst had prepared. However, the
attorneys stated that they had no notes from the meetings and that
there were no relevant documents in Denner Pellegrino's files. The
court found that "there must have been some discussion of the
indictment, at least in general terms, . . . between Ernst and
Andrews," but that any discussion was "exploratory as to whether
there would be representation" and could not have been "in-depth."
The court concluded that "the extent to which substantive
confidential information was exchanged was probably not very great"
and that no confidential information about Ernst was subsequently
shared with Borenstein.
The court expressed some concern that Andrews played a
"minor" role in Levine's defense after Borenstein joined Denner
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Pellegrino, including drafting proposed jury instructions and
meeting with Levine on one occasion. However, the court reiterated
that there was no evidence that any confidential information about
Ernst was ever disclosed improperly. Accordingly, the court denied
Ernst's motion for severance. As a prophylactic measure, however,
it barred Andrews from participating further in Levine's
representation. Ernst appeals the denial of his severance motion.
"[T]he general rule is that those indicted together are
tried together to prevent inconsistent verdicts and to conserve
judicial and prosecutorial resources." United States v. Soto-
Beníquez, 356 F.3d 1, 29 (1st Cir. 2004). However, a district
court is empowered to sever co-defendants' trials if "there is a
serious risk that a joint trial would compromise a specific trial
right of one of the defendants, or prevent the jury from making a
reliable judgment about guilt or innocence." Zafiro v. United
States, 506 U.S. 534, 529 (1993); see also Fed. R. Crim. P. 14(a).
"If the district court decides not to sever the trial, the
defendant bears the burden of making a strong showing that
prejudice resulted from the denial of severance, and prejudice in
this context 'means more than just a better chance of acquittal at
a separate trial.'" United States v. DeCologero, 530 F.3d 36, 52
(1st Cir. 2008) (quoting United States v. Boylan, 898 F.2d 230, 246
(1st Cir. 1990)). We review a district court's denial of a motion
for severance for manifest abuse of discretion, see United States
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v. Celestin, 612 F.3d 14, 19 (1st Cir. 2010); DeCologero, 530 F.3d
at 52, and any predicate findings of fact for clear error, see
United States v. Allen, 491 F.3d 178, 189 (4th Cir. 2007).
We discern no clear error in the district court's factual
findings. To the extent that Ernst disclosed protected information
to Andrews while discussing the possibility of Denner Pellegrino
taking on his representation, there is ample support for the
court's finding that no such information was relayed to Borenstein,
who obviously could not have cross-examined Ernst with confidential
information he did not possess. As a result, we see no reasonable
basis for Ernst to have feared cross-examination more than any
other criminal defendant. Therefore, we find no manifest abuse of
discretion in the denial of his severance motion.
B. The Sufficiency of the Evidence (Lindley, Ernest, and Levine)
At the close of the government's case, the defendants
moved for judgments of acquittal based on the insufficiency of the
evidence against them. See Fed. R. Crim. P. 29(a). The court
reserved its ruling, the defendants renewed their motions at the
close of all the evidence, and the court denied the motions at that
time. See Fed. R. Crim. P. 29(b). Only Lindley, Ernst, and Levine
now challenge the court's ruling. We review their challenges de
novo, appraising the evidence in the light most favorable to the
jury's verdict, see United States v. Rodríguez-Vélez, 597 F.3d 32,
38 (1st Cir. 2010), and giving equal weight to direct and
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circumstantial evidence, see United States v. Ortiz, 447 F.3d 28,
32 (1st Cir. 2006). "The verdict must stand unless the evidence is
so scant that a rational factfinder could not conclude that the
government proved all the essential elements of the charged crime
beyond a reasonable doubt." Rodríguez-Vélez, 597 F.3d at 39.
1. Lindley
Lindley argues that the evidence adduced at trial was
insufficient to prove that he either had actual knowledge of or was
willfully blind to the mortgage fraud scheme. Such knowledge or
willful blindness is an essential element of the thirty wire fraud
counts, see 18 U.S.C. § 1343; United States v. Vázquez-Botet, 532
F.3d 37, 63 (1st Cir. 2008), fifteen money laundering counts, see
18 U.S.C. § 1957; United States v. Carucci, 364 F.3d 339, 343 (1st
Cir. 2004), and one conspiracy count, see 18 U.S.C. § 371; United
States v. Yefsky, 994 F.2d 885, 890 (1st Cir. 1993), of which he
was convicted.
a. Actual Knowledge
The following incidents, which are illustrative, were
recounted in detail at trial by one of the government's star
witnesses, Andre Junior Lamerique, and corroborated by other
witnesses and documentary evidence. Lamerique, a coconspirator of
appellants, testified at trial in exchange for the government's
agreement to recommend a reduced sentence. However, it was well
within the jury's province to choose to believe the testimony of a
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cooperating witness. See United States v. Rivera-Donate, 682 F.3d
120, 135 (1st Cir. 2012); United States v. Calderón, 77 F.3d 6, 10
(1st Cir. 1996).
For one of the properties involved in the scheme, the
initial straw buyer, Shonette Tomlinson, failed to qualify for
financing. As a fallback, appellants used a straw buyer they had
worked with previously, Elio Garay. Lindley helped to prepare
Garay's mortgage loan application package by signing the HUD-1
settlement statement and occupancy affidavit, which certified that
Garay would occupy the premises upon close of escrow. However,
Lindley also drafted and signed a side agreement between Tomlinson
and Garay providing that Tomlinson would occupy the property,
flatly contradicting Garay's affidavit. In addition, Lindley
executed a construction holdback agreement between the mortgage
lender and Garay providing that $41,000 of the loan proceeds would
be held in escrow by Lindley for the purpose of bringing the
property into compliance with the Massachusetts Building Code.
There is nothing inherently suspicious about construction
holdbacks, see Reyes v. Remington Hybrid Seed Co., 495 F.3d 403,
409 (7th Cir. 2007), but Lindley failed to list this holdback on
the HUD-1 form and, instead of using the funds for repairs pursuant
to the agreement, he transferred them from his IOLTA to one of
Levine's bank accounts.
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For another property, $10,000 was wired from Lindley's
IOLTA to the straw buyer, Kimyli Recca, although the HUD-1 form
Lindley signed did not list a payment to Recca in that amount.
Lindley also signed a $30,000 check drawn on his IOLTA for a
fictitious construction holdback on this property. The check was
made out to a shell company controlled by Levine.
For a third property, Lindley conducted a closing at
which one of the sellers, Taslim Chowdhury, somehow discovered that
the straw buyer's HUD-1 form reflected a purchase price that was
$101,000 higher than the price on his own form. Chowdhury began
arguing with Lindley about the discrepancy and refused to proceed
with the sale until he was offered $20,000 by Levine and Ernst to
offset any additional tax liability flowing from the higher
purchase price. Lindley then signed a check to Chowdhury for
$20,000 but did not record that amount on the HUD-1 form.
Lindley attempts to blunt the force of this evidence by
chalking up his behavior to inattentiveness and professional
incompetence. He points out that Lindsay MacPhee, Levine's
administrative assistant, testified that she prepared the checks
and much of the paperwork he signed, insisting that he "simply
signed [what] his staff handed to him." He also cites evidence
that his signature was forged on a number of HUD-1 forms and other
loan documents, and Lamerique's testimony that Levine instructed
some of appellants' coconspirators not to discuss the mortgage
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fraud scheme with him. He notes that after a straw buyer,
Elizabeth Son, disclosed the existence of the scheme to law
enforcement officers in his presence, he gave agents from the
Federal Bureau of Investigation free access to his records.5 On
this basis, Lindley argues that the jury reasonably could have
drawn an inference that he was "sloppy, but not [a] criminal."
