United States v. Pelkey

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-2236

UNITED STATES,

Appellee,

v.

MAE LINH PELKEY,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]

Before

Torruella and Stahl, Circuit Judges,

and Carter,* District Judge.

Marc Chretien, by Appointment of the Court, with whom Chretien &

Schmitt was on brief for appellant.

Jean B. Weld, Assistant United States Attorney, with whom Paul M.

Gagnon, United States Attorney, was on brief for appellee.

July 14, 1994

*Of the District of Maine, sitting by designation.

CARTER, Chief District Judge.

In this appeal, Defendant Mae Linh Pelkey challenges the

district court's upward departure from the Sentencing Guidelines.

After considering Defendant's argument, we vacate the sentence

and remand for resentencing.

I. FACTS

On July 17, 1993, Appellant Mae Linh Pelkey pled guilty in

United States District Court in Concord, New Hampshire, to a

criminal information charging three counts of mail fraud, 18

U.S.C. 1341, and one count of wire fraud, 18 U.S.C. 1343.

Pelkey defrauded a number of her friends, business associates,

and former customers out of more than $500,000. The fraudulent

transactions involved real estate, investments, and the sale of a

Jaguar automobile.

The Presentence Report recommended an adjusted total offense

level for Pelkey of 16.1 The trial court adopted most of the

findings and recommendations of the Presentence Report,2 with

1The recommended total adjusted offense level of 16 included: a
base offense level of six for fraud, U.S.S.G. 2F1.1; plus nine
levels for the loss involved in the offense of conviction and
relevant conduct, totalling between $350,000 and $500,000,
U.S.S.G. 2F1.1(b)(1); plus a two-level enhancement for more
than one victim, U.S.S.G. 2F1.1(b)(2)(B); plus a two-level
enhancement for vulnerable victim, U.S.S.G. 3A1.1; less three
levels for acceptance of responsibility, U.S.S.G. 3E1.1(a) and
(b).

2The court disagreed with the report in two respects. First, the
court found the total amount of loss was $576,290.40 rather than
$364,264.47. The effect of this determination on the adjustment

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the resulting sentencing range of 24 to 30 months. U.S.S.G. Ch.

5, Pt. A (sentencing table). In addition, the Presentence Report

noted that the psychological injury of the victims may be grounds

for upward adjustment under U.S.S.G. 5K2.3. The Government, in

turn, requested an upward departure based on the "extreme

psychological injury" suffered by Pelkey's victims.

The sentencing transcript reveals the district court's

struggle over whether and how much to depart from the Guidelines

in this case. In an effort to quantify the "real value" of the

loss suffered by the victims, the court relied on the table set

forth at section 2F1.1 of the Guidelines. Finding the real value

of the loss to these victims closer to $10,000,000 than to

$500,000, the approximate monetary loss used to determine the

base offense level, the court concluded that an upward departure

of five levels, from level 17 to level 22, was warranted. The

court then imposed a sentence of 43 months of imprisonment, to be

served concurrently with the unexpired term of Pelkey's state

sentence on related fraud charges, and restitution.

for the specific offense characteristics was that the adjustment
would be plus ten rather than plus nine, thus raising Pelkey to a
total adjusted offense level of 17. Next, the court found that
the sentences described in the criminal history section of the
Presentence Report, giving rise to the state court convictions,
were sentences for conduct that was "part of the instant
offense." As a result, the court found that Pelkey should
receive no criminal history points, changing her criminal history
category from II to I. The Court notes, however, that the
recalculation of Pelkey's offense characteristics and criminal
history category did not change the sentencing range from that
recommended in the Presentence Report.

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II. DISCUSSION

Pelkey contends that the trial court's application of a

five-level upward adjustment in the base offense level was

excessive and unreasonable. Specifically, Pelkey argues that it

was error for the court to assess the real value of the harm

experienced by the victims at a factor twenty times greater than

their actual monetary losses. Although Pelkey admits that

consideration of the victims' psychological injury is permissible

under U.S.S.G. 5K2.3, she argues that the alleged injury to the

victims in this case is not serious enough to support the

application of that section. The Government responds that the

court principally found support for the departure in the fact

that the guideline sentence did not fully account for the harm

done to the victims because of their loss of retirement funds and

some of the victims' inability to recapture the loss because of

their ages. In the alternative, the Government argues that the

court found sufficient facts to support a departure pursuant to

section 5K2.3 for extreme psychological injury.

The district court offered two reasons that section 2F1.1's

loss table did not fully capture the harmfulness and seriousness

of the conduct: 1) for some of the victims, the losses

represented "all or partially all of their life savings. . . .

and the ability of these victims to recover from the losses they

suffered is quite limited"; and 2) several victims have suffered

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"extreme psychological injury as a result of the defendant's

conduct."3 Supplemental Findings of Fact and Conclusions of Law

3The district court explained its reasons for departure both from
the bench and in written Supplemental Findings of Fact and
Conclusions of Law. We quote these findings and conclusions at
length in order to show a complete understanding of the basis for
the district court's decision.

