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United States v. Erpenbeck

August 29, 2006


The opinion of the court was delivered by: Sandra S. Beckwith, Chief Judge United States District Court


The Court held a sentencing hearing on August 22, 2006, following the transfer of this matter to this Court's docket. This case is before this Court pursuant to the Sixth Circuit's order remanding for resentencing, consistent with the Supreme Court's decision in United States v. Booker. (See Doc. 107).

The Court will first address two initial matters raised by Defendant.

(1) Defendant requested preparation of a new presentence investigation report, particularly to update or correct the facts used to determine the amount of loss and restitution. The Government opposes this request. The Court finds that it is fair to both parties to resentence Defendant based on the exhaustive record that existed as of the date of the original sentencing. Defendant is free to argue that any facts stated in that record, and any prior sentencing rulings, are erroneous. The Court therefore denies Defendant's motion for preparation of a new presentence investigation report.

(2) Defendant argues that, after Booker, any sentencing enhancement imposed by the Court must be found beyond a reasonable doubt by the trier of fact. (See Doc. 122, p. 2 n. 3.) The Court rejects this argument. The Sixth Circuit has repeatedly held, since Booker, that the court may find facts under the pre-Booker preponderance of the evidence standard for sentencing purposes. See United States v. Williams, 411 F.3d 675 (6th Cir. 2005) [Booker does not eliminate judicial fact-finding in sentencing after defendant's guilty plea]; United States v. Stone, 432 F.3d 651 (6th Cir. 2005) [Confrontation Clause does not apply in sentencing proceedings, and judicial fact-finding as to amount of loss and obstruction of justice sentence enhancement was proper]. In United States v. Gates, ___F.3d ___ (Dkt. Nos. 05-1818/2006), 6th Cir. August 24, 2006, the Sixth Circuit affirmed the propriety of judicial fact-finding based on preponderance of the evidence, and rejected the contention that such fact-finding violates a defendant's Fifth Amendment due process or Sixth Amendment right to trial by jury. The Court therefore overrules Defendant's objection.

The Court will address the objections to the presentence report, and then determine the advisory Guidelines sentencing range.

1. Applicable Version of the Sentencing Guidelines

Defendant argues that the Court should calculate the advisory sentence under the 2000 version of the Guidelines, rather than the 2001 version. The 2001 Guidelines substantially increased the sentence ranges for "white collar" financial crimes. Defendant argues that all of the "held" loans that formed the basis for the fraudulent scheme were applied for and obtained before the effective date of the 2001 Sentencing Guideline Amendments. Defendant's company had actually received the proceeds of those loans by that time, and thus the extent of potential losses could be determined by that date. Defendant also argues that only one-tenth of the closings on properties affected by the "held" loans were scheduled to occur after the November 1, 2001 effective date. Given these facts, Defendant argues that application of the 2001 Guidelines violates the ex post facto clause of the constitution, as Defendant's punishment would be substantially increased over the punishment he would have faced at the time his offense was committed.

The flaw in Defendant's argument is that the criminal activity in this case is not the original loan applications. There is no evidence that those applications were fraudulent at the time they were submitted. The criminal activity occurred at the closings on the properties covered by the "held" loans, and the diversion of the closing funds to Defendant and his company from the lenders who should have been paid with those funds.

In addition, the Statement of Facts attached to Defendant's Plea Agreement specifically states that the scheme spanned the time period from the beginning of 1999 to about March 2002. Defendant admits that he participated in that scheme from mid-2000 and was its leader from January 2001. Thus Defendant was engaged in a continuing offense. United States v. Buckner, 9 F.3d 452 (6th Cir. 1993) holds that the court's use of the most recent Guideline to sentence a continuing offense does not violate the ex post facto clause, if some of the offense conduct occurred while those Guidelines were in effect. Defendant cites no persuasive authority that contradicts Buckner.

Defendant alternatively argues that this Court should exercise its discretion and apply the 2000 Guidelines to avoid a miscarriage of justice. Defendant cites media reports describing sentences imposed in other high-profile "white collar" fraud cases, including John Rigas (Adelphia Communications Corporation), who received a 15-year sentence when his case involved allegations of stealing $100 million and hiding huge amounts of debt from the company shareholders; and Bernard Ebbers (WorldCom), who was sentenced to 25 years for "orchestrating an $11 billion fraud." The Court lacks any reliable evidence concerning these cases, the facts underlying those convictions, or the facts relied upon by those trial courts in arriving at these sentences.