We acknowledge the reasonableness of that inference.
However, it is not the only reasonable inference that could be
drawn. When the evidence is construed in the light most favorable
to the jury's verdict, see Rodríguez-Vélez, 597 F.3d at 38, this is
not a case in equipoise, see Ortiz, 447 F.3d at 34. The evidence
of Lindley's knowing participation in appellants' scheme is
unusually strong and more than sufficient to prove his actual
knowledge beyond a reasonable doubt. See Rodríguez-Vélez, 597 F.3d
at 40 ("[W]here, as here, the evidence can be viewed in different
ways, we must honor the jury's evaluative choice among plausible,
albeit competing, inferences."); United States v. Hughes, 211 F.3d
5In his briefing, Lindley claims that, "after being told by
Elizabeth Son that she was not in fact the true owner of the house
she had 'bought,' he took her to the Boston Police." The record
reveals a different scenario. The relevant testimony came from
Son. She explained that, after someone was murdered in her house,
Lindley accompanied her to a condemnation hearing. In the course
of that proceeding, Lindley and Son met with two homicide
detectives from the Boston Police Department. It was during that
meeting that Son revealed to the police officers that she "just had
the house underneath [her] name." There was no testimony at trial
that Lindley brought Son to the meeting for the purpose of making
that disclosure or that they had discussed ahead of time the fact
that Son was a straw buyer.
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676, 681 (1st Cir. 2000) ("[T]he jury is generally at liberty to
select freely among a variety of reasonable alternative
constructions of the evidence." (internal quotation marks
omitted)).
b. Willful Blindness
For the sake of completeness, and to emphasize the
strength of the evidence against Lindley, we also address his
argument that the evidence was insufficient to prove that he
willfully blinded himself to the existence of appellants' scheme.
As we have explained, "[w]illful blindness serves as an alternate
theory on which the government may prove knowledge." United States
v. Pérez-Meléndez, 599 F.3d 31, 41 (1st Cir. 2010). "The purpose
of the willful blindness theory is to impose criminal liability on
people who, recognizing the likelihood of wrongdoing, nonetheless
consciously refuse to take basic investigatory steps." United
States v. Rothrock, 806 F.2d 318, 323 (1st Cir. 1986). In order to
establish a defendant's willful blindness to criminal activity, the
government must show that (1) the defendant was aware of a high
probability of wrongdoing and (2) consciously and deliberately
avoided learning of the wrongdoing. See Pérez-Meléndez, 599 F.3d
at 41; United States v. Azubike, 564 F.3d 59, 66 (1st Cir. 2009).
Direct evidence is not required; "what is needed are sufficient
warning signs that call out for investigation or evidence of
deliberate avoidance of knowledge." Azubike, 564 F.3d at 66.
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The government identified a number of warning signs or
"red flags," United States v. Frigerio-Migiano, 254 F.3d 30, 35
(1st Cir. 2001), that, uninvestigated, suggest Lindley's willful
blindness. Three stand out in particular. First, MacPhee included
in Lindley's files two sets of loan documents for nearly every
property involved in appellants' scheme. Second, Lindley conducted
several closings involving repeat buyers. For example, Son
purchased two properties for $520,000 each within a six-day span,
signing an occupancy affidavit each time, and Garay (or someone
posing as him) purchased three properties within seven weeks.
Third, Lindley conducted one closing involving a buyer, Andrew
Caputo, who was listed on the HUD-1 form as living in a property
which Levine had recently sold to a different straw buyer and for
which Lindley had staged the closing.
Lindley attempts to explain away these red flags in
various ways. He claims, for instance, that he simply did not
notice Caputo's address on the HUD-1 form or other "individual
details in closing packets often spanning hundreds of pages," and
that he never inspected his files and thus was unaware that they
contained dual sets of loan documents for any properties.
Again, we acknowledge the plausibility of Lindley's
explanations. The jury could have concluded that Caputo's address
escaped his attention or that he did not carefully examine his own
closing files. But the jury also was entitled to disbelieve those
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explanations, see Rodríguez-Vélez, 597 F.3d at 40, and to find, for
instance, that Lindley was aware that his files held two sets of
documents for certain properties and that, if Lindley did not
compare the two to find out why, it was only because he was
consciously avoiding the knowledge that they recorded different
purchase prices or otherwise contained discrepancies.
Relying on our decision in United States v. Martin, 815
F.2d 818 (1987), Lindley also argues that the government failed to
call any witnesses who could explain to the jury why these
"business irregularities" should have alerted him to a high
probability of wrongdoing, even if he had detected them. In
Martin, the defendants were convicted of crimes arising out of
their operation of a car theft ring. See 815 F.2d at 820-21. The
government relied on three factors in arguing that one of the
defendants, a used car salesman who had helped to resell the stolen
vehicles, had willfully blinded himself to the fact that the
vehicles' title certificates were forged: (1) the title
certificates were duplicates; (2) the cars, which were received in
Rhode Island, were resold in New York; and (3) the salesman had
been directed by his supervisor not to list his own name on the
title certificates as assignee. See id. at 826. Reversing the
salesman's conviction, we noted that "[t]he trouble with these
factors is that [a jury] not experienced in marketing used cars
cannot tell what to make of them." Id. We elaborated:
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[T]he government was asking the jury to draw
inferences beyond their unaided competence.
It may well be that to an experienced eye each
of the above factors would have been dead
giveaways that the cars were likely stolen.
But a jury is unable to draw such inferences
from its ordinary experience. Evidence was
required.
Id.This case is distinguishable from Martin for two reasons.
First, it was not necessary for a witness to explain to the jury
the significance of some of the red flags in this case. A jury
without experience in real estate closings could nevertheless infer
that Lindley should have been alerted to a high probability of
wrongdoing from the fact that multiple buyers purchased properties,
signed occupancy affidavits declaring their intention to reside in
those properties, and then turned around and bought new properties
within the week. Second, the government did call witnesses to
testify to the suspicious nature of certain less obvious red flags.
For example, MacPhee testified that Lindley's files only contained
dual sets of loan documents for closings involving New England
Merchants, the real estate company where Ernst was employed. By
contrast, Shirley David, a mortgage originator who was not
connected to appellants' scheme, testified that only one set of
documents was used in all of the twenty or so closings on which she
and Lindley worked together. The jury thus could have concluded
that the existence of two sets of documents for the properties
involved in appellants' scheme was sufficiently unusual that it
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should have aroused Lindley's suspicion. We therefore hold that
there was sufficient evidence to support Lindley's conviction on a
willful blindness theory.6
2. Ernst
The scope of Ernst's sufficiency of the evidence
challenge is narrow. Rather than disclaim any role in appellants'
scheme, Ernst contests only the evidentiary basis for seven of his
thirty-four wire fraud convictions, arguing that the government did
not prove that he knowingly and willingly participated in the
scheme with respect to the four properties implicated in these
seven counts. See 18 U.S.C. § 1343.
The four properties in question are located in the
Dorchester, Mattapan, and Hyde Park neighborhoods of Boston, and in
nearby Brockton. Lamerique tied Ernst to each property. He
testified that it was Ernst who identified the Dorchester property
as suitable for appellants' scheme and delivered a pitch to the
straw buyer, also instructing Samuel Jean-Louis, another of
appellants' coconspirators, how to structure the loan application
6
The government also argues that other red flags existed.
