In the
United States Court of Appeals
For the Seventh Circuit
No. 09-1611
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
M ITCHEL A. F UCHS,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 07 CR 50072-1—Frederick J. Kapala, Judge.
A RGUED A PRIL 27, 2010—D ECIDED M ARCH 17, 2011
Before R OVNER, W ILLIAMS, and S YKES, Circuit Judges.
S YKES, Circuit Judge. Mitchel Fuchs brokered subprime
mortgages by enticing lenders with falsified loan ap-
plications and phony documentation. He was convicted
after a jury trial of mail and wire fraud. See 18 U.S.C.
§§ 1341, 1343. After applying a number of sentencing
guidelines adjustments, including a two-level increase
for abuse of a position of trust, see U.S.S.G. § 3B1.3, the
district court calculated Fuchs’s imprisonment range at
2 No. 09-1611
100 to 125 months. The court went above that range
and imposed a total of 144 months’ imprisonment. We
conclude that the court erred in applying the abuse-of-
trust increase under § 3B1.3. Accordingly, we vacate
the sentence and remand for resentencing.
I. Background
Fuchs used an alias to land a job with Mortgage Solu-
tions, a broker in Rockford, Illinois, that helped its clients
finance residential real-estate transactions. Most of the
loans Fuchs brokered were denominated as “subprime”
because the borrower’s credit rating was so poor that
only a lender specializing in high-risk loans was willing
to provide a mortgage. See Hoffman v. Grossinger Motor
Corp., 218 F.3d 680, 681 (7th Cir. 2000). For every loan
Fuchs generated, he earned a commission averaging
between $2,000 and $3,000. Fuchs and his subordinates—
two of whom would become his codefendants—gathered
information from borrowers about their income, em-
ployment, assets, and credit history, and submitted loan
applications on their behalf to several subprime lenders.
What the lenders did not know is that many of
the borrowers were poor risks even for subprime loans.
Fuchs and his two codefendants hid this fact by
doctoring the loan applications with, for example,
inflated incomes or phony employers, and often they
altered credit reports or fabricated W-2s to corroborate
the lies in the loan applications. Most times the lenders
relied on the information from Fuchs without verifica-
tion, but sometimes a lender contacted a listed employer
No. 09-1611 3
or obtained a credit report independently. If a lender
did try calling a bogus employer, the phone number
Fuchs supplied on the loan application would lead back
to him or his fiancée. When the FBI got wind of the
scheme and raided Mortgage Solutions in June 2004,
Fuchs simply took another name and found another job
with Leader Mortgage, a different broker where he con-
tinued the fraud unabated. Investigators eventually
connected him to at least 14 fraudulent loans; many
of those predictably went into foreclosure. These lenders
lost about $184,000.
In preparation for sentencing, the government pro-
posed an increase under U.S.S.G. § 3B1.3 on the ground
that Fuchs held and abused a position of trust with
respect to the lenders. That section of the guidelines
provides for a two-step increase in offense level if the
defendant “abused a position of public or private trust . . .
in a manner that significantly facilitated the commission
or concealment of the offense.” U.S.S.G. § 3B1.1; see also
United States v. Podhorn, 549 F.3d 552, 560 (7th Cir. 2008);
United States v. Thomas, 510 F.3d 714, 724-25 (7th Cir.
2007). The probation officer evaluated but ultimately
rejected the government’s position. In drafting the pre-
sentence report, the probation officer expressed
skepticism that the lenders had relied on Fuchs rather
than exercising independent judgment. The probation
officer reasoned that Fuchs himself was not licensed as
a mortgage broker (although his employers presumably
were, see 205 ILL. C OMP. S TAT. 635/1-3). And Fuchs
was not supervised by the lenders and had never
attested to the accuracy of the information he gave them.
4 No. 09-1611
Moreover, the probation officer explained, the lenders
sometimes tried to “double check” information in the
loan applications and were depending on the borrowers
to be truthful.