Defendant also cites the sentences given to other individuals involved in his fraudulent scheme, including John Finnan and Marc Menne (63 months and 54 months, respectively); Lori Erpenbeck (12 months and a day); and Michelle Marksberry (24 months). With respect to Finnan and Menne, Defendant states that their sentences were not enhanced based on sophisticated means or based on the number of victims involved in the fraud. Again, this Court lacks reliable evidence and the facts concerning these other cases, and cannot conclude based simply on the ultimate number of months that the sentences are so disparate that Defendant's sentence must be in the same range in order to avoid a miscarriage of justice.

The Court therefore overrules Defendant's objection to use of the 2001 Sentencing Guidelines in calculating Defendant's advisory sentence range.

2. Calculation of Defendant's Guideline Sentence under 2001 Sentencing Guidelines

Pursuant to U.S.S.G. Section 3D1.2(c), the offense to which Defendant pled guilty in Case No. 1:04-CR-18-2 shall be grouped with the offense in Case No. 1:03-CR-050, because the later charge is treated as an adjustment to the Guideline applicable to the original bank fraud count. Application Note 5 states that this grouping is intended to prevent double counting of offense behavior.

The two cases are therefore grouped under the offense charged in Case No. 1:03-CR-050, violation of 18 U.S.C. §1344. The Sentencing Guideline applicable to this offense is Section 2B1.1. Defendant's base offense level under that section is six.

Amount of Loss (U.S.S.G. §2B1.1(b)(1)).

The base level is increased depending upon the amount of loss involved. The presentence investigation report concludes that the "intended loss" was $26,287,476.98, the face amount of construction loans held by eight lenders at the time Defendant disclosed his involvement in the fraudulent scheme to the Government. (See PSR ¶¶ 69-70.) The Government argues that the intended loss is over $33 million, because Defendant should not get credit for the $7 million payment to the lenders at the time Defendant turned himself in to the authorities. The Court rejects the Government's argument on this question. There is no dispute that Defendant paid the $7 million, and no dispute that the fraudulent scheme had not been uncovered by the Government before Defendant's disclosure. Under Application Note 2(E)(i), money returned by a defendant before the offense was detected is a credit against loss. While there are suggestions that some lenders (particularly Provident Bank) had growing suspicions about EDC's business practices, this is not sufficient to conclude, based on a preponderance of the evidence, that the fraudulent scheme had been discovered by either a lending institution or the government. Therefore, the $7 million is not included as "intended loss."

Defendant argues that $26 million is neither the "actual loss" nor the "intended loss" as those terms are defined in the Guidelines. Application Note 2(A) to Section 2B1.1 states that loss is generally the greater of actual or intended loss. "Actual loss" means the reasonably foreseeable pecuniary harm that resulted from the offense. "Intended loss" means the pecuniary harm that was intended to result from the offense. Defendant argues that the actual loss must be calculated by crediting to the loan balances the value of the collateral the eight lenders recovered by the time of Defendant's prior sentencing in April 2004. Those collateral recoveries reduce the actual loss suffered by the eight lenders to $6.9 million, according to Defendant. The collateral in question was pledged by EDC at the time the construction loans were obtained, primarily land and building developments. The recoveries were obtained either through foreclosures or market dispositions of the properties in question.

To determine the amount of loss, the Guidelines provide both exclusions from and credits against loss. Excluded items are interest of any kind, finance charges, late fees, penalties and other similar costs. See Application Note 2(D)(i). In a case involving collateral pledged by the defendant, a credit against loss is the amount recovered from disposition of that collateral at the time of sentencing. See Application Note 2(E)(ii).

PSR Attachment B entitled "Victim Restitution," listed certain amounts for each of the eight lenders, described as "Total Not Yet Paid." These amounts totaled $26,287,476.98, the amount the PSR concludes is the "intended loss." At the time of Defendant's original sentencing, Defendant submitted evidence directly from those construction lenders concerning the extent of their actual loss on the construction loans. Defendant's Exhibit A through F, submitted at the sentencing hearing on February 13, 2004, are letters from the lenders or their counsel stating the value of outstanding loans to EDC in March 2002, and the recoveries the lenders ...

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