United States v. Goodchild ( 1994 )

June 21, 1994 UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 94-1097
UNITED STATES,
Appellee,
v.
CHRISTIAN GOODCHILD,
Defendant, Appellant.
ERRATA SHEET
The opinion of this court issued on June 8, 1994, is amended
as follows:
Page 8, line 13: Add close quote after "device."
Page 25, last line of the second quote: Change "e" to "be."
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 94-1097
UNITED STATES,
Appellee,
v.
CHRISTIAN GOODCHILD,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Joseph A. DiClerico, U.S. District Judge]
Before
Selya, Circuit Judge,
Bownes, Senior Circuit Judge,
and Boudin, Circuit Judge.
Vincent J. D'Elia for appellant.
Jean B. Weld, Assistant United States Attorney, with whom Paul M.
Gagnon, United States Attorney, was on brief for appellees.
June 8, 1994
BOWNES, Senior Circuit Judge. Defendant-appellant,
BOWNES, Senior Circuit Judge.
Christian Goodchild, was indicted on one count of using two
unauthorized access devices, i.e., two Discover credit cards
issued on two separate accounts, and obtaining goods and
services within a one-year period with a value in excess of
$1,000, with intent to defraud, in violation of 18 U.S.C.
1029(a)(2).1
After a jury trial, defendant was found guilty.
She was sentenced to eleven months incarceration, a three-
year term of supervised release, and ordered to pay
restitution of $10,090.52 to Discover Credit Card Services,
Inc. This appeal followed.
We consider the following issues:2 (1) whether
the government proved each and every element of 18 U.S.C.
1029(a)(2) beyond a reasonable doubt; (2) whether the
district court erred in admitting certain evidence; (3)
1. 18 U.S.C. 1029(a)(2) provides:
(a) Whoever
. . .
(2) knowingly and with intent to defraud
traffics in or uses one or more
unauthorized access devices during any
one-year period, and by such conduct
obtains anything of value aggregating
$1,000 or more during that period;
shall, if the offense affects interstate
or foreign commerce, be punished as
provided in subsection (c) of this
section.
. . .
2. Appellant has eight numbered issues in her brief. We
have consolidated them to five for purposes of our review.
-2-
2
whether defendant's conviction was due in part to the
ineffective assistance of counsel; (4) whether the
prosecutor's conduct warrants a reversal; and, (5) whether
there was error in applying the sentencing guidelines.
SUFFICIENCY OF THE EVIDENCE
Our standard of review is firmly established:
We assess the sufficiency of the evidence
as a whole, including all reasonable
inferences, in the light most favorable
to the verdict, with a view to whether a
rational trier of fact could have found
the defendant guilty beyond a reasonable
doubt. We do not weigh witness
credibility, but resolve all credibility
issues in favor of the verdict. The
evidence may be entirely circumstantial,
and need not exclude every reasonable
hypothesis of innocence, that is, the
factfinder may decide among reasonable
interpretations of the evidence.
United States v. Batista-Polanco, 927 F.2d 14, 17 (1st Cir.
1991) (citations omitted). See also United States v.
Sepulveda, 15 F.3d 1161, 1173 (1st Cir. 1993); United States
v. Argencourt, 996 F.2d 1300, 1303 (1st Cir. 1993), cert.
denied, U.S. , 114 S. Ct. 731 (1994).
There are four essential elements of the crime for
which defendant was convicted: (1) that the two Discover
credit cards specified in the indictment were "access
devices" within the meaning of 18 U.S.C. 1029(e); (2) that
defendant used the credit cards without authorization during
any one-year period and obtained anything of value
aggregating $1,000 or more during the time period; (3) that
-3-
3
defendant acted knowingly, willfully, and with intent to
defraud; and (4) that defendant's actions affected interstate
commerce. See United States v. Ryan, 894 F.2d 355, 356-57
(10th Cir. 1990).
We now turn to the trial record. Defendant's
father, Anthony Goodchild, died in an automobile accident on
September 15, 1988. In January of 1988, Anthony Goodchild
had applied for and received two Discover credit cards,
limited solely to his use. His application gave as his
address P.O. Box 398, Bristol, New Hampshire. The 1988
credit cards expired in January 1990. Discover was not
notified of Goodchild's death so it sent him two new cards,
numbers 2620 and 2471, on January 8, 1990, to the same post
office box address. The re-issue cards had the same
restriction as the original ones the sole use of Anthony
Goodchild.