The government objected to the probation officer’s
conclusion and highlighted evidence from trial that it
said showed the lenders had relied upon Fuchs to a
significant degree. Employees of the defrauded lenders
testified that their financial institutions lacked brick-and-
mortar offices and transacted business only through
brokers and never met the borrowers. The lenders
did not employ loan officers and instead relied upon
brokers to evaluate and process loan applications. The
relationship between lender and broker was typically
embodied in an agreement that the broker was required
to sign before obtaining authorization to promote the
lender’s products. These written agreements required the
broker to verify a borrower’s income, employment, and
source of down payment, although the example sub-
mitted at sentencing specifically disclaims an agency
relationship. The borrower’s representations in a loan
application often (though not always) went unverified.
Thus, the government argued, an increase under § 3B1.3
for abuse of trust was warranted.
The district court sided with the government. The
court held that Fuchs’s position as a broker had
facilitated the fraudulent scheme and allowed its con-
cealment, and that the lenders had relied on Fuchs to
provide them with accurate information. The court dis-
counted the fact that Fuchs was unlicensed and that the
No. 09-1611 5
lenders occasionally verified the information he pro-
vided; these verification procedures, the court noted,
were thwarted because Fuchs placed his contact infor-
mation on the fraudulent documents. Last, the district
court relied on United States v. Wright, 496 F.3d 371
(5th Cir. 2007), in which the Fifth Circuit upheld the
application of § 3B1.3 to a mortgage broker who pro-
vided false information to lenders.
The district court also concluded that Fuchs had
abused a position of trust with respect to borrowers
who were placed at risk of defaulting, further impairing
their credit when they obtained financing for which
they did not qualify. The government had not sought
the adjustment on this basis. Before trial the govern-
ment had conceded that the borrowers were not
victims and acknowledged that the borrowers arguably
knew or should have known that Fuchs was sub-
mitting fraudulent documents on their behalf.
II. Discussion
The sole issue on appeal is whether the § 3B1.3 enhance-
ment for abuse of a position of trust was properly ap-
plied. Fuchs argues that he did not occupy a position
of trust with respect to the lenders and thus it was error
to assess the two-level increase. According to Fuchs, the
record establishes only an arm’s-length, commercial
relationship between him and the lenders. We review
the district court’s interpretation of § 3B1.3 de novo and
its underlying factual findings for clear error. Thomas,
510 F.3d at 725; United States v. Andrews, 484 F.3d 476, 478-
79 (7th Cir. 2007).
6 No. 09-1611
The relationship between Fuchs and the lenders would
be unimportant if, as the district court found, he also
abused a position of trust with respect to the borrowers.
See United States v. Fiorito, No. 07-CR-0212(1) (PJS/JSM),
2010 WL 1507645, at *36 (D. Minn. Apr. 14, 2010) (applying
§ 3B1.3 adjustment to mortgage broker who required
borrowers to give him power of attorney, hid details of
fraudulent transactions, and directed borrowers to sign
documents without reviewing them). Under established
Illinois law, Fuchs was an agent of the borrowers,
see 205 ILL. C OMP. S TAT. 635/5-7, and agency carries with
it fiduciary duties, Sphere Drake Ins. Ltd. v. Am. Gen. Life
Ins. Co., 376 F.3d 664, 672 (7th Cir. 2004) (applying Illinois
law); Chemtool, Inc. v. Lubrication Techs., Inc., 148 F.3d
742, 745 (7th Cir. 1998) (applying Illinois law); People v.
Riggins, 132 N.E.2d 519, 522 (Ill. 1956); Amigo’s Inn, Inc. v.
License Appeal Comm’n of Chi., 822 N.E.2d 107, 113 (Ill. App.
Ct. 2004); Kaporovskiy v. Grecian Delight Foods, Inc., 787
N.E.2d 268, 272 (Ill. App. Ct. 2003).
As a fiduciary Fuchs occupied a position of trust with
respect to legitimate borrowers, and so the upward ad-
justment might on the surface seem appropriate.