For example, for seventeen of the twenty-one properties involved in
appellants' scheme, MacPhee gave Lindley checks to sign that split
the loan proceeds due to the seller into two payments. However, a
lay jury does not have the specialized knowledge to appreciate why
splitting loan proceeds into two payments should have warned
Lindley of a high probability of wrongdoing. None of the witnesses
called by the government explained whether or not sellers usually
receive loan proceeds in one lump sum. Therefore, it was beyond
the jury's "unaided competence" to view the check-splitting as a
red flag. Martin, 815 F.2d at 826.
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and purchase-and-sale agreement. Lamerique also testified that
Ernst recruited and pitched the straw buyer for the Mattapan
property, collecting fees of $11,125, and that he identified and
negotiated a purchase price for the Brockton property, doctoring
the purchase-and-sale agreement to conceal $20,000 in illegal
profits. In addition, Lamerique testified that Ernst identified
the Hyde Park property and prepared the purchase-and-sale
agreement, earning a commission of $11,375.
In the context of this case, and against the backdrop of
Ernst's general awareness of the mechanics of appellants' scheme,
which is undisputed, the foregoing evidence was sufficient for the
jury to convict him of the seven counts in question.
3. Levine
Levine challenges the sufficiency of the evidence for his
convictions on eight of the forty-one wire fraud counts and three
of the nineteen money laundering counts. Nevertheless, Levine
concedes that "the evidence, viewed in the light most favorable to
the government, certainly established that [he] involved himself in
some [unlawful] activities" and "could certainly support a finding
that [he] conspired with various players at New England Merchants
to defraud various lenders." He maintains, though, that he did not
knowingly participate in wrongdoing with respect to the four
properties implicated in the eleven challenged counts, see 18
U.S.C. §§ 1343, 1957, which are located in South Boston, Brockton,
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Hyde Park, and Dorchester. In support of this claim, he points to
evidence that he became upset when he discovered that the straw
buyer for the Hyde Park property had used a stolen identity.
The evidence shows that proceeds from the South Boston,
Brockton, and Hyde Park properties passed through bank accounts
held by Levine. The fact that he did not want to engage in
identity theft with respect to one or more of these properties has
no bearing on his knowing participation in other aspects of the
mortgage fraud scheme. The evidence also establishes that the
Dorchester property was burned by Lamerique and another of
appellants' coconspirators for insurance money, that Levine advised
Lamerique how to form a shell company to fraudulently conceal the
insurance money from the property's mortgage lender, and that
Levine personally handled $40,000 of the insurance money. There
was, in short, sufficient evidence for the jury to infer the
requisite knowledge to convict Levine of the eleven counts in
question.
C. The Proceeds of the Scheme (Daniel)
Daniel, who by all accounts played a bit part in
appellants' scheme, argues that the district court ran afoul of
Federal Rule of Evidence 404(b) in allowing Lamerique to testify
that Daniel had used some of the proceeds of the scheme to
purchase, among other things, firearms and marijuana. Because
Daniel failed to lodge a contemporaneous objection during
-22-
Lamerique's testimony, our review is for plain error. See United
States v. Meserve, 271 F.3d 314, 321 (1st Cir. 2001). Accordingly,
Daniel must show that (1) an error occurred (2) which was clear or
obvious and which not only (3) affected his substantial rights, but
also (4) seriously impaired the fairness, integrity, or public
reputation of judicial proceedings. See id. at 321-22.
Federal Rule of Evidence 404(b) prohibits the admission
of evidence of a defendant's other crimes or bad acts to establish
his or her character or propensity to commit a crime. See Fed. R.
Evid. 404(b); see also United States v. Fulmer, 108 F.3d 1486, 1501
(1st Cir. 1997) ("Rule 404(b) is intended to 'forbid judging a
person on the basis of innuendo arising from conduct [that] is
irrelevant to the charges for which he or she is presently standing
trial, i.e., against finding present guilt based on a bad character
profile.'" (quoting United States v. Cortijo–Díaz, 875 F.2d 13, 15
(1st Cir. 1989))). We employ a two-part test to evaluate whether
evidence is admissible under Rule 404(b). See United States v.
Pelletier, 666 F.3d 1, 5 (1st Cir. 2011). First, we determine
whether the evidence has special relevance -- "that is, whether it
is relevant to any purpose other than to prove that a defendant has
a propensity to commit a crime." Id. If so, we look to Federal
Rule of Evidence 403 to determine whether the probative value of
the evidence is substantially outweighed by its danger of unfair
-23-
prejudice. See id.; United States v. Rodríguez–Berríos, 573 F.3d
55, 64 (1st Cir. 2009).
Daniel apparently had no legitimate source of disposable
income. Therefore, evidence that he used money derived from
appellants' scheme to buy "marijuana, clothes, vehicles, and
firearms" had special relevance because it established his motive
for participating in the scheme -- his need to finance a lavish
lifestyle. See United States v. Cole, 631 F.3d 146, 155-56 (4th
Cir. 2011) (evidence of defendant's "lavish spending" was probative
of motive for violating tax laws); United States v. Jackson-
Randolph, 282 F.3d 369, 376-80 (6th Cir. 2002) (evidence of
defendant's shopping and gambling expenses showed motive for
committing financial crimes); United States v. Kadouh, 768 F.2d 20,
21 (1st Cir. 1985) (evidence of defendant's use of cocaine, an
expensive drug, offered financial motive for trafficking in
heroin). As such, the evidence had significant probative value.
The evidence also was not unfairly prejudicial. "For
purposes of Rule 403, 'unfair prejudice' occurs where there is 'an
undue tendency to suggest decision on an improper basis, commonly,
though not necessarily, an emotional one.'" United States v.
Symonevich, No. 11-1236, 2012 WL 3083491, at *7 (1st Cir. July 31,
2012) (quoting Fed. R. Evid. 403 advisory committee's note). Here,
the reference to Daniel's purchase of firearms and marijuana was
brief and unaccompanied by hints of either actual gun violence or
-24-
drug abuse. Therefore, we find no error in the admission of the
testimony, plain or otherwise.
D. The Summary Evidence Objection (Daniel and Haltiwanger)
1. The Summary Charts
Daniel and Haltiwanger argue that the district court
erred by admitting into evidence four charts summarizing the reams
of financial data in this case. As with other evidentiary rulings,
our review is for abuse of discretion. See United States v.
McElroy, 587 F.3d 73, 80 (1st Cir. 2009); United States v.
Stierhoff, 549 F.3d 19, 27 (1st Cir. 2008).
The government's final witness was Thomas Zappala, an
auditor employed by the United States Attorney's Office. Through
Zappala, the government introduced four charts that he created
outlining the mechanics of appellants' scheme. The first chart
depicted, for each of the twenty-one properties involved in the
scheme, the buyer and seller, the difference between the actual
sale price and the falsely-inflated price represented on the
mortgage loan applications, and the proceeds laundered through
Lindley's IOLTA. The second chart listed, for each property, the
profits accruing to each conspirator. The third aligned the wire
fraud counts in the indictment with the corresponding wire
transfers and property sales. The fourth chart did the same for
the money laundering counts.
-25-
The government argued that Zappala's charts were
admissible under Federal Rules of Evidence 611 and 1006. Over
objections from Daniel and Haltiwanger, the district court admitted
the charts into evidence "under the rules and law relating to
summaries" and made them available to the jury. The court also
denied requests for Daniel and Haltiwanger for contemporaneous
limiting instructions, although it did provide a limiting
instruction before jury deliberations, admonishing the jury that
summaries should be scrutinized closely.