About two months after her father's death,
defendant rented the same post office box her father had
rented - box 398. Defendant notified the postmistress that
her mother, Anne, and her father could receive mail at the
post office box. Defendant's mother and father had been
divorced sometime prior to her father's death.
At the time the two re-issue credit cards were
mailed to post office box 398, defendant was the only one
using the box. On January 16, 1990, defendant called
-4-
4
Discover, identified herself and asked that she be sent a
card on her father's credit account. No mention was made of
her father's death. Discover informed her that it could not
do this unless she forwarded a power of attorney authorizing
her use of the credit card accounts. Defendant proceeded to
make purchases with the cards limited to her father's use.
Defendant used card number 2471 twenty-two times
between January 16 and February 23, 1990, to obtain things or
services of value aggregating $4,847.11. She used card
number 2620 thirty-five times between January 15 and
April 10, 1990, to obtain things or services of value
aggregating $7,137.43. Defendant made two minimum monthly
payments on card number 2620, $91.00 on March 3, 1990, and
$104.00 on March 19, 1990. These were the only payments she
made on either of the cards.
On February 5, 1990, Discover security personnel
started an investigation of the use of card number 2471
because of transactions exceeding the charge limit. After
receiving no answer at the phone number it had for Anthony
Goodchild, Discover deactivated the card. On February 6 an
attempted use of the card at Nutri-System in Laconia, New
Hampshire, was blocked.
The card account was then assigned to Discover's
collections department. It attempted to locate Anthony
Goodchild. The phone listed on his credit card application,
-5-
5
603-744-6591, was called on April 23, 1990, and a woman
informed the caller that Anthony Goodchild no longer lived at
that address. It learned from Anthony's former boss that he
had died "three to four years ago." Discover, on July 19,
1990, again called the number it had called previously. The
caller was told by the same woman who had answered the phone
on April 23, that she had had the phone number for a year,
that she did not know Anthony Goodchild, and that a Goodchild
lived in Alexandria, New Hampshire.
Discover found a telephone number for defendant in
Alexandria, New Hampshire, 603-744-0157. The number was
called on July 19, 1990, and a message left on the answering
machine asking that the call be returned. A woman called
back. After identifying herself as Christian Goodchild, she
said a number of things. She told the Discover agent that
Anthony Goodchild had died in an automobile accident on
September 15, 1988, in Reading, Pennsylvania. She said that
there was a "long story behind the account sales" in January
and February, 1990. She went on to say that her parents were
divorced four months before her father's death and that after
he died "girlfriends started popping up" and her mother was
heartbroken. She told Discover that the attorney had paid
off "all credit accounts" through the estate, that the estate
was closed, and because she had fired the attorney handling
the estate for incompetence, there was no attorney to
-6-
6
contact. Defendant also volunteered that her father's latest
girlfriend, who was living with him at the time of his death,
was "Arline," last name and present whereabouts unknown.
After this phone call, the credit card accounts were referred
to the fraud unit of Discover, and eventually were turned
over to United States Postal Inspectors.
There was independent evidence linking defendant to
the credit card transactions. An insurance adjuster, Terry
Seger, went to defendant's home on June 14, 1991, to
investigate her burglary claim of a loss in excess of
$70,000. Seger told defendant that he needed corroborating
information of the value of the items stolen. Defendant
submitted specific Discover card records of purchases on both
cards totalling approximately $3,362.12. The records showed
that these purchases were made in 1990. Defendant told Seger
that she had lived in her father's house since a month after
her father's death in 1988. She also told Seger that she
owned the Discover credit cards jointly with her father.
Evidence was introduced showing that defendant was
a regular customer of Nutri-System Weight Loss Centers in
Concord, New Hampshire, in 1990. Purchases were made from
Nutri-System on card number 2620 on February 12, February 26,
and March 3, 1990, and one purchase on card number 2471 on
February 1, 1990.