See United States v. Mabrook, 301 F.3d 503, 510 (7th Cir.
2002) (noting that defendant’s fiduciary duty vis-à-vis
investors in his company placed him in a position of
private trust); United States v. Bhagavan, 116 F.3d 189, 193
(7th Cir. 1997) (upholding application of § 3B1.3 to
a majority shareholder who diverted revenue from a
corporation because under hornbook law of corporations,
defendant had fiduciary duty to minority shareholders);
see also Payne v. United States, 566 F.3d 1276, 1277 (11th Cir.
No. 09-1611 7
2009) (stating that increase under § 3B1.3 is appropriate
where fiduciary relationship exists); United States v.
Kennedy, 554 F.3d 415, 425 (3d Cir. 2009) (upholding
application of § 3B1.3 to account manager who stole
client funds because fiduciary relationship existed);
United States v. Day, 524 F.3d 1361, 1374 (D.C. Cir. 2008)
(upholding application of § 3B1.3 to defendant who
operated as a fiduciary of employee benefit plans he
embezzled from); United States v. Tatum, 518 F.3d 369,
374 (6th Cir. 2008) (stating that the rationale underlying
§ 3B1.3 is akin to punishment for violating a fiduciary
duty); United States v. Hirsch, 239 F.3d 221, 227-28 (2d Cir.
2001) (upholding application of § 3B1.3 to broker/invest-
ment advisor who defrauded investors with whom he
had fiduciary relationship). And arguably, Fuchs has
waived any challenge to the district court’s conclusion
about his relationship to the borrowers because he failed
to address this alternative holding on appeal. See Maher
v. City of Chicago, 547 F.3d 817, 821 (7th Cir. 2008);
United States v. Hatchett, 245 F.3d 625, 644-45 (7th Cir. 2001).
But the government has waived Fuchs’s waiver by
declining to defend the district court’s application of
§ 3B1.3 on this alternative ground. See United States v.
Archambault, 62 F.3d 995, 998 (7th Cir. 1995); United States
v. Baker, 40 F.3d 154, 160 (7th Cir. 1994). And for good
reason. Before trial, prosecutors conceded that the bor-
rowers either had actual knowledge of the fraud—which
would make them coconspirators, not victims—or at
least should have known of the fraud. See United States v.
Berkley, 333 F.3d 776, 777-78 (7th Cir. 2003) (upholding
buyer’s convictions for wire fraud based on false state-
8 No. 09-1611
ments in mortgage applications); United States v. Brown,
352 F.3d 654, 657-58 (2d Cir. 2003) (upholding conviction
for mail fraud where defendant lied about employ-
ment status in mortgage application). The government
thus took the position that “only the mortgage
companies were the victims and suffered the financial
losses.” That concession undermines the district court’s
finding that an increase under § 3B1.3 could be applied
based on Fuchs’s relationship with the borrowers. Since
the government has declined to defend the application
of the enhancement on this ground, we need not decide
whether the increase could have been sustained on that
basis.
This brings us back to Fuchs’s relationship with the
lenders, and on that question we agree with him that the
government did not establish anything more than an
ordinary, commercial relationship, which we and other
circuits have said isn’t enough to warrant an upward
adjustment under § 3B1.3. See, e.g., Andrews, 484 F.3d
at 479; United States v. Thorn, 446 F.3d 378, 388 (2d
Cir. 2006); United States v. Ebersole, 411 F.3d 517, 536 (4th
Cir. 2005); United States v. Liss, 265 F.3d 1220, 1229 (11th
Cir. 2001); United States v. Haber, 251 F.3d 881, 891 (10th
Cir. 2001); United States v. Dorsey, 27 F.3d 285, 289 (7th
Cir. 1994); United States v. Kosth, 943 F.2d 798, 800 (7th
Cir. 1991).