As we have explained, various summary tools may be used
"to clarify complex testimony and evidence" for a jury. McElroy,
587 F.3d at 81; see also United States v. Milkiewicz, 470 F.3d 390,
396-98 (1st Cir. 2006); Fraser v. Major League Soccer, L.L.C., 284
F.3d 47, 67 (1st Cir. 2002). Of particular relevance, Federal Rule
of Evidence 1006 provides that a party may summarize the contents
of voluminous writings, recordings, or photographs which cannot
conveniently be examined in court, so long as the summary is
accurate, the underlying documents are made available to the other
parties, and both the summary and the source materials are
admissible. See Fed. R. Evid. 1006; see also Milkiewicz, 470 F.3d
at 396-98. A Rule 1006 summary may be offered into evidence and
made available to the jury. See 31 Charles A. Wright & Victor J.
Gold, Federal Practice and Procedure § 8044 (2000).
-26-
No precise test dictates when source materials are
sufficiently indigestible to permit summarization under Rule 1006.
Instead, district courts are advised to carefully weigh the volume
and complexity of the materials. These two factors have an
inversely proportionate relationship: as either the volume or
complexity increases, relatively less is required of the other
factor. See id. The ultimate question, of course, is whether
summarization will remove logistic or cognitive barriers to the
jury's discharge of its duties, see United States v. Bakker, 925
F.2d 728, 736 (4th Cir. 1991); United States v. Johnson, 594 F.2d
1253, 1255 (9th Cir. 1979), and we are poorly positioned to second
guess a district court's on-the-spot answer to this question, see
Fraser, 284 F.3d at 67 ("It is hard to imagine an issue on which a
trial judge enjoys more discretion than as to whether summary
exhibits will be helpful.").
The summary evidence in this case obviated the need for
the government to introduce, and the jury to sift through, mortgage
and sale records for each of the twenty-one properties involved in
appellants' scheme, and also facilitated tracing the scheme's
proceeds through Lindley's IOLTA. As such, it comported with the
purpose of Rule 1006. See Bakker, 925 F.2d at 736 ("The purpose of
Rule 1006 is to provide a practicable means of summarizing
voluminous information."). However, Daniel and Haltiwanger argue
that the summary evidence nevertheless should have been excluded
-27-
for two reasons: (1) it impermissibly summarized testimony, in
addition to documents, see McElroy, 587 F.3d at 80 (noting that
Rule 1006 "only allows the introduction of summary evidence that
summarizes documents, as opposed to evidence that summarizes
testimony"); and (2) it was based in part on inadmissible source
materials, see Colón-Fontánez v. Municipality of San Juan, 660 F.3d
17, 29-30 (1st Cir. 2011) (noting that for summary evidence to be
admissible, the materials on which it is based also must be
admissible). These arguments are non-starters.
As to the first argument, there has been no showing that
the summary charts in fact summarized testimony. To the contrary,
the charts, in certain respects, summarized documentary evidence
that corroborated witness testimony. For example, Haltiwanger
claims that the charts should not have linked her receipt of
$17,000 to her participation in appellants' scheme because the only
evidence drawing that connection was Lamerique's testimony.
However, the documentary evidence on which the charts were based
reveals that Haltiwanger received $17,000 in two installments from
a bank account associated with appellants' scheme within three
months of purchasing one of the properties involved in the scheme.
Similarly, Daniel asserts that the summary charts should
not have indicated that he received three checks totaling $16,000
because the only proof that he earned any money from appellants'
scheme came from Lamerique's testimony. The checks themselves,
-28-
though, corroborated that testimony and were appropriately provided
to the jury. Two of the checks were endorsed by Daniel, and the
third was made out to him by Levine. That a particular fact may
have been the subject of testimony does not mean that it cannot be
corroborated through admissible documents summarized under Rule
1006.
As to the second argument, we understand Daniel and
Haltiwanger to be contending that the summary evidence relied upon
source materials, such as the sale records for the properties
involved in the scheme, that were inadmissible for the truth of the
matter asserted and thus barred by the hearsay rule codified in
Federal Rule of Evidence 801. See Milkiewicz, 470 F.3d at 398 n.15
("The records summarized must . . . be admissible."). This
contention misses the point. The sale records were admissible, not
to prove that the purchase prices reflected the true value of the
properties, but for the limited purpose of showing that these
prices were lower than those listed on the mortgage loan
applications. Accordingly, they were not within the scope of the
hearsay rule. See DeCologero, 530 F.3d at 58 (1st Cir. 2008)
("'[I]f the significance of an offered statement lies solely in the
fact that it was made, no issue is raised as to the truth of
anything asserted, and the statement is not hearsay.'" (quoting
Fed. R. Evid. 801(c) advisory committee's note)). There was no
-29-
abuse of discretion in the admission of the summary charts under
Rule 1006.7
2. Zappala's Testimony
Citing our decision in United States v. Flores-De-Jesús,
569 F.3d 8 (1st Cir. 2009), Daniel and Haltiwanger also challenge
Zappala's testimony as a summary witness. In Flores-De-Jesús, we
expressed concern that the government's use of a summary witness
can generate imbalances in a trial if the summary witness endorses
the credibility of other witnesses. See 569 F.3d at 18-19; see
also United States v. Moore, 651 F.3d 30, 56 (D.C. Cir. 2011);
United States v. Fullwood, 342 F.3d 409, 413-14 (5th Cir. 2003).
That problem did not arise here. Zappala did not bolster the trial
testimony of other witnesses. His testimony was limited to
introducing and explaining the summary charts he prepared. There
was no abuse of discretion in permitting him to testify.
E. The Willful Blindness Instruction (Lindley and Haltiwanger)
Lindley and Haltiwanger argue that the district court
should not have instructed the jury on willful blindness.8 "We
7
The court did not specify that it was admitting the summary
charts under Rule 1006, simply stating that it was admitting the
charts "under the rules and law relating to summaries." This
statement is obviously broad enough to encompass Rule 1006. Still,
it would be a better practice if the court specified which
evidentiary rule it was relying upon because these summaries are
subject to different rules with different requirements and
purposes. See Milkiewicz, 470 F.3d at 395-98.
8
Drawing on pattern jury instructions, see Pattern Criminal
Jury Instructions for the District Courts of the First Circuit
-30-
have not definitively resolved what standard of review we apply to
the district court's decision to give a willful blindness
instruction," United States v. Anthony, 545 F.3d 60, 64 (1st Cir.
2008), and have oscillated between "de novo and deferential
standards of review," Azubike, 564 F.3d at 66 n.5. However, "[w]e
need not determine the issue in this case, because applying either
standard, the evidence supported the district court's decision to
§ 2.15 (1998), the court instructed the jury as follows:
When considering whether a defendant has acted
knowingly, you may infer that a person has knowledge of
a particular fact if you find that that person
deliberately closed his eyes to a fact that otherwise
would have been obvious to him. A conscious and
deliberate attempt to avoid information or enlightenment
is sometimes called willful blindness. That is, someone
who is willfully blind to a fact that would under
ordinary circumstances otherwise be obvious to him or
her.
In order to infer the fact of a person's knowledge
of something by reason of willful blindness, you must
find two things have been established: First, that that
person, the defendant, was aware of a high probability
that the fact was true; and second, that the defendant
conscientiously and deliberately avoided learning the
fact. That is to say, the defendant willfully made
himself blind to the fact. If that's happened, you may
attribute knowledge to that person by reason of this
doctrine.
Now, that does not mean that a person who was
careless or negligent in learning what the fact are or
makes a mistake in learning the facts would be guilty of
having that knowledge. There must be a deliberate
attempt, an effort made to remain ignorant of the fact.
As we have noted previously, although pattern instructions may
be helpful, they are only a guide and "have not been officially
adopted by th[is] court." United States v. Charlton, 502 F.3d 1,
3 n.2 (1st Cir. 2007); see also United States v. Jadlowe, 628 F.3d
1, 17 (1st Cir. 2010).