-7-
7
Based on our review of the record, focussed as
prescribed in the light most favorable to the verdict, we
find that the prosecution proved all four elements of the
crime charged beyond a reasonable doubt. There can be no
doubt that the Discover credit cards were "access devices"
within the meaning of the statute and defendant did not
challenge the judge's charge to this effect.3 Nor can any
serious challenge be made to the evidence showing use of the
credit cards by defendant. And it is clear that defendant's
use of the credit cards affected interstate commerce. The
one issue that requires further discussion is whether the
government has proven intent to defraud.
Intent to Defraud
Under 18 U.S.C. 1029(a)(3) the government must
prove that a defendant "knowingly and with intent to defraud
traffics in or uses one or more unauthorized access devices"
. . . ." Section 1029(e)(3) defines "unauthorized access
device as follows:
3. 18 U.S.C. 1029(e)(1) defines "access device" as
follows:
the term "access device" means any
card, plate, code, account number, or
other means of account access that can be
used, alone or in conjunction with
another access device, to obtain money,
goods, services, or any other thing of
value, or that can be used to initiate a
transfer of funds (other than a transfer
originated solely by paper instrument);
-8-
8
the term "unauthorized access device"
means any access device that is lost,
stolen, expired, revoked, canceled, or
obtained with intent to defraud;
(Emphasis added.)
The district court charged the jury as follows:
The third element that the Government
must prove beyond a reasonable doubt is
that the defendant acted knowingly and
with intent to defraud.
The Government must prove beyond a
reasonable doubt:
(1) that Christian Goodchild obtained
the Discover cards with intent to
defraud, or that the credit cards were
lost, stolen, expired, revoked or
canceled; and
(2) that she knowingly and with
intent to defraud used the credit cards.
(Emphasis added.)
The court also gave, at defendant's request, a
"good faith" instruction:
Since an essential element of the
crime charged is intent to defraud, good
faith on the part of a defendant is a
complete defense to a charge of credit
card fraud. If the defendant actually
believed in good faith that she was
acting properly, even if she was mistaken
in that belief, and even if others were
injured by her conduct, there would be no
crime. An honest mistake in judgment
does not rise to the level of criminal
conduct. A defendant does not act in
good faith if, even though she honestly
holds a certain opinion or belief, that
defendant also acted with the purpose of
deceiving others.
-9-
9
While the term good faith has no
precise definition, it means among other
things a belief or opinion honestly held,
an absence of malice or ill will, and an
intention to avoid taking unfair
advantage of another.
The burden is on the Government to
prove fraudulent intent and consequent
lack of good faith beyond a reasonable
doubt. The defendant is under no
obligation to prove good faith.
It is clear that the jury was properly and evenhandedly
instructed on intent to defraud.
Fraud is usually proven by circumstantial evidence.
Direct proof of a knowing intent to defraud is rare. See
United States v. Nivica, 887 F.2d 1110, 1113-15 (1st Cir.
1989), cert. denied, 494 U.S. 1005 (1990). As we said in
Nivica: "There is no pat formula for such proof; factual
circumstances may signal fraudulent intent in ways as diverse
as the manifestations of fraud itself." Id. at 1113.
We now examine the evidence. Defendant points to
the following evidence and the reasonable inferences to be
drawn therefrom as establishing that she had no intent to
defraud Discover. She took out the post office box two
months after her father's death in September 1988, in order
to help the estate receive mail, for her personal use, and
the use of her mother. Defendant points out that in using
the credit cards she signed her surname as she did on other
credit cards held by her. She also asserts that she always
disclosed her proper name, address, phone number and driver's
-10-
10
license number. She emphasizes that she never denied using
the credit cards, and that she did make payments on the cards
from her own checking account. She states that she always
paid bills late. We have been unable to find any evidence
about defendant paying bills late, but will assume that there
is evidence to that effect or that it could be reasonably
inferred from other evidence. Defendant emphasizes that
during the time of the credit card charges she had been
appointed personal representative of her father's estate with
the consent of her mother and two brothers and that all the
expenditures were made with the approval of the attorney
representing the estate. Defendant also points out that she
was financially able to pay the credit card bills.