In reaching this conclusion, we do not rely on Fuchs’s
assertion that as a matter of law, he could not have been
in a position of trust because he did not have the
authority to access or control the lenders’ assets. Fuchs
reads several of our cases to stand for the proposition
No. 09-1611 9
that § 3B1.3 applies only if the defendant is given control
over valuables. It is true that control over assets is a
significant factor in many cases. See, e.g., United States
v. Peterson-Knox, 471 F.3d 816, 825-26 (7th Cir. 2006)
(upholding application of § 3B1.3 to company manager
responsible for supplying laptops who shipped com-
puters to herself and coconspirators); United States v.
Frykholm, 267 F.3d 604, 612-13 (7th Cir. 2001) (upholding
application of § 3B1.3 to defendant who misrepresented
herself as investment broker and obtained control over
investors’ money). And the government does not
dispute that such access and control was absent here. But
we have cautioned against using bright-line rules when
applying § 3B1.3. Andrews, 484 F.3d at 479. We have up-
held upward adjustments even when the defendant had
no access to or authority over the victim’s valuables.
See United States v. Snook, 366 F.3d 439, 445-46 (7th Cir.
2004) (upholding application of § 3B1.3 to company
manager responsible for reporting compliance with
environmental regulations); United States v. Vivit, 214
F.3d 908, 924 (7th Cir. 2000) (upholding application of
§ 3B1.3 to medical-services provider responsible for
administering medical treatment); United States v.
Hoogenboom, 209 F.3d 665, 671 (7th Cir. 2000) (same); United
States v. Gellene, 182 F.3d 578, 596-97 (7th Cir. 1999) (up-
holding application of § 3B1.3 to attorney responsible
for exercising professional discretion).
Conversely, a defendant’s ability to access or control
the victim’s valuables does not always trigger an increase
under § 3B1.3. See Dorsey, 27 F.3d at 289. A bank teller,
for example, might have access and control over sig-
10 No. 09-1611
nificant amounts of cash, but § 3B1.3 “does not apply in the
case of an embezzlement or theft by an ordinary bank
teller.” U.S.S.G. § 3B1.3 cmt. n.1. Rather, a defendant’s
authority over the victim’s valuables and the degree of
discretion given to the defendant by the victim are
simply indicia of the victim’s special trust and reliance,
and that is the common thread in these decisions.
See United States v. Brown, 47 F.3d 198, 205-06 (7th Cir. 1995)
(rejecting application of § 3B1.3 where defendant
obtained fraudulent loan but had only commercial rela-
tionship with bank); United States v. Stewart, 33 F.3d 764,
769 (7th Cir. 1994) (upholding application of § 3B1.3 to
insurance broker who exploited trust of elderly clients);
Dorsey, 27 F.3d at 289 (rejecting application of § 3B1.3 to
car dealer who defrauded lender where no evidence
of reliance existed apart from standard commercial ar-
rangement); United States v. Boyle, 10 F.3d 485, 489 (7th Cir.
1993) (upholding application of § 3B1.3 to president of
armored-car company because he was agent of his vic-
tims); Kosth, 943 F.2d at 800 (rejecting application of
§ 3B1.3 to defendant who defrauded bank through use
of merchant account but was not “an insider” of bank).