-31-
charge the jury on willful blindness." United States v. Mitrano,
658 F.3d 117, 123 (1st Cir. 2011); see also Anthony, 545 F.3d at
64.
A willful blindness instruction is appropriate if three
requirements are met: "'(1) a defendant claims a lack of knowledge,
(2) the facts suggest a conscious course of deliberate ignorance,
and (3) the instruction, taken as a whole, cannot be misunderstood
as mandating an inference of knowledge.'" Mitrano, 658 F.3d at 123(quoting Azubike, 564 F.3d at 66). Of the second requirement,
which is the only one contested in this case, we have said that,
"[i]n determining whether the facts suggest the type of deliberate
avoidance warranting a willful blindness instruction, we must
consider whether the record evidence reveals flags of suspicion
that, uninvestigated, suggest willful blindness." Id. (internal
quotation marks omitted); see also Azubike, 564 F.3d at 66 ("Direct
evidence of willful blindness is not required; what is needed are
sufficient warning signs that call out for investigation or
evidence of deliberate avoidance of knowledge.").
We have already established that the evidence adduced at
trial was sufficient to prove beyond a reasonable doubt that
Lindley willfully blinded himself to the existence of appellants'
scheme. This holding necessarily means that a willful blindness
instruction was appropriate as to Lindley. See Azubike, 564 F.3d
at 69.
-32-
The instruction also was appropriate as to Haltiwanger,
an experienced residential mortgage broker. The evidence shows
that Ernst and two of appellants' coconspirators pitched the
mortgage fraud scheme to Haltiwanger, promising that if she served
as a straw buyer she "should be able to make . . . around $10,000,
and that the mortgage would be taken care of." While waiting for
the conspirators to identify a property for which she could be the
straw buyer, Haltiwanger processed falsified mortgage loan
applications on behalf of other straw buyers through her employer,
Topdot Mortgage Company, and collected commissions. On two of
these loan applications, Haltiwanger misrepresented the straw
buyer's employer as Oligarchy Funding, where Ernst was a principal.
She did the same on her own loan application. The government
argues, and we agree, that, "[g]iven this ample evidence that . . .
Haltiwanger proceeded with multiple transactions in the face of
circumstances that, as [a] real estate professional[], [she] could
only have deemed fraudulent, the district court did not err in
permitting the jury to consider whether [her] actions evinced
willful blindness."
Haltiwanger protests that the government forfeited its
right to a willful blindness instruction by stating in its closing
argument that she "knew what was going on," implying that she had
actual knowledge of appellants' scheme. "These theories can
coexist," however. Griffin, 524 F.3d at 79; see also Azubike, 564
-33-
F.3d at 67-69; United States v. Cassiere, 4 F.3d 1006, 1024 (1st
Cir. 1993) ("Although the government's main contention at trial was
that all three defendants were knowing participants in the scheme,
the government presented evidence from which the jury could have
concluded that if they did not know what was going on, it was only
because they chose to turn a blind eye."). The evidence against
Haltiwanger could support either a finding of actual knowledge or
a finding of willful blindness and "did not require the jury to
make a binary choice between actual knowledge and innocence."
Azubike, 564 F.3d at 68. As a result, the district court did not
err by giving a willful blindness instruction.
F. Haltiwanger's Jury Nullification Challenge
Haltiwanger argues that the district court should not
have instructed the jury that it had a duty to return a guilty
verdict if it concluded that the government had proven its case
beyond a reasonable doubt.9 She complains that this instruction
9
In pertinent part, the court instructed the jury:
The burden of proof rests with the government. A
defendant assumes no burden to prove that he is innocent.
The question is never which side has convinced me but,
rather, has the government convinced me beyond a
reasonable doubt that the defendant is guilty? If the
answer to that question is yes, then the government is
entitled to your verdict of conviction. If that answer
is no, then the defendant is entitled to be and must be
acquitted.
. . . .
The government must establish each element of an
-34-
wrongly suggested that the jury lacked the power to nullify. See
United States v. Thomas, 116 F.3d 606, 615 (2d Cir. 1997) (defining
nullification as "a practice whereby a juror votes in purposeful
disregard of the evidence, defying the court's instructions on the
law"). Because no objection to this instruction was made at trial,
our review is for plain error. See United States v. Troy, 618 F.3d
27, 33 (1st Cir. 2010). Here, there was no error at all.
"We have consistently held that a district court may not
instruct the jury as to its power to nullify." United States v.
Manning, 79 F.3d 212, 219 (1st Cir. 1996); see also United States
v. Bunchan, 626 F.3d 29, 34 (1st Cir. 2010) ("Neither the court nor
counsel should encourage jurors to exercise their power to
nullify."); United States v. Sepulveda, 15 F.3d 1161, 1190 (1st
Cir. 1993) ("Though jury nullification has a long and sometimes
storied past, the case law makes plain that a judge may not
instruct the jury anent its history, vitality, or use." (internal
citation omitted)); United States v. DesMarais, 938 F.2d 347, 350
(1st Cir. 1991) ("[I]t would [be] improper to urge the jury to
nullify applicable law."). This is because "jurors may have the
offense by proof that convinces you and leaves you with
no reasonable doubt and thus satisfies that you can
consistent with your oath as jurors base your verdict on
it. Again, if you are so convinced, it is your duty to
return a verdict of guilty. If, on the other hand, you
have a reasonable doubt as to whether the defendant is
guilty of any crime charged, the defendant must be given
the benefit of that doubt and you must find him not
guilty.
-35-
power to ignore the law, but their duty is to apply the law as
interpreted by the court, and they should be so instructed."
United States v. Boardman, 419 F.2d 110, 116 (1st Cir. 1969); see
also Bunchan, 626 F.3d at 34 ("A juror's duty is to apply the law
as provided by the court."); Sepulveda, 15 F.3d at 1190 ("The
applicable rule is that, although jurors possess the raw power to
set an accused free for any reason or for no reason, their duty is
to apply the law as given to them by the court.").
In light of these precedents, it is hardly a stretch to
hold explicitly, as we now do, that a district court may instruct
a jury that it has a duty to return a guilty verdict if convinced
beyond a reasonable doubt of a defendant's guilt on a particular
charge. See United States v. Carr, 424 F.3d 213, 219-20 (2d Cir.
2005) (affirming instruction implying that nullification was not an
option, because "[n]othing in our case law begins to suggest that
the court cannot . . . tell the jury affirmatively that it has a
duty to follow the law, even though it may in fact have the power
not to"); United States v. Pierre, 974 F.2d 1355, 1357 (D.C. Cir.
1992) (per curiam) ("[I]t was proper for the district court to
instruct the jury that it had a duty to find appellant guilty if
the government proved beyond a reasonable doubt every element of
the offense with which he was charged.").
-36-
G. Lindley's Closing Argument Challenge
During its closing argument, the government suggested
that Lindley joined the mortgage fraud scheme in order to stay in
Levine's good graces and thereby preserve for himself the lucrative
real estate practice he inherited from Levine, which the government
valued at "a quarter million dollars." Lindley objected that the
government's valuation was unsupported by the evidence,10 and later
moved for a new trial on the same basis. The district court
overruled the objection and denied the motion for a new trial,
explaining that the reference to Lindley's financial motive was
borne out by the record. We review de novo whether the challenged
portion of the government's closing argument was improper and, if
so, whether it was harmful, but we review the denial of Lindley's
motion for a new trial only for manifest abuse of discretion. See
United States v. Manor, 633 F.3d 11, 16-17 (1st Cir. 2011); United
States v. Nelson-Rodriguez, 319 F.3d 12, 38 (1st Cir. 2003).