We start our examination of the government's
evidence on intent to defraud with the telephone call from
defendant to Discover on January 16, 1990, in which she
requested, without mentioning her father's death, that she be
sent a card on her father's credit accounts and was told that
in order to do so Discover required a power of attorney
authorizing her to use the accounts. Defendant then
proceeded to use both cards, which were limited to her late
father's use, for credit purchases totalling $11,984.54. The
only payments made on the accounts were two minimum monthly
payments of $91.00 and $104.00 on card number 2620. Although
she was administrator of her father's estate during the time
-11-
11
she was using the cards, defendant never notified Discover
until mid-July of 1990 that her father had been dead since
September 15, 1988. When the insurance adjuster was
investigating defendant's claim of a burglary of her home,
she specified Discover credit card purchases of items that
she claimed had been stolen. She told the insurance adjuster
that she held the cards jointly with her father. This was
false and defendant knew it was false. There can be no doubt
that defendant had the wherewithal to pay Discover what was
owed. By the spring of 1990, defendant had received
distributions from her father's estate of approximately
$22,855. By the time of her indictment, defendant had
received $181,607 in estate distributions.4
We conclude that there was sufficient evidence for
a jury to find beyond a reasonable doubt that defendant had
obtained the credit cards after they had expired on her
father's death, that she used them for her own benefit
knowingly and with intent to defraud, and obtained something
of value aggregating more than $1,000 during a one-year
period. Or to put it another way, the government proved all
the elements of the crime charged beyond a reasonable doubt.
THE ADMISSION OF EVIDENCE
4. We can only wonder why defendant needed court appointed
counsel.
-12-
12
Defendant hotly contested, on the grounds of
hearsay, the admission of "collection memos" of Discover
which contained the histories of the two accounts used by
her. The memos incorporated the substance of telephone calls
purportedly made by defendant to Discover. The basis of
defendant's hearsay objection to the memos was that neither
the person(s) who prepared the memo(s) nor the person(s) who
had the telephone conversation(s) or the person(s) who
maintained the records testified. The memos were admitted
under the business record exception to the hearsay rule, Fed.
R. Evid. 803(6). The telephone statements allegedly made by
defendant on July 19, 1990, were also admitted as an
admission under Fed. R. Evid. 801(d)(2). A detailed
exposition of the presentation of this evidence is necessary.
Glen Hall, manager of fraud investigations for
Discover, testified as follows. The fraud investigation unit
often initiated investigations based on referrals received
from the collections department. Each referral contains a
record of what the collections department has done on the
account up to the date of the referral to the fraud unit.
This information includes any contacts with and statements
made by the cardholder. A referral also contains any
documentation on hand, including sales drafts, with the
customer's signature on them.
-13-
13
The main activity by the collections department on
a delinquent account consists of telephone calls to locate
the cardholder. It is standard procedure for collections
personnel to log everything done. This is called "memoing
the account." All phone calls have to be "memoed." The
collections department uses its own shorthand system in the
memo record. Hall testified that he was familiar with most
of the shorthand system used. All of the account memos are
put into a computer. Each account memo can be printed out
when needed. Exhibits 12a, 12b, 12c, 13a, and 13b were
computer printouts of "collection memos" pertaining to
defendant's accounts. Hall explained how the printouts were
read and the meaning of the shorthand terms and symbols used
in them. Hall testified that the printout exhibits were
brought with him in response to a subpoena for Discover's
collections file. He also testified that these records were
kept in the ordinary course of business and stored on
Discover's computer.
Defendant's hearsay attack focuses on the admission
of exhibits 12b and 13b. These computerized memos include
references to telephone contacts with a woman at the
telephone number listed on Anthony Goodchild's credit card
application. This woman referred the collections caller to a
person by the name of Goodchild living in Alexandria, New
Hampshire. As a result, collections obtained defendant's
-14-
14
phone number and left a message on her answering service.
Defendant objected to the introduction of this evidence. The
district court properly admitted the statement of the woman
that a person by the name of Goodchild was living in
Alexandria, not for the truth of the statement made, but to
explain what Discover did in response to it.
It is not the case that all out of
court statements are inadmissible as
hearsay. The Federal Rules of Evidence
make it quite clear that such statements
are inadmissible only if offered for the
truth of the matter therein. Fed. R.
Evid. 801(c). We agree with the district
court's decision permitting the
introduction of the documents, on the
ground that they were admitted, not for
proving the truth of their contents, but
to prove what steps were taken to
investigate the circumstances surrounding
the assault.