We have explained that § 3B1.3 “encourages trust by
making trust less risky to the trusting, and trust is an
efficient substitute for continuous surveillance.” United
States v. Deal, 147 F.3d 562, 563 (7th Cir. 1998). But this
understanding of the guideline should not be confused
with lax supervision or the victim’s abdication of his
own duties. See United States v. Ollison, 555 F.3d 152, 167-
69 (5th Cir. 2009) (overturning increase under § 3B1.3
where secretary’s sustained misuse of business credit
No. 09-1611 11
card went undetected, not because her job entailed sub-
stantial discretionary judgment but because of lax super-
vision); United States v. Brunson, 54 F.3d 673, 678 (10th
Cir. 1995) (overturning increase under § 3B1.3 where
defendant’s fraud could have been detected even by
unsophisticated businessman); United States v. Pardo, 25
F.3d 1187, 1192 (3d Cir. 1994) (overturning increase
under § 3B1.3 where defendant’s commission of bank
fraud was made possible by lack of “routine precautions”
rather than his position); United States v. Helton, 953 F.2d
867, 869-70 (4th Cir. 1992) (holding that § 3B1.3 could not
be applied to cashier who embezzled traveler’s checks
where fraud would have been quickly detected if super-
visors had not been “inept” and “derelict in their duty”);
see also Joshua A. Kobrin, Placing Trust in the Guidelines:
Methods and Meanings in the Application of Section 3B1.3, the
Sentence Enhancement for Abusing a Position of Trust, 12
R OGER W ILLIAMS U. L. R EV. 121, 151-52 (2006) (explaining
that trust arising from ineptitude or accident is not what
§ 3B1.3 protects). There is an element of misplaced trust
inherent in every fraud, e.g., United States v. Hayes, 574
F.3d 460, 479 (8th Cir. 2009); United States v. Williams, 527
F.3d 1235, 1250-51 (11th Cir. 2008); Wright, 496 F.3d at
377; United States v. Koehn, 74 F.3d 199, 201 (10th Cir.
1996); United States v. Ragland, 72 F.3d 500, 502-03 (6th Cir.
1996); Kosth, 943 F.2d at 800, and so what is required is a
showing that the victim placed more than the ordinary
degree of reliance on the defendant’s integrity and
honesty, Hayes, 574 F.3d at 479; Williams, 527 F.3d at 1250-
51; see also United States v. Hernandez, 231 F.3d 1087, 1091 &
n.2 (7th Cir. 2000) (recognizing that lax supervision is
12 No. 09-1611
not evidence of trust, though autonomy given to em-
ployee in performing job may be).
In Fuchs’s situation the information before the district
court was unremarkable. His fraud convictions do not
themselves justify the application of § 3B1.3. He did take
advantage of the lenders, but their reliance (or for that
matter, his success) was not an element necessary to
convict him of mail or wire fraud. Bridge v. Phoenix Bond &
Indem. Co., 553 U.S. 639, 648-49 (2008); Neder v. United
States, 527 U.S. 1, 24-25 (1999); see also United States v. Rosby,
454 F.3d 670, 674 (7th Cir. 2006). Fuchs’s position as a
middleman between the borrowers and lenders does not
imply a special relationship with the lenders.
The government and the district court rely on opinions
from the Fifth and Eighth Circuits upholding the ap-
plication of § 3B1.3 to mortgage brokers who defrauded
their lenders. United States v. Septon, 557 F.3d 934, 937-38
(8th Cir. 2009); Wright, 496 F.3d at 375-77. In both Septon
and Wright, as here, the mortgage-broker defendants
submitted falsified loan applications to obtain mort-
gages for borrowers. Septon, 557 F.3d at 935-36; Wright, 496
F.3d at 372-73. In Wright the district court had applied
§ 3B1.3 based on an FBI agent’s generic testimony that
lenders expect that mortgage brokers verify the informa-
tion supplied by the buyer. 496 F.3d at 376. The Fifth
Circuit upheld the application of the enhancement,
stating that although there is not a legally recognized
relationship of trust between mortgage-loan brokers
and lenders, lenders who deal with brokers on a repeti-
tive basis “rely to some degree on statements by brokers
No. 09-1611 13
in evaluating applications.” Id. at 377. The Fifth Circuit
acknowledged that something more than ordinary
reliance is typically required for § 3B1.3 to apply, but
reasoned that a finding of reliance “flows from the struc-
ture of the mortgage industry itself, which sets a pat-
terned process for loan application that over time
cultivates trust between brokers and lenders,” and
justifies an increase under § 3B1.3. Id. This same approach
was adopted by the Eighth Circuit in Septon. 557 F.3d
at 938.
