Revised October 15, 1998
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT
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No. 97-11327
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UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
FRANCIE SEDLAK RANDALL,
Defendant-Appellant.
Appeal from the United States District Court
For the Northern District of Texas
September 30, 1998
Before REYNALDO G. GARZA, HIGGINBOTHAM, and EMILIO M. GARZA,
Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
Francie Sedlak Randall appeals the district court’s loss
calculation under U.S.S.G. § 2F1.1, following her conviction on one
count of bankruptcy fraud, in violation of 18 U.S.C. §§ 152 and 2.
We vacate the sentence and remand for further proceedings.
I
Randall acquired seven single-family properties located in
Benbrook, Carrollton, and Fort Worth, Texas. She did so by
assuming the existing loans on the properties. The properties,
however, did not generate as much income as Randall expected.
Unable to make her mortgage payments, Randall filed several
petitions for Chapter 13 bankruptcy.
Randall’s properties were insured by the United States
Department of Housing and Urban Development (HUD) and the Veteran’s
Administration (VA).1 After Randall defaulted, the government
agencies were obliged to pay the mortgage companies the amount
outstanding on the loans. The properties were then sold at public
auction, each for considerably less than was paid to the mortgage
companies.
Randall pled guilty to making false statements on one of her
numerous bankruptcy petitions. Specifically, she admitted to (1)
giving a false name, (2) giving a false social security number, and
(3) falsely claiming that she had made no prior bankruptcy filings.
The district court sentenced Randall to fifteen months in prison
and ordered restitution in the amount of $226,513.24.
In calculating Randall’s sentence, the district court found
that $226,513.24 was the amount of loss attributable to Randall
under U.S.S.G. § 2F1.1 (1997). According to the presentence
report, this amount was the loss sustained by HUD and VA in
1
Five of the properties were acquired initially with loans
from the Federal Housing Administration (FHA). The other two were
acquired with loans from the Veterans’ Administration (VA).
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disposing of the properties after Randall defaulted.2 The district
court held Randall responsible for the amount the properties were
“sold short,”3 plus any fees and expenses related to the
foreclosure and sale. According to the loss report prepared by the
FBI, on which the probation officer relied, these losses totaled
$226,513.24.
II
Randall contends that the district court erred in making its
loss calculation under section 2F1.1. She argues that the short
sale losses and foreclosure expenses are not fairly attributable to
her, because those losses would have been incurred even if she had
never filed a fraudulent bankruptcy petition.
Section 2F1.1 of the Sentencing Guidelines governs offenses
involving fraud or deceit. The district court’s calculation of
loss under section 2F1.1 is a finding of fact, reviewable only for
clear error. See United States v. Tedder, 81 F.3d 549, 550 (5th
Cir. 1996). The district court’s interpretation and application of
section 2F1.1, however, is reviewed de novo. See id. Randall’s
challenge to the method of calculation used by the district court
implicates an application of the Guidelines and therefore is
2
According to the presentence report, HUD incurred $181,485
in losses, and VA incurred $45,028.24 in losses.
3
For a given property, the short sale loss is simply the
amount paid out by the government agencies to the mortgage
companies, minus the property’s selling price at the foreclosure
auction.
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reviewed de novo. See United States v. Saacks, 131 F.3d 540, 542-
43 (5th Cir. 1997) (applying section 2F1.1).
When calculating loss under section 2F1.1, the district court
need only make a reasonable estimate of the loss, given the
available information. See U.S.S.G. § 2F1.1, comment. (n.8). “In
deciding whether the district court arrived at a reasonable
estimate of the loss attributable to the Defendants’ fraud scheme,
we must first determine whether the court used an acceptable method
of calculating the amount of loss.” United States v. Krenning, 93
F.3d 1257, 1269 (5th Cir. 1996). The method “must bear some
reasonable relation to the actual or intended harm of the offense.”
Id.
Before a court may attribute losses to a defendant’s
fraudulent conduct, “there must be some factual basis for the
conclusion that th[o]se losses were the result of fraud.” United
States v. Eidson, 108 F.3d 1336, 1346-47 (11th Cir. 1997), citing
U.S.S.G. § 2F1.1 comment. (n.7); see also United States v. Daddona,
34 F.3d 163, 170 (3d Cir. 1994) (vacating loss calculation under
section 2F1.1 for lack of evidence that “th[e] loss was due to the
fraud of the [defendants]”). In other words, section 2F1.1 is
concerned solely with “the amount of loss caused by the fraud.”4
4
The loss calculation under section 2F1.1 is not, however,
limited solely to actual losses caused by the fraud. A criminal’s
intended losses may also be taken into account. See U.S.S.G.