Morgan v. Massachusetts General Hospital, 901 F.2d 186, 190-
91 (1st Cir. 1990). This ruling applies with full vigor to
the telephone statements made by the unidentified woman.
Defendant concentrates most of her objection fire
on telephone statements allegedly made by her on July 19,
1990, in response to Discover's request on her answering
service that she call. The statements were: that she
identified herself as Christian Goodchild; that Anthony
Goodchild had died in an automobile accident on September 15,
1988; that her parents were divorced four months prior to her
father's death; that after her father died "girlfriends
started popping up" and her mother was heartbroken; that the
-15-
15
attorney paid off all "credit accounts" through the estate;
that she had fired the attorney for incompetence in handling
the estate and the estate was closed; that her father had a
girlfriend living with him at the time of his death by the
name of "Arline," last name and present whereabouts unknown.
The core issue is whether the computer printouts of
the collection memos containing records of telephone
statements made to Discover's collection personnel were
properly admitted under the business record exception to the
hearsay rule. Fed.
-16-
16
R. Evid. 803(6) provides:
(6) Records of regularly conducted
activity. A memorandum, report, record,
activity.
or data compilation, in any form, of
acts, events, conditions, opinions, or
diagnoses, made at or near the time by,
or from information transmitted by, a
person with knowledge, if kept in the
course of a regularly conducted business
activity, and if it was the regular
practice of that business activity to
make the memorandum, report, record, or
data compilation, all as shown by the
testimony of the custodian or other
qualified witness, unless the source of
information or the method or
circumstances of preparation indicate
lack of trustworthiness. The term
"business" as used in this paragraph
includes business, institution,
association, profession, occupation, and
calling of every kind, whether or not
conducted for profit.
We find that the telephone statement memos meet the
strictures of the rule. They were reports or records made
either during the telephone conversations or immediately
following them. They were made and kept in the course of a
regularly conducted business activity, i.e., telephonic
investigations of delinquent credit card accounts. And it
was the regular practice of Discover to make a record of such
telephone calls.
Although Hall did not make the records himself or
participate in the telephone conversations, we think he was a
witness qualified to explain the memos. He was the manager
of the fraud unit of Discover and understood both the
procedure followed by collections in investigating delinquent
-17-
17
accounts and the records required to be kept of such
investigations. There was no evidence indicating lack of
trustworthiness of the source of the information or the
circumstances of preparation.
In rendering our ruling we are, of course, aware
that the usual array of threshold
questions pertaining to the admissibility
of business records come within the ambit
of the district court's discretion.
These usual questions include, of course,
questions as to whether a proper
foundation was laid or whether sufficient
indicia of trustworthiness were shown.
United States v. McGill, 953 F.2d 10, 13 (1st Cir. 1992).
We are not persuaded by defendant's argument that
the memos were not business records, but prepared for
litigation. Records prepared by a debt collections
department are primarily made to enable the department to
track down debtors and collect money owed. This is not the
kind of record condemned in Palmer v. Hoffman, 318 U.S. 109,
113-14 (1943) which was a statement made by the engineer of a
train involved in an accident. The record here was not
prepared with an eye to litigation; its purpose was to
facilitate the collection of debts owed Discover. The Tenth
Circuit, in an analogous case, held:
The government established at trial that
the notes were contemporaneous with the
[telephone] conversation, were part of
the regular course of the loan
counselors' business, and otherwise
qualified as a business record under Rule
803(6). Therefore, the district court
-18-
18
did not abuse its discretion in ruling
that the notes qualify as an exception to
the hearsay rule.
United States v. Kingston, 971 F.2d 481, 486 (10th Cir.
1992).
We find the telephone statements of defendant made
on July 19 to Discover were admissible under the business
record rule.