As a general principle, the government is permitted in
its closing argument to attribute to a defendant a motive that is
10
Lindley's objection was not made until the next day.
Nevertheless, because closing arguments had not yet concluded, the
district court could have taken any necessary corrective action.
As a result, and as the government concedes, the objection was
timely. As we observed in United States v. Mandelbaum, "[a]
stricture governing the timing of objections should not be employed
woodenly, but should be applied where its application would serve
the ends for which it was designed." 803 F.2d 42, 44 n.1 (1st Cir.
1986) (internal quotation marks omitted); see also United States v.
Azubike, 504 F.3d 30, 39 n.9 (1st Cir. 2007).
-37-
consistent with the evidence, see United States v. Torres-Rosario,
658 F.3d 110, 113-14 (1st Cir. 2011); United States v. Meadows, 571
F.3d 131, 145 (1st Cir. 2009), particularly where the defendant
first placed in issue his or her motive or lack thereof, see United
States v. Derman, 211 F.3d 175, 180 (1st Cir. 2000). In this case,
we see nothing improper about the government's reference to
Lindley's financial motive, which was a fair rejoinder to Lindley's
earlier exhortation to the jury to "follow the money" and his
declaration that he had no pecuniary stake in appellants' scheme.
Levine's administrative assistant testified that Levine had earned
approximately $20,000 per month, or $240,000 per year, from the
real estate practice he later transferred to Lindley. That these
figures necessarily were estimates, and perhaps were extrapolated
from unusually busy periods in Levine's professional career, does
not negate the inference that Lindley was drawn to the scheme by
the allure of "a quarter million dollars," or thereabouts. There
was no mistake in overruling Lindley's objection, and no manifest
abuse of discretion in the denial of his motion for a new trial.
See Manor, 633 F.3d at 19.
H. Loss Calculation (Ernst and Levine)
Ernst and Levine challenge the eighteen-level
enhancements that the district court added to their sentences
pursuant to U.S.S.G. § 2B1.1(b)(1)(J) for engendering losses
between $2,500,000 and $7,000,000. See United States v. Innarelli,
-38-
524 F.3d 286, 290 (1st Cir. 2008). We review the district court's
loss calculation methodology de novo. See United States v. Walker,
234 F.3d 780, 783 (1st Cir. 2000) ("The appropriate method for
calculating loss amounts . . . is a prototypical question of legal
interpretation, and we review de novo."). The mathematical
application of this methodology is reviewed only for clear error.
See Vázquez-Botet, 532 F.3d at 65; United States v. Cacho-Bonilla,
404 F.3d 84, 92 (1st Cir. 2005).
U.S.S.G. § 2B1.1 increases a defendant's base offense
level for fraud according to the amount of pecuniary loss caused by
the defendant. As a general rule, this amount is "the greater of
actual loss or intended loss." U.S.S.G. § 2B1.1 cmt. n.3(A); see
also Innarelli, 524 F.3d at 290. As the term implies, actual loss
is the reasonably foreseeable loss that actually resulted from an
offense. See U.S.S.G. § 2B1.1 cmt. n.3(A)(i). The extent of
actual loss may depend on fortuities that minimize or exacerbate
the effects of the defendant's fraudulent conduct. Intended loss
is the loss that the defendant could have reasonably expected to
occur at the time he or she perpetrated the fraud. See Innarelli,
524 F.3d at 290; see also United States v. McCoy, 508 F.3d 74, 79
(1st Cir. 2007). In that respect, intended loss is frequently a
better measure of culpability than actual loss. See McCoy, 508
F.3d at 79.
-39-
In cases where a defendant has pledged collateral to
secure a fraudulent loan, actual loss usually can be calculated by
"subtracting the value of the collateral -- or, if the lender has
foreclosed on and sold the collateral, the amount of the sales
price -- from the amount of the outstanding balance on the loan."
United States v. James, 592 F.3d 1109, 1114 (10th Cir. 2010); see
also United States v. Parish, 565 F.3d 528, 535 (8th Cir. 2009);
McCoy, 508 F.3d at 79. "[T]he damage wrought by fraud is sometimes
difficult to calculate," however. United States v. Agboola, 417
F.3d 860, 870 (8th Cir. 2005). If actual loss cannot be
determined, a district court may safely use intended loss in its
computations, and vice versa. Of course, if both can be
determined, the Guidelines require the use of the larger amount.
If neither actual loss nor intended loss can be gauged, a district
court may use, as a last resort, "the gain that resulted from the
offense as an alternative measure of loss." U.S.S.G. § 2B1.1 cmt.
n.3(B).
The application of these principles in mortgage fraud
cases must account for the fact that the original mortgage lender
frequently is not the lender who forecloses on a property and
receives the proceeds from the foreclosure sale. See James, 592
F.3d at 1115. Even if the original lender sells the mortgage to a
successor lender, though, and there are subsequent transactions of
the same kind, actual loss is always the difference between the
-40-
original loan amount and the final foreclosure price (less any
principal repayments). The commentary to U.S.S.G. § 2B1.1 "does
not direct us to focus on harm to any particular victim; rather, it
mandates that we focus on the total loss resulting from the
commission of fraud to the extent the total loss is reasonably
foreseeable." Id. at 1117 (Lucero, J., concurring) (citing
U.S.S.G. § 2B1.1 cmt. n.3(A)(i)); see also United States v. Snow,
468 F. App'x 830, 840 (10th Cir. 2012). Thus, provided that the
total actual loss is reasonably foreseeable, its apportionment as
between the original lender and a successor lender (or other
downstream purchaser) does not matter. The same is true of
intended loss. The focus is not on any particular lender to the
exclusion of others, but rather on the total degree of loss that
the defendant could have reasonably expected to occur. See United
States v. Bonanno, 146 F.3d 502, 509-10 (7th Cir. 1998) ("[T]he
relevant inquiry is . . . 'How many dollars did the culprits'
scheme put at risk?'").
With these principles in mind, we turn our attention to
the case at bar. Most of the mortgages at issue here were sold by
the original lenders to successor lenders (and, in some instances,
resold by the successor lenders to other downstream purchasers)
prior to the commencement of foreclosure proceedings. The district
court assumed that it was precluded from making an actual loss
determination due to its inability to ascertain which entities had
-41-
suffered losses, and in what amounts, for any given property.
Instead, the court relied on intended loss, arriving at a loss
amount in excess of $2,500,000.11
The court was wrong to assume that it was incapable of
making an actual loss determination merely because it could not
tell which entities had lost what amounts of money. The relevant
metric is total actual loss, not loss to any particular victim.
See Snow, 468 F. App'x at 840; James, 592 F.3d at 1117 (Lucero, J.,
concurring).12 Thus, for each property, the court should have
calculated actual loss by subtracting from the outstanding balance
on the mortgage loan either the sum recouped via foreclosure or, if
there was no foreclosure, the property's fair market value at the
time of sentencing. See James, 592 F.3d at 1114; Parish, 565 F.3d
at 535. Nevertheless, this error did not have any prejudicial
11
The court did not pinpoint an exact amount of loss.
12
Ernst and Levine cite James for the proposition that only
actual losses incurred by the original mortgage lenders, and not
the successor lenders, should be counted. They contend that the
district court's inability to determine the extent of the original
lenders' losses thus precluded an actual loss determination. This
argument is wrong. James involved a scheme identical to the one in
this case. See 592 F.3d at 1111. However, the sole reason that
only the original lenders' actual losses were tallied in James was
that the district court had made an uncontested factual finding
that the successor lenders were not reasonably foreseeable victims,
see id. at 1112, as the concurrence explained, see id. at 1118(Lucero, J., concurring), and subsequent cases have reiterated, see
Snow, 468 F. App'x at 840; United States v. Washington, 634 F.3d
1180, 1184-85 (10th Cir. 2011). There was no such finding in this
case and, hence, no cause for assessing only losses to the original
lenders and not the successor lenders. See Snow, 468 F. App'x at
840.