I have departed upwards in sentencing the defendant
from a level 17 to a level 22 because I have determined
that aggravating circumstances exist in this case of a
kind and degree not taken into account by the
Sentencing Commission. As a result of this upward
departure, I have sentenced the defendant to 43 months.
I have departed upwards for the following reasons:

(a) Application Note 10 to Section 2F1.1 of
the Sentencing Guidelines provides that "[i]n
cases in which the loss determined under
subsection (b)(1) does not fully capture the
harmfulness and seriousness of the conduct,
an upward departure may be warranted." I
have relied upon this note in making an
upward departure.

(b) The primary reason why the loss in this
case does not represent the seriousness and
harmfulness of the defendant's conduct is
that the losses suffered by several of the
victims represented all or partially all of
their life savings. Further, in several
cases, the victims were elderly or nearing
retirement and the ability of these victims
to recover from the losses they suffered is
quite limited. Thus, the losses here will
require several of the victims to live out
their lives under severe financial
constraints that they would not otherwise
have had to suffer if the defendant had not
engaged in her criminal conduct. Given the
defendant's close friendship with several of
these elderly victims, it is reasonable to
conclude that she was or should have been
aware that her course of conduct would
deprive these victims of all or most of their
retirement savings. This is a factor which

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at 4 and 5. This Court reviews sentencing departures by

examining: (1) whether the reasons the court gave for departing

are of the sort that might permit a departure in an appropriate

case; (2) whether the record supports the finding of facts

demonstrating the existence of such reasons; and (3) whether,

given the reasons, the degree of departure is reasonable. United

States v. Rivera, 994 F.2d 942, 950 (1st Cir. 1993); United

States v. Diaz-Villafane, 874 F.2d 43, 49 (1st Cir.), cert.

denied, 493 U.S. 862 (1989). In Rivera, we refined the standard

of review for departures under the first prong, finding plenary

review appropriate to determine whether the allegedly special

the Guidelines could not possibly have
considered in measuring the offense level
that should be assigned to the defendant's
conduct.

(c) A secondary reason for the departure is
that there is evidence reflected in the
Presentence Report that several victims have
suffered extreme psychological injury as a
result of the defendant's conduct. Moreover,
given the defendant's exploitation of her
close friendship with several of the victims,
it is reasonable to assume that she was or
should have been aware of the risk of extreme
psychological injury that could result from
her conduct. While it could be debated
whether the psychological injuries suffered
by the victims in this case are so severe as
to qualify for departure under 5K2.3 of the
Guidelines, I find that the psychological
injuries suffered here, in combination with
the other reasons I have expressed, are
serious enough to warrant an upward
departure.

Supplemental Findings of Fact and Conclusions of Law at 4-5.

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circumstances underlying the departure "are of a 'kind' that the

Sentencing Guidelines, in principle, permit the sentencing court

to consider." Rivera, 994 F.2d at 951. Plenary review is also

applied to interpretations of Guideline language. Id. However,

we review the district court's determination that a case is

unusual, and therefore worthy of departure, "with full awareness

of, and respect for, the trier's superior 'feel' for the case."

Id. at 952 (quoting Diaz-Villafane, 874 F.2d at 50). Similarly

deferential is our review of the second and third prongs, that

is, the sentencing court's findings of fact and the direction and

degree of departure, respectively. Id. at 950.

The sentencing judge is not required to ignore the

consequences of a fraud scheme outside the immediate monetary

loss. If the evidence shows that the defendant's offense was

more serious than contemplated by the applicable guidelines, the

judge can depart upward. See 18 U.S.C. 3553(b)(general

principle); U.S.S.G. 2F1.1, comment (n.10). Application Note

10 provides a nonexclusive list of circumstances where the loss

determined in section 2F1.1(b)(1) does not fully capture the

harmfulness of the conduct and, thus, departure may be warranted.

In this case, we begin by noting that the amount of money

and the number of victims had already been factored into the

calculation of Pelkey's base offense level under the Guidelines.

U.S.S.G. 2F1.1(b)(1) and (b)(2)(B). In addition, the special

vulnerability resulting from the age of the victims and their

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relationship with the Defendant had also been taken into account.

U.S.S.G. 3A1.1. Accordingly, if we are to avoid double-

counting in this case, the departure can be valid only if it was

properly based on the victims' resulting financial strain or

psychological harm. We will deal with each issue in turn.

A. Financial Strain of Victims

The principal reason given by the district court for

departure was the victims' limited ability to recover from the

loss of accumulated savings and the resulting financial stress

associated with the loss of life savings. This presents for our

determination the issue of whether these facts are unusual and,

therefore, worthy of departure. Accordingly, we will "accept the

findings of fact of the district court unless they are clearly

erroneous" and will "give due deference to the district court's

application of the guidelines to the facts." 18 U.S.C.

3742(e).