The district court also admitted as admissions
under Fed. R. Evid. 801(d)(2)(A)5 the July 19 telephone
statements made by defendant to Discover. We recognize, of
course, that normally statements by one not a party to the
business are not admissible for the truth of the matter
stated unless some exception other than the business records
exception is involved; the business records exception merely
avoids having to call the person in the business who had the
telephone conversation but does not justify admitting the
statements of the outsider for their truth. In this case,
the predicate for making the statements relevant is that the
jury could reasonably find that the statements were made by
the defendant. The evidence was that she returned a call
5. Fed. R. Evid. 801 (d)(2)(A) states:
(d) Statements which are not hearsay. A
(d) Statements which are not hearsay.
statement is not hearsay if
(2) Admission by party-opponent. The
(2) Admission by party-opponent.
statement is offered against a party and
is (A) the party's own statement in
either an individual or a representative
capacity . . . .
-19-
19
made to her number and identified herself. She then made
statements about Anthony Goodchild and his wife that only one
privy to the family history would know. The statements were
admissions because they could be used to identify defendant
and were properly admitted as such. Moreover, the judge gave
a cautionary instruction after the phone-call evidence was
admitted:
Members of the jury, during the course
of this witness's testimony you have
heard certain testimony about notations
or memos made in the business records of
Discover concerning certain phone
conversations. Before you can attribute
any of those recorded remarks to the
defendant, Ms. Goodchild, in this case,
you must be satisfied from all of the
evidence before you that the defendant
was in fact the person who was on the
other end of the telephone line and
making those remarks.
If you are not satisfied from the
evidence that the caller was the
defendant, then you must not attribute
any of those remarks to her.
This cautionary instruction was clear and correct. It
advised the jury how the phone call evidence should be
approached.
INEFFECTIVE ASSISTANCE OF COUNSEL
Defendant mounts a lengthy and detailed argument
that trial counsel's poor performance resulted, at least in
part, in defendant's conviction. We follow our usual rule
and refuse to address the ineffective assistance of counsel
issue in the first instance. In United States v. Mala, 7
-20-
20
F.3d 1058 (1st Cir. 1993) we explained in detail the reason
for the rule:
We have held with a regularity
bordering on the monotonous that fact-
specific claims of ineffective assistance
cannot make their debut on direct review
of criminal convictions, but, rather,
must originally be presented to, and
acted upon by, the trial court. See,
e.g., United States v. McGill, 952 F.2d
16, 19 (1st Cir. 1992); United States v.
Natanel, 938 F.2d 302, 309 (1st Cir.
1991), cert. denied, U.S. , 112
S.Ct. 986, 117 L.Ed.2d 148 (1992); United
States v. Hunnewell, 891 F.2d 955, 956
(1st Cir. 1989); United States v. Costa,
890 F.2d 480, 482-83 (1st Cir. 1989);
United States v. Hoyos-Medina, 878 F.2d
21, 22 (1st Cir. 1989); United States v.
Carter, 815 F.2d 827, 829 (1st Cir.
1987); United States v. Kobrosky, 711
F.2d 449, 457 (1st Cir. 1983). The rule
has a prudential aspect. Since claims of
ineffective assistance involve a binary
analysis the defendant must show, first,
that counsel's performance was
constitutionally deficient and, second,
that the deficient performance prejudiced
the defense, see Strickland v.
Washington, 466 U.S. 668, 687, 104 S.Ct.
2052, 2064, 80 L.Ed.2d 674 (1984) such
claims typically require the resolution
of factual issues that cannot
efficaciously be addressed in the first
instance by an appellate tribunal. See
Costa, 890 F.2d at 483; Hoyos-Medina, 878
F.2d at 22. In addition, the trial
judge, by reason of his familiarity with
the case, is usually in the best position
to assess both the quality of the legal
representation afforded to the defendant
in the district court and the impact of
any shortfall in that representation.
Under ideal circumstances, the court of
appeals should have the benefit of this
evaluation; elsewise, the court, in
effect, may be playing blindman's buff.
-21-
21
Id. at 1063 (footnote omitted). See also United States v.
Daniels, 3 F.3d 25 (1st Cir. 1993).
PROSECUTORIAL CONDUCT
Defendant charges that the "prosecutor's unduly
prejudicial and overreaching actions constitute plain error
and warrant a reversal of the action." We have read the
record carefully and have found no actions by the prosecutor
that even suggest conduct requiring reversal. It is true
that the prosecutor pushed hard during the trial for the
admission of evidence and to sustain his objections and he
was somewhat highhanded at times. But this is part of the
adversarial system. There was no conduct by the prosecutor
that was unethical, unfair, or which infringed upon the
constitutional rights of defendant.