§ 2F1.1 comment. (n.7).
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United States v. Saacks, 131 F.3d 540, 542 (5th Cir. 1997)
(emphasis added).
It is undisputed that HUD and VA incurred the losses described
in the record. That is, for each of the seven properties, they
received less at auction than they paid the mortgage companies
whose loans they insured. They also incurred various fees and
expenses in the process, such as brokers’ fees, property management
fees, advertising expenses, and taxes. There is no evidence,
however, that these losses were caused by Randall’s fraudulent
conduct. To the contrary, the evidence demonstrates that the
losses attributed to Randall by the district court resulted from
her default on the mortgages. At the sentencing hearing, Special
Agent Kimberly Jones testified that the various fees and expenses
would be incurred during any foreclosure, regardless of whether a
bankruptcy petition is filed. She further testified that at such
foreclosures, properties are typically sold short.
Thus the evidence indicates that the government agencies would
have incurred the foreclosure losses even if Randall had never
filed a fraudulent bankruptcy petition. They still would have had
to foreclose on the properties, compensate the mortgage companies,
and incur the related fees and expenses. Consequently, it cannot
fairly be said that the short sale losses and foreclosure expenses
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are attributable to Randall’s fraudulent conduct.5
Of course, the Government need not show that the losses
resulted from the specific conduct for which Randall was convicted.
The sentencing court may also consider other “relevant conduct”
beyond that giving rise to the criminal conviction. U.S.S.G.
§ 1B1.3. However, “[f]or conduct to be considered ‘relevant
conduct’ for the purpose of establishing one[’]s offense level[,]
that conduct must be criminal.” United States v. Peterson, 101
F.3d 375, 385 (5th Cir. 1996). The Government has not alleged, nor
does the evidence suggest, that Randall acted criminally by
defaulting on the mortgages, or in the course of obtaining the
5
United States v. Daddona, 34 F.3d 163 (3d Cir. 1994),
presented a similar scenario. The defendants in Daddona were
convicted of various counts of fraud stemming from their attempts
to disclaim bonds issued in connection with a construction project.
Id. at 164. The project was financed by a mortgage from the Summit
Tax Exempt Bond Fund. Id. at 165. With the project only partially
completed and far-behind schedule, Summit foreclosed on the
project. It then cost Summit $1,500,000 to complete the project.
Id. at 170. At sentencing, the district court attributed the
$1,500,000 amount to the defendants fraudulent conduct. Id.
The Court of Appeals reversed, finding that the record
contained “no indication that this loss was due to the fraud of the
[defendants].” Id. It instead found that the losses incurred in
the post-foreclosure completion of the project were caused by the
contractors’ failure to timely fulfill their performance
obligations. Id. It concluded: “Whatever losses Summit or others
may have suffered from [defendants’] fraud, Summit has not
demonstrated any losses which can fairly be measured by its cost to
complete the project.” Id. at 172.
Likewise, whatever losses HUD and VA may have incurred from
Randall’s fraudulent bankruptcy filings, those losses cannot fairly
be measured by their short sale losses and foreclosure expenses.
Those losses were caused by her default, not her bankruptcy
filings.
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loans in the first place. Thus losses stemming solely from her
default and the consequent foreclosure are not properly considered
in her sentencing.
At most, the evidence suggests that Randall’s criminal conduct
delayed the government agencies’ repossession of the properties.
The presentence report found that “[b]y causing serial filings,
defendant successfully stalled the foreclosure proceedings against
the properties for approximately one year.”6 That delay may have
deprived the government agencies of rental income they could have
otherwise earned during that period. They may also have suffered
somewhat worse short sale losses if the properties lost value
during the delay. The sentencing hearing, however, contained no
evidence of potential rental income, nor did it contain any
6
Even if Randall’s multiple filings did delay foreclosure
proceedings, it is unclear from the evidence whether such a delay
is fairly attributed to the fraudulent nature of those filings.
The filing of any bankruptcy petition operates as a stay on debt
collection activities. See 11 U.S.C. 362. Thus the delay may have
been caused by the mere fact that Randall filed one or more
bankruptcy petitions, not the fact that her petitions contained
false statements.