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effect and, hence, does not require resentencing. See United
States v. Roman-Portalatin, No. 11-1542, 2012 WL 1418504, at *2
(1st Cir. Apr. 25, 2012) ("Prejudice is ordinarily a necessary
condition for any order for resentencing . . . ."); United States
v. Larios, 593 F.3d 82, 89 (1st Cir. 2010). If actual loss was
lower than intended loss, it was correct for the court to rely on
intended loss. See U.S.S.G. § 2B1.1 cmt. n.3(A). If intended loss
was lower, the court's error benefitted Levine and Ernst.
In fact, however, the intended loss formula employed by
the court was substantially similar to the actual loss formula
described above: the court subtracted from the original mortgage
loan amount for each property either the foreclosure sales price
or, if there was no foreclosure, an estimate of the property's
assessed value at the time of sentencing.13
Ernst argues that this formula overstates his culpability
because the substantial disparity between the original loan amounts
and the properties' final values was the result of a real estate
market collapse that he could not reasonably have expected:
13
The only difference between this formula and the actual loss
formula is the use of the original mortgage loan amount rather than
the outstanding loan balance as the baseline figure. See Snow, 468
F. App'x at 839 n.6. Because it is unclear from the record whether
any principal repayments were made on the loans, we cannot say with
certainty whether these figures differ in this case and, if so, to
what extent. However, given the relatively short lifespan of the
loans and the fact that appellants' scheme was based on allowing
the loans to default, any difference between the original loan
amounts and the outstanding balances is probably not significant.
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The collapse of the sub-prime market --
indeed, even the conventional credit market --
had a devastating effect on real estate values
in precisely the time frame these properties
were being resold or auctioned. The extent of
the decline was not one that was reasonably
foreseeable and it is unfair and unreasonable
to hold Ernst accountable for those declines
in the length of his sentence.
. . . .
This issue poses a philosophical
concern larger than the immediate effect on
Ernst's sentencing. If extreme market
fluctuations are allowed to dictate a
defendant's sentence in a case of this nature,
then the corollary will also be true. In a
case of an identical nature, with an identical
modus operandi and intended result, where the
market remains nearly static, then the
offenders will be punished significantly less
because the values of the properties did not
decline. It makes no penological sense to
impose disparate punishment on similar
situated defendants who engage in identical
behavior with the same intended gain.
Thus, without a fair way to assess loss, Ernst contends that the
court should have used the gain that appellants derived from their
scheme as an alternative measure. See U.S.S.G. § 2B1.1 cmt.
n.3(B). The formula that he proposes for calculating gain is based
on the difference between the purchase prices negotiated with the
properties' sellers and the artificially-inflated prices reported
to the original mortgage lenders. Levine advocates the same
formula. This approach would yield a sum of $1,770,000, which in
turn would entitle Ernst and Levine to a two-level reduction in
their total offense levels. See id. § 2B1.1(b)(1)(I).
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There is no need to resort to gain here. The district
court's intended loss formula was a reasonable proxy for
culpability in the circumstances of this case. See McCoy, 508 F.3d
at 79 ("Intended loss was therefore the value of the loans less the
expected value of the properties."). Levine and Ernst were
veterans of the real estate industry. They knew that the mortgage
loans on the properties involved in their scheme would enter
default and that most, if not all, of the properties would be
forced into foreclosure. They could reasonably have anticipated
that the properties would be grossly devalued as a result. Even if
the deterioration of the Boston real estate market during the
recent recession also played some macroeconomic role in that
outcome, Levine and Ernst could reasonably have expected that they
were contributing to the emergence of those poor market conditions.
See Parish, 565 F.3d at 535 (in measuring actual loss, explaining
that defendants could have reasonably foreseen the depressing
impact their mortgage fraud scheme would have on local markets and
property values); United States v. Shattuck, 961 F.2d 1012, 1016-17
(1st Cir. 1992).
However, the intended loss formula used by the court will
not work where the real estate market outperforms a defendant's
expectation that a property will be devalued. In that scenario,
subtracting the property's final value from the original mortgage
loan amount will not accurately reflect the defendant's culpability
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and, hence, will be an unreliable gauge of intended loss. A
different intended loss formula will be necessary to punish the
defendant for the full amount of loss he or she could reasonably
have expected to occur rather than the more modest loss that
actually occurs. See Innarelli, 524 F.3d at 291 ("Where, as here,
the defendant reasonably should have expected that loss would
result, he can and generally should be punished more severely to
account for his greater level of moral culpability, even where the
victim has managed to make money in spite of the fraud.").
We do not share Ernst's "philosophical concern" with this
problem because the Sentencing Guidelines anticipate it. If a
reliable intended loss formula cannot be devised, total actual loss
must be used. If the resulting actual loss amount "substantially
understates the seriousness of the offense, . . . an upward
departure may be warranted." U.S.S.G. § 2B1.1 cmt. n.19(A). With
the availability of an upward departure, the fortuities of the
market that might make actual loss a poor proxy for culpability can
be addressed.
In summary, there was no error in the district court's
loss calculation methodology and none in its mathematical
application of this methodology, which produced an intended loss
amount within the range contemplated by U.S.S.G. § 2B1.1(b)(1)(J).
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I. Levine's Role-in-the-Offense Challenge
Levine argues that the district court should not have
incorporated into his sentence a four-level enhancement pursuant to
U.S.S.G. § 3B1.1(a) for his role as an organizer or leader of
appellants' scheme. We review the imposition of this particular
sentencing enhancement, and any predicate factual findings, for
clear error. See United States v. Alfonzo-Reyes, 592 F.3d 280, 295
(1st Cir. 2010) ("A court's decision to impose a sentencing
enhancement for a leadership role based on the facts is reviewed
for clear error."); United States v. Martínez-Medina, 279 F.3d 105,
123 (1st Cir. 2002) ("We review role-in-the-offense determinations,
steeped in the facts of the case, for clear error."); United States
v. Wright, 873 F.2d 437, 443-44 (1st Cir. 1989) (explaining
rationale for applying clear error review).
"In order to invoke § 3B1.1(a), a district court must
make a finding as to scope -- that the criminal activity involved
five or more participants or was otherwise extensive -- and a
finding as to status -- that the defendant acted as an organizer
[or] leader of the criminal activity." United States v. Arbour,
559 F.3d 50, 53 (1st Cir. 2009); see also United States v. Tejada-
Beltran, 50 F.3d 105, 111 (1st Cir. 1995). Levine challenges only
the district court's status finding, protesting that he was merely
an ancillary participant in appellants' scheme and that others were
equally or more culpable. There is no merit to this challenge.
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A defendant acts as a leader if he or she exercises some
degree of dominance or power in a criminal hierarchy and has the
authority to ensure that others will follow orders. See United
States v. Aguasvivas-Castillo, 668 F.3d 7, 15 (1st Cir. 2012);
Arbour, 559 F.3d at 55. A defendant qualifies as an organizer if
he or she "coordinates others so as to facilitate the commission of
criminal activity." Tejada-Beltran, 50 F.3d at 111. Factors that
are relevant to determining the supervisory nature of a defendant's
role include: (1) the exercise of decision-making authority; (2)
the nature of the participation in the commission of the offense;
(3) the recruitment of accomplices; (4) the claimed right to a
larger share of the fruits of the crime; (5) the degree of
participation in planning or organizing the offense; (6) the nature
and scope of the illegal activity; and (7) the degree of control
and authority exercised over others. See U.S.S.G. § 3B1.1 cmt.
n.4; Aguasvivas-Castillo; 668 F.3d at 15. Of course, "[t]here need
not be proof of each and every factor before a defendant can be
termed an organizer or leader." Tejada-Beltran, 50 F.3d at 111.
