United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 09-3161
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United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* Southern District of Iowa.
Marvin R. Mitchell, *
*
Appellant. *
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Submitted: April 13, 2010
Filed: June 28, 2010
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Before WOLLMAN, MURPHY, and SHEPHERD, Circuit Judges.
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WOLLMAN, Circuit Judge.
Marvin Mitchell was convicted of bankruptcy fraud in violation of 18 U.S.C.
§ 152. The district court1 sentenced him to eighteen months’ imprisonment. He
appeals, arguing that the district court miscalculated the intended financial loss for the
purpose of sentencing. We affirm.
1
The Honorable Robert W. Pratt, Chief Judge, United States District Court for
the Southern District of Iowa.
I.
Mitchell began farming in Louisiana and Iowa in 1994. In 1998, a drought
ruined Mitchell’s crop and a windstorm destroyed his grain storage building just
before harvest. His finances deteriorated rapidly and he was sued by Stine Seed for
unpaid seed in 2000. In that same year, Mitchell began transferring farmland and
equipment for no consideration to Third Rock, Inc., an Iowa corporation that he had
formed with his wife, Marlene Mitchell. In 2001, Mitchell acquired another Iowa
corporation, Lost Prairie, L.C., and began moving crop proceeds through it. Also in
2001, Mitchell opened an account under the name “REMA Trust Clearing” at a bank
in West Des Moines, Iowa. In August 2001, Stine Seed won a judgment against
Mitchell for $322,900.96, and he filed for bankruptcy in 2002. In his bankruptcy
filing, Mitchell did not mention his interests in Third Rock, Lost Prairie, or the REMA
account. Mitchell was indicted for bankruptcy fraud and he pleaded guilty to one
count of concealing assets, in violation of 18 U.S.C. § 152(1).
At sentencing the only issue before the court was the amount of loss. Under
United States Sentencing Guidelines Manual (U.S.S.G) § 2B1.1(a)(2), the base
offense level was six. Mitchell argued that the intended loss was approximately
$36,000, reflecting the balance of the concealed REMA account on the day of the
bankruptcy filing and a property in Arkansas worth $7,000. Mitchell claimed that all
of his other assets were encumbered by liens and worth nothing. A loss of more than
$30,000 but less than $70,000 would have resulted in a six-level enhancement under
U.S.S.G. § 2B1.1(b)(1)(D), producing a guideline range of ten to sixteen months’
imprisonment.
The presentence investigation report (PSR) estimated the loss differently. It
estimated a loss of $469,850 in equipment and $578,000 in land transferred to Third
Rock for no consideration. The PSR estimated a loss of $180,198 from the REMA
account, reflecting the cash balance at the time of filing and recent payments to
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Maurice Mitchell, Sr., Marvin’s father. The PSR also estimated losses totaling
$50,992 from a crop insurance payment within a year of the bankruptcy filing, a
payment for land sold in Iowa, and the value of the land in Arkansas.
The PSR noted that the government, pursuant to Mitchell’s plea agreement, had
agreed that the intended loss was not less than $30,000, but not more than $1 million.
Calculating the intended loss as more than $400,000 but less than $1 million, the PSR
recommended a fourteen-level increase in the offense level under U.S.S.G.
§ 2B1.1(b)(1)(H). With a two-level enhancement for misrepresentation in a
bankruptcy proceeding offset by a two-level reduction for acceptance of
responsibility, the total offense level was twenty. Mitchell’s criminal history category
was I. According to the PSR, the guideline range was thirty-three to forty-one
months’ imprisonment.
The district court held a lengthy sentencing hearing to resolve the issue.
Charles Smith, the Chapter 7 bankruptcy trustee, testified for the government. Smith
explained that the bankruptcy was exceedingly complicated because Mitchell had
attempted to conceal his assets. Mitchell refused to cooperate with the trustee and
falsely claimed that he did not possess any business records. Ultimately, the FBI
executed a search warrant of Mitchell’s house and office. The search produced
records of the various ways that Mitchell had sought to hide assets, i.e. the Third Rock
and Lost Prairie shell companies and the REMA account. Using the records, Smith
was able to locate the assets that Mitchell had concealed in his bankruptcy filing.
Smith estimated that Mitchell’s farmland was worth $950,000, but subject to an
unavoidable lien of approximately $450,000. Smith testified that this left “about
$500,000 worth of equity in the land.”