We are, however, bothered by a statement in
defendant's brief that is without support in the record. On
page 32 of defendant's brief there is the following
statement:
In addition, during the prosecutor's
closing his repeated use of the term
"uncontradicted testimony" drew attention
to the fact that Ms. Goodchild did not
testify. Such references are grounds for
reversal.
We agree that such a reference might well be grounds for
reversal and a new trial. But the prosecutor's argument did
not contain a single use of the term "uncontradicted
testimony," let alone repeated use of it. We expect
-22-
22
appellate counsel to read the trial record and represent
accurately in the brief and at oral argument what is
contained therein. Counsel should be aware that we read the
record, as well as the briefs, carefully.
THE SENTENCING
We are somewhat hampered in our consideration of
this issue because neither party ordered a transcript of the
sentencing hearing in this case. We proceed on the basis of
the presentence report and the judgment which includes the
court's statement of reasons for the sentence. Defendant
received the following sentence: she was committed to prison
for eleven months; she received a supervised release term of
three years; and she was ordered to pay restitution to
Discover in the amount of $10,090.52.
Her sentence was arrived at as follows. Pursuant
to 2F1.1 of the Guidelines the base offense level (B.O.L.)
for a violation of 18 U.S.C. 1029(a)(2) is six. The court
found that the amount of Discover's loss was $10,090.52.
This increased the B.O.L. by three levels. Because the
offense involved more than minimal planning, the offense
level was enhanced two more levels. No other adjustments to
the B.O.L. were made. The defendant's criminal history
category was I. The imprisonment range for a B.O.L. of
eleven and a criminal history category of I is eight to
fourteen months.
-23-
23
Defendant's main challenge to the sentence was the
court's determination that the victim's loss amounted to
$10,090.52. She argues that the loss was $9,160.27. If this
were the loss, under the applicable section of the
Guidelines, the imprisonment range would be six to twelve
months.
The presentence report shows the amount of loss as
$9,160.27. The district court rejected this. In its
statement of reasons it said:
The government objected to paragraphs
10 and 11 of the addendum on the grounds
that in calculating the loss to
Discovery, [sic] late and finance charges
should be included. If such charges are
included, the loss figure is $10,090.52
rather than $9,160.27 as determined in
the report. The latter figure results in
an increase of two rather than three
levels to the base offense level. The
court concluded that during the trial
Glen Hall, a representative of Discovery,
[sic] testified that the loss to
Discovery [sic] was $10,090.52 and that
figure was not challenged during the
course of the trial. Therefore, the
court established the lost [sic] figure
as $10,090.52 which will result in an
increase in three levels to the base
offense level rather than two levels as
indicated in paragraph 21 of the report.
Paragraph 21 is amended to reflect a
three level increase.
Our standard of review follows two intersecting
standards. Valuation of loss is reviewed under the clear
error standard. United States v. Brandon, 17 F.3d 409, 456-
57 (1st Cir. 1994). But when "an appeal raises a purely
-24-
24
legal question involving the proper interpretation of the
sentencing guidelines, appellate review is plenary." United
States v. DeLuca, 17 F.3d 6, 7 (1st Cir. 1994).
The issue of "loss" valuation requires an
interpretation of Commentary 7 to 2F1.1 of the Guidelines
which states in pertinent part:
7. Valuation of loss is discussed in
the Commentary to 2B1.1 (Larceny,
Embezzlement, and Other Forms of Theft).
As in theft cases, loss is the value of
the money, property, or services
unlawfully taken; it does not, for
example, include interest the victim
could have earned on such funds had the
offense not occurred.
(Emphasis ours.) The question is whether, in light of the
interest preclusion statement in the commentary, the district
court erred in including finance charges and late fees in its
valuation of the loss.6 There can be little doubt that the
courts must follow the Guidelines commentaries. Stinson v.
United States, U.S. , 113 S.Ct. 1913, 1919 (1993).
6. Although the court did not state explicitly that these
charges were included such can be inferred from its comment
in its statement of reasons that the government objected to
the presentence report's recommendation of a two-level
increase because such recommendation failed to include "late
and finance" charges. See also Government's Brief at page 41
in which it is stated:
The court accepted as accurate Hall's
figures, which included only finance
charges and late fees as of the dates of
the termination of the accounts in 1990,
. . . .