The evidence clearly establishes that Levine masterminded
appellants' scheme. Levine inducted Lindley into the scheme and
largely guided his actions. See United States v. Carrero-
Hernández, 643 F.3d 344, 352 (1st Cir. 2011); cf. Arbour, 559 F.3d
at 56 ("[A] defendant needs only to have led or organized one
criminal participant, besides himself of course, to qualify as a
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leader or organizer under § 3B1.1(a)."). Levine also directed the
flow of the scheme's proceeds from Lindley's IOLTA to the
conspirators, usually via his own bank accounts, see Aguasvivas-
Castillo, 668 F.3d at 15 (holding that defendant qualified as an
organizer or leader in part because of his financial control over
fraudulent scheme), and he dictated who was authorized to discuss
the scheme with whom. As a result, even if others, too, had
supervisory roles, the district court did not clearly err in
determining that Levine was an organizer or leader and sentencing
him accordingly. See U.S.S.G. § 3B1.1 cmt. n.4; ("There can, of
course, be more than one person who qualifies as a leader or
organizer of a criminal association or conspiracy."); see also
United States v. Casas, 356 F.3d 104, 109 (1st Cir. 2004) ("The
mere fact that [the defendant] was subordinate to [a coconspirator]
does not establish, without more, that [the defendant] was not an
organizer or leader of the conspiracy.").
J. Levine's Motion for an Evidentiary Hearing or Discovery
Levine argues that the district court erred in denying
his post-trial motion for an evidentiary hearing or discovery. Our
review is for abuse of discretion. See United States v. Cartagena,
593 F.3d 104, 112 (1st Cir. 2010); United States v. Theodore, 354
F.3d 1, 7 (1st Cir. 2003).
During the trial, Levine's counsel, Isaac Borenstein,
began to suspect that a paralegal on Levine's defense team, Melanie
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Abbruzzese, was romantically involved with a postal inspector on
the government's prosecution team, Joseph McGonagle. Although
Borenstein warned Abbruzzese that it would be inappropriate for her
to have a romantic relationship with McGonagle, he did not
initially take any further action or inform Levine of his
suspicions.
Two weeks later, Abbruzzese disclosed to Borenstein that
she and McGonagle had spoken briefly about this case. The next
day, Borenstein alerted both Levine and the district court to what
Abbruzzese had told him. The court promptly held a closed hearing
at which Abbruzzese and McGonagle denied under oath that they were
romantically linked and swore that their relationship was strictly
professional. They also swore that they had not exchanged any
confidential information. On the basis of this testimony, the
court permitted the trial to proceed.
After Levine's conviction, but before his sentencing,
Borenstein informed the government that Abbruzzese and McGonagle
had lied at the closed hearing concerning the nature of their
relationship.14 Borenstein's law firm, Denner Pellegrino, then
14
The government subsequently charged Abbruzzese and McGonagle
with obstruction of justice, in violation of 18 U.S.C. § 1503, and
perjury, in violation of 18 U.S.C. § 1623. Abbruzzese pleaded
guilty on November 30, 2011, and was sentenced on March 14, 2012.
McGonagle pleaded guilty on January 26, 2012, and was sentenced on
May 3, 2012. They were each sentenced to a prison term of one year
and a day, to be followed by a two-year period of supervised
release.
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withdrew from Levine's representation. Levine's replacement
counsel moved for an evidentiary hearing or discovery to determine
whether to pursue a new trial, or any other remedy, on the ground
that Levine's defense had been compromised and his constitutional
right to conflict-free counsel infringed. See Wood v. Georgia, 450
U.S. 261, 271 (1981) ("Where a constitutional right to counsel
exists . . . there is a correlative right to representation that is
free from conflicts of interest."). The motion asserted that an
evidentiary hearing or discovery was necessary for Levine "to
obtain evidence from sources currently unavailable to him -
including Abbruzzese, McGonagle, other members of the prosecution
team, and documents that have been requested from, but withheld by,
the [government]." Attached to the motion were excerpts from the
depositions of two Denner Pellegrino employees describing the
romantic relationship between Abbruzzese and McGonagle.
At an initial status conference on Levine's motion, the
court surmised that Abbruzzese and McGonagle would invoke their
constitutional privilege against self-incrimination, see U.S.
Const. amend. V, and refuse to testify at an evidentiary hearing.
The court also reminded the government of its continuing obligation
under Brady v. Maryland, 373 U.S. 83 (1963), to disclose any
material evidence favorable to Levine, and ordered the government
to submit affidavits stating whether McGonagle had shared
confidential information derived from his relationship with
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Abbruzzese with any other member of the prosecution team. The
government responded with seven affidavits from prosecution team
members making clear that no such information had been received.
At a second status conference, the court emphasized that
it was not requiring Levine "to actually demonstrate prejudice" and
was, instead, merely looking for a threshold showing that
confidential information from Abbruzzese was conveyed by McGonagle
to the rest of the prosecution team. The court then explained that
the government's affidavits, which it accepted as true, established
that the prosecution team had not knowingly received any such
information, and that the only other possibility was that "in some
way unknown to the prosecution team they were fed information that
worked to Mr. Levine's detriment." The court concluded, however,
that the evidence against Levine was "so overwhelming" that it was
"virtually impossible" that any information the prosecution team
received unknowingly could have influenced the outcome of this
case. As a result, the court found that further inquiry was not
warranted and denied Levine's motion.15
We recognize the seriousness of the misconduct at issue
here. However, Levine has not shown how either an evidentiary
15
After filing his direct appeal in this case, Levine filed
a petition for post-conviction relief under 28 U.S.C. § 2255. The
district court denied Levine's petition without prejudice to its
renewal upon resolution of this appeal. On April 13, 2012, we
denied Levine's request for a certificate of appealability from
that order. See Levine v. United States, No. 11-1940.
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hearing or discovery would have been likely to produce any evidence
previously unavailable to him and, thus, help him establish a claim
for relief. The seven affidavits submitted by the government
assert that McGonagle did not share confidential information from
Abbruzzese with the rest of the prosecution team. The only people
who were in a position to contradict that assertion were McGonagle
and, to a lesser extent, Abbruzzese. However, we have no reason to
second guess the district court's assumption that McGonagle and
Abbruzzese would not have testified at an evidentiary hearing in
light of their potential criminal liability. In these
circumstances, the incremental value of further inquiry is dubious
at best, and we cannot say that the court abused its discretion in
denying Levine's motion. See United States v. Vigneau, 337 F.3d
62, 70 (1st Cir. 2003) (affirming denial of motion for evidentiary
hearing where defendant's "motion and brief spoke only in general
terms about the new evidence available to him"); United States v.
Rodriguez, 162 F.3d 135, 148 (1st Cir. 1998) ("Conclusory
allegations and pure speculation, without more, do not merit an
evidentiary hearing."); Shattuck, 961 F.2d at 1015 ("At no time did
appellant identify any evidence which would be presented at a
hearing, so as to enable the district court to evaluate the
usefulness of an evidentiary hearing.").
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III.
As we discern no error by the district court, appellants'
convictions and sentences are affirmed.
So ordered.
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