Randall’s “serial filings,” independent of the false
statements therein, may be considered for sentencing purposes if
they amount to “relevant conduct” within the meaning of U.S.S.G.
§ 1B1.3. To be so considered, however, such conduct must itself be
criminal. See United States v. Peterson, 101 F.3d 375, 385 (5th
Cir. 1996). It is also possible that Randall’s false statements
did contribute directly to the delay. Her false name or her
failure to disclose her past bankruptcy petitions may have hindered
the bankruptcy court’s ability to determine whether additional
stays were warranted. However, unless it can be shown that either
her false statements directly contributed to the delay, or her
serial filings constitute “relevant conduct,” the mere fact that
Randall “successfully stalled the foreclosure proceedings” is not
necessarily attributable to her crime.
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evidence that the short sale losses were greater as a result of the
delay.
For these reasons, the district court should not have
attributed all of the government agencies’ short sale losses and
foreclosure expenses to Randall’s crime. Such losses resulted from
the fact of Randall’s default on the mortgages, not her bankruptcy
filing. We therefore conclude that $226,513.24 does not reflect
the loss caused by Randall’s conduct.
The Government responds that even if Randall’s crime was not
the sole cause of the foreclosure losses, the amount of those
losses is nonetheless a reasonable estimate of the losses stemming
from Randall’s conduct. It bases this argument on the principle
that losses under section 2F1.1 may be calculated according to the
risk of loss to which victims of criminal conduct are exposed. Our
cases have held that it is “proper to calculate loss based on the
risk engendered by defendant’s criminal conduct.” E.g., United
States v. Clements, 73 F.3d 1330, 1339 (5th Cir. 1996).
Even on this theory, however, the Government fails to show a
“reasonable relation to the actual or intended harm of the
offense.” United States v. Krenning, 93 F.3d 1257, 1269 (5th Cir.
1996). There is no evidence that Randall’s behavior exposed the
government agencies to the full amount of their short sale losses
and foreclosure expenses. At no time did Randall’s fraud endanger
their right to make a claim as a creditor, nor did it threaten
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their right to any remedy, such as foreclosure. The Government
does not allege that Randall attempted to hide assets. Nor does it
allege that Randall’s false statements prevented the creditors from
receiving notice that their mortgages had become the subject of
bankruptcy proceedings.
At most, as discussed above, the fraud may have delayed the
government agencies’ ability to foreclose on the property. It did
not cause, however, the foreclosure itself or the consequent short
sale losses and expenses. Those losses were inherent in Randall’s
default and were not caused by Randall’s fraudulent statements on
her bankruptcy petition. Because such losses are not properly
attributed to Randall’s criminal conduct, we find the district
court’s loss calculation was in error.
III
Finally, the Government argues that even if Randall is correct
that the district court erred in its loss calculation, she cannot
demonstrate that correcting this error would reduce her offense
level. As support, the Government cites United States v. Watson,
966 F.2d 161, 164 (5th Cir. 1992). The defendant in Watson
challenged the district court’s inclusion of certain warehousing
fees in his loss calculation. Id. In dicta, we wrote that even if
those costs should have been excluded, the defendant in Watson
failed to provide us with the amount of those costs. Id.
Consequently, he could not demonstrate that subtracting those costs
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would reduce his loss calculation enough to make a difference in
his sentence. Id.
We find Watson inapposite to the case at hand. The record
before us is replete with evidence of the amount incorrectly
attributed to Randall’s bankruptcy fraud. A brief review of the
record demonstrates that at least for the five HUD properties,
brokers’ fees and taxes alone totaled over $28,000.7 If such costs
were removed from the district court’s loss calculation, Randall’s
eight-level increase would drop to a seven-level increase. Compare
U.S.S.G. § 2F1.1(b)(1)(I)(1997) (eight level increase for losses
exceeding $200,000) with U.S.S.G. § 2F1.1(b)(1)(H)(1997) (seven
level increase for losses exceeding $120,000). Our dicta in Watson
is therefore inapplicable.
IV
Accordingly, the district court’s sentence is vacated, and we
remand for new sentencing consistent with this opinion. The
district court may also consider whether any perjury guidelines are
applicable.
7
We use the HUD properties simply because the record sets
forth the HUD losses in greater detail. Obviously, this figure
does not include any fees or taxes for the two VA properties. Nor
does it include any of the short sale losses erroneously attributed
to Randall.
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