-25-
25
We are not the first court to grapple with the
scope and application of the "interest" statement in
Commentary 7. In United States v. Henderson, No. 92-2707,
1994 U.S. App. LEXIS 7166 at *33 (5th Cir. April 13, 1994)
(footnote omitted) the court held:
The current commentary to the Sentencing
Guidelines provides that the amount of
loss "does not, for example, include
interest the victim could have earned on
the funds had the offense not occurred."
U.S.S.G. 2F1.1, comment. (n.7). We
find that this commentary sweeps too
broadly and, if applied in this case
would be inconsistent with the purpose of
2F1.1. Stinson v. United States, 123
L. Ed. 2d 598, 113 S. Ct. 1913, 1919
(1993). Interest should be included if,
as here, the victim had a reasonable
expectation of receiving interest from
the transaction. See, e.g., United
States v. Lowder, 5 F.3d 467, 471 (10th
Cir. 1993) (holding that interest should
be included in the amount of loss where
the defendant promised victims a specific
interest rate on their investments);
United States v. Jones, 933 F.2d 353,
354-55 (6th Cir. 1991) (interest should
be included where the defendant defrauded
credit card companies which had a
reasonable expectation of a specific
return on the credit extended). In the
words of the district judge, "interest is
a loss, a loss of earnings on money--
representing a loss of earnings on money
that was--that rightfully belonged to the
bank and therefore should be also
included." 11 R. 42-43. We find no
error in the district court's decision to
include interest in the amount of loss in
this case.
In United States v. Lowder, 5 F.3d 467 (10th Cir. 1993) the
court reasoned:
-26-
26
We interpret the guideline as disallowing
"opportunity cost" interest, or the time-
value of money stolen from victims.
Here, however, Defendant defrauded his
victims by promising them a guaranteed
interest rate of 12%. He induced their
investment by essentially contracting for
a specific rate of return. He also sent
out account summaries, showing the
interest accrued on their investment.
This is analogous to a promise to pay on
a bank loan or promissory note, in which
case interest may be included in the
loss.
Id. at 471.
In a case like this one, involving the fraudulent
use of unauthorized credit cards, the Sixth Circuit, in a per
curiam opinion held:
We do not think it was error for the
district court to include the interest
charges in the calculation of the loss.
When Ms. Jones made her purchases with
the fraudulently obtained credit cards,
the issuer advanced money to the retailer
on her behalf. When Ms. Jones failed to
pay, the issuer lost the use of the money
that ought to have come back to it.
Money has a time value, as all borrowers
and lenders know, and the time value of
the money withheld by Ms. Jones was fixed
by the credit card agreements under which
the interest was calculated.
United States v. Jones, 933 F.2d 353, 354 (6th Cir. 1991).
This is a close issue and we must acknowledge that
there is to some degree a conflict between the cited cases
and the language of the Commentary. The conflict is due to a
clash between the ambiguous language used in the Commentary
and the complexity of what constitutes "interest" and when
-27-
27
it is an integral part of the value of the "money, property
or services unlawfully taken." Commentary 7. Our holding
will not solve the problem; such resolution lies with the
Sentencing Commission.
We hold that in a case involving the fraudulent use
of unauthorized credit cards, finance charges and late fees
do not come within the meaning of the Commentary phrase
"interest the victim could have earned on such funds had the
offense not occurred". This phrase, we think, refers to
opportunity cost interest. In a credit card case there is an
agreement between the company and the cardholder to the
effect that when payments are made late, or not at all, the
cardholder is subject to late fees and finance charges. This
is part of the price of using credit cards. The credit card
company has a right to expect that such fees and charges will
be paid. This is not "interest that the victim could have
earned on such funds had the offense not occurred." It is a
contractual obligation on which the credit card company
relies each time it extends credit to a cardholder. In fact,
but for the cardholder's promise to pay late fees and finance
charges, the credit card company would not extend its credit
in the first instance. Such charges, therefore, are properly
included in the loss valuation.
The judgment of the district court is affirmed in
all respects.
-28-
28