Robert and Kim Atma's financial loss represented their

accumulated life savings of more than 20 years. Already retired,

Katherine Meuse and Julie Laskey, now without their retirement

savings, are forced to live on social security and to borrow from

friends and relatives. In addition, Ms. Meuse has been forced to

forego physical examinations and medication for her heart

problem. Pelkey's scheme left Robert LeClair "financially

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depleted." Mr. LeClair was forced to go back to work full time

at age 60, his automobile has been repossessed, and he was forced

to take out a home equity loan.

The nonexclusive list of grounds for departure under

Application Note 10 of section 2F1.1 does not include the reasons

given by the district court for departure. The failure to have a

secure financial future does not, without more, rise to the level

of seriousness contemplated by the other grounds for departure

suggested in the application note.4 The bases for departure

provided in Application Note 10 all suggest unusual repercussions

beyond the loss of financial capacity and the general sense of

betrayal normally associated with fraud involving false

pretenses. We acknowledge that there is a distinction between

defrauding a 40-year-old of her life savings and defrauding a 60-

4Examples of fraud of a more serious caliber given in the
Application Note are:

(a) the primary objective of the fraud was non-
monetary;

(b) false statements were made for the purpose of
facilitating some other crime;

(c) the offense caused physical or psychological harm;

(d) the offense endangered national security or
military readiness;

(e) the offense caused a loss of confidence in an
important institution.

U.S.S.G. 2F1.1, comment (n.10).

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year-old of her savings; that is, the 40-year-old is capable of

recouping at least some of the loss, while the 60-year-old may

have little or no opportunity to recover from the financial loss.

This distinction is, at least partially, reflected in the

enhancement for vulnerable victims and, in any case, does not

warrant a five-level departure. Therefore, the upward departure

in this case must be vacated. On remand, if the court were to

make specific findings that some of the victims were unable to

provide for their welfare or that the facts present a situation

equal to the serious caliber of the other basis suggested for

departure in Application Note 10, departure may be appropriate.5

B. Psychological Injury to Victims

The district court also gave as a secondary reason for

departure the victims psychological injuries. "[P]hysical or

psychological harm" to the victim is specifically mentioned under

Application Note 10(c) as a possible basis for departure. An

upward departure grounded on psychological injury is appropriate

only when the injury is "much more serious than that normally

resulting from commission of the offense," U.S.S.G. 5K2.3, and

5The Court notes that Application Note 10 has since been amended
to provide that departure may be appropriate if "the offense
involved the knowing endangerment of the solvency of one or more
victims." U.S.S.G 2F1.1, comment (n.10(f))(1993). This seems
to address the type of harm the court was attempting to quantify.
A departure based on these grounds requires a court to find that
a defendant knowingly pushed a victim into extreme financial

hardship.

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only when there is a "substantial impairment of the intellectual,

psychological, emotional, or behavioral functioning of a victim,

when the impairment is likely to be of an extended or continuous

duration, and when the impairment manifests itself by physical or

psychological symptoms or by changes in behavior patterns." Id.;

United States v. Astorri, 923 F.2d 1052, 1059 (3d Cir.

1991)(court upheld two-level departure for psychological harm

where evidence showed that a victim suffered from high blood

pressure and was under a doctor's care as a result of defendant's

actions).

The evidence, in this case, of psychological injury to the

victims was, at best, meager. All of the victims expressed the

feeling that they had lost trust in their ability to judge

others. In addition, the record reveals that the Atmas, who

considered themselves "best friends" of Pelkey for over 22 years,

suffered a sense of severe shock after learning of the fraudulent

real estate scheme.6 Ms. Meuse and Ms. Laskey, friends and

former clients of Pelkey, told the probation officer that they

experienced pain, frustration, and depression over the knowledge

that they will not live their senior years without fear of

financial burden. Sean Tracey told the Probation Officer that he

6Robert Atma's victim impact statement also references "mental
anguish and heartache" resulting from the unexplained
geographical separation from his wife. Assuming that the
separation is attributable to Pelkey's conduct, these feelings
are not serious enough to establish a psychic injury.

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suffered lingering feelings of distrust for others as a result of

the offense. The victim experiencing the most severe psychic

harm appears to be Mr. LeClair, Pelkey's former business

associate. Mr. LeClair disclosed to the probation officer that

he was in an "emotionally drained state," experiencing moments of

extreme despair and thoughts of suicide. No medical or

psychological records were offered and there is no evidence that

treatment was received by any of the victims.

This evidence is altogether insufficient to permit departure

for psychological injury. We do not think that feelings of lack

of trust, frustration, shock, and depression suffered by Pelkey's

victims are so far beyond the heartland of fraud offenses as to

constitute psychological harm within the meaning of the Policy

Statement in 5K2.3 or Application Note 10(c) to 2F1.1; United

States v. Lara, 975 F.2d 1120, 1128 (5th Cir. 1992)(finding

inadequate proof of harm). Some degree of consequential trust

and reliance by the victim is to be expected in the majority of

fraud cases involving false pretenses, and the presence of such

reliance will not generally justify departure. In sum, the

injuries these people suffered were no worse than that of many

fraud victims.

The sentence is vacated and the case is remanded for

resentencing consistent with this opinion.

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