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The district court stated the basis upon which it estimated the intended loss:
The Court believes the best estimate of Defendant’s assessment comes
from the actual market value of the property because Defendant’s
numerous overlapping financial transactions involving all the concealed
assets indicate he was acutely aware of their actual market value.
Further, the Court will discount any lien on the assets, thereby
focusing on the Defendant’s equity in each item, because Defendant was
aware of the liens and mortgages and did not attempt to preclude the
secured creditors from levying on their liens or mortgages, which
indicates that he was only trying to defraud the general creditors of his
equity interest. He was not attempting to defraud others out of the entire
value of the property.
Immediately before the court announced its decision, Mitchell’s counsel produced
documents that purportedly showed that the judgments of Maurice Mitchell and Stine
Steed had attached to the farmland. Mitchell’s counsel claimed that these judgments
left the farmland bereft of any equity. Mitchell, however, presented no testimony
corroborating this theory and it was apparently disregarded by the district court. The
court then relied upon the trustee’s assessment that $500,000 equity remained in the
farmland because “as an experienced trustee, he would be in the best position to
determine what liens are avoidable.”
The court thus found that Mitchell intended to conceal $500,000. Because this
amount put Mitchell between $400,000 and $1 million, the court saw no need to delve
into the value of the other concealed assets. Agreeing with the recommendation of the
PSR, the court applied a fourteen-level enhancement. The court, however, varied
downward based upon the 18 U.S.C. § 3553(a) factors and sentenced Mitchell as set
forth above.
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II.
When considering a challenge to a district court’s loss calculation, we review
the district court’s interpretation of the sentencing guidelines de novo and the
underlying factual findings for clear error. United States v. Holthaus, 486 F.3d 451,
454 (8th Cir. 2007).
A.
Under the guidelines, the general rule is that “loss is the greater of actual or
intended loss.” U.S.S.G. § 2B1.1, cmt. n.3(A). As both parties agree, Mitchell’s case
turned on the amount of intended loss because the bankruptcy court refused to
discharge Mitchell’s debts and no actual loss occurred. See Holthaus, 486 F.3d at
454. Thus, the key question was the amount of loss that Mitchell intended to cause
his creditors, which the government was required to prove by a preponderance of the
evidence. Id. at 455; United States v. Staples, 410 F.3d 484, 490 (8th Cir. 2005).
Because losses from bankruptcy fraud are difficult to determine with precision, the
district court was required to reasonably estimate the loss. United States v. Waldner,
580 F.3d 699, 705 (8th Cir. 2009); see U.S.S.G. § 2B1.1, cmt. n.3(C).
Mitchell contests the district court’s calculation. He argues that his liabilities
totaled more than $1.1 million at the time of his bankruptcy filing, and thus he claims
that he “had no equity in the assets that he attempted to conceal.” He asserts that a
judgment of $560,160.28 to Maurice Mitchell, Sr., and the judgment to Stine Seed had
attached to the farmland and thus could not have been avoided in bankruptcy.
Because the total of these judgments exceeds the estimated value of the farmland,
Mitchell believes that the amount of intended loss should have been zero.
We disagree. In a complicated proceeding such as this, the district court must
reasonably approximate the value of the assets that the defendant fraudulently sought
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to preserve. Waldner, 580 F.3d at 705. This task was doubly challenging because the
fraud was predicated upon concealment of assets and obfuscation of value. The
trustee’s testimony was that Mitchell’s farmland was worth $950,000 at the time of
the bankruptcy. The farmland was subject to a lien from Metropolitan Life for
approximately $450,000. Mitchell had a number of other liabilities, but the trustee
testified that the lien from Metropolitan Life was the only liability that could not be
avoided. Accordingly, the trustee testified that there would have been approximately
$500,000 in equity in the farmland available to the general creditors.
Mitchell’s last minute introduction of documents purporting to show additional
encumbrances did not outweigh the trustee’s testimony. Moreover, Mitchell’s
argument that he had no equity left in the concealed assets was simply not a
reasonable interpretation of the facts. Mitchell had engaged in an elaborate attempt
to commit bankruptcy fraud, which was, in his own words, designed to protect
“everything” that he had worked for, including the REMA account, and the land and
equipment held by Third Rock. He was not merely trying to discharge his liabilities
and start anew. He intended to protect substantial assets from his creditors by
concealing significant amounts of equity. Otherwise, his actions appear entirely
irrational. Given these circumstances, it was reasonable for the district court to rely
upon the trustee’s assessment and evaluate the intended loss at $500,000. The district
court’s factual findings were not clearly erroneous, and thus the sentence is affirmed.
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