Neither Wright nor Septon identifies any factor apart
from the general “structure” of the commercial relation-
ship between mortgage broker and lender to justify
applying § 3B1.3. The workings of the mortgage industry
may cultivate a heightened degree of trust between mort-
gage brokers and lenders in a particular case, e.g., where
the same broker deals repeatedly with the same lenders,
but neither Wright nor Septon discusses whether the
defendants in those cases actually enjoyed this special
trust. The Fifth Circuit recognized that the question was
a “close call,” Wright, 496 F.3d at 377, but in the end
appears to have fashioned a per se rule that mortgage
brokers always occupy a position of trust with lenders
based on reliance flowing “from the structure of the
mortgage industry itself,” id. at 375-77. To the extent
that the Fifth Circuit adopted a per se approach (and the
Eighth Circuit followed suit), we respectfully disagree.1
1
This opinion has been circulated to all active judges under
Circuit Rule 40(e); none asked to hear this case en banc.
14 No. 09-1611
Again, we have cautioned against drawing bright
lines defining where a position of trust begins or ends,
see Andrews, 484 F.3d at 479, and we’ve repeatedly em-
phasized that the § 3B1.3 inquiry is case-specific and that
a job title cannot answer whether the defendant is in
a position of trust, see, e.g., id.; Snook, 366 F.3d at 445;
Mabrook, 301 F.3d at 510; Hernandez, 231 F.3d at 1089. This
is not to say that a mortgage broker can never occupy a
position of trust with respect to his lenders. See United
States v. Castellano, 349 F.3d 483, 484-85 (7th Cir. 2003)
(recognizing that relationship that began as arm’s-length,
commercial relationship progressed into a special relation-
ship of trust); United States v. Pappert, 112 F.3d 1073, 1080
(10th Cir. 1997) (same). But whether a mortgage broker
actually does occupy a position of trust ultimately
depends on the particular facts of the case. See Andrews,
484 F.3d at 479; Snook, 366 F.3d at 445; Mabrook, 301 F.3d
at 510; Hernandez, 231 F.3d at 1089.
The limited evidence here fails to show that Fuchs (or
the companies he worked for) occupied a special relation-
ship of trust with any lender. To support the adjust-
ment, the government argues that the lenders are not
“typical banks” with branch offices. These lending institu-
tions, the government explains, are not the kind where
a borrower can “walk in off the street and just talk to one
of their loan officers and get a loan.” The government
also points to the testimony from employees of the
lenders who said that their loan products were offered
only through brokers and that the brokers effectively
functioned as loan officers by meeting with borrowers,
obtaining necessary information, verifying income and
No. 09-1611 15
employment, and submitting the completed application
to the lender for review. We and other circuits have
upheld a district court’s application of § 3B1.3 to loan
officers who misapplied funds and concealed their be-
havior. See United States v. Humphrey, 279 F.3d 372, 381 (6th
Cir. 2002) (observing that loan officer involves fiduciary
relationship that would make application of § 3B1.3
appropriate); United States v. Jobe, 101 F.3d 1046, 1065-66
(5th Cir. 1996); United States v. Dion, 32 F.3d 1147, 1150
(7th Cir. 1994).
But this testimony and the rest of the government’s
argument rests on generalities. During the sentencing
proceeding, the government did not establish that the
lenders in this case had a relationship of trust with Fuchs
in particular. That is, the government introduced no
evidence explaining the nature of the relationship
between Fuchs or his employers and the victim lenders.
In fact, the government did not even disclose the actual
written agreements the lenders had with these brokers.
What the evidence does tell us is that the victim lenders
sometimes verified Fuchs’s work but more often than not
they didn’t. On this record, an inference that the lenders
operated this way based on their trust in Fuchs is no
stronger than the inference that they simply failed to do
their own due diligence. All we can do is speculate
because aside from the general evidence of the industry
of which Fuchs was a part—in which there is a statutory
agency relationship between Fuchs and the borrowers,
205 ILL. C OMP. S TAT. 635/5-7—there is nothing pointing
to a special relationship of trust outside of the ordinary
arm’s-length, commercial relationship between him
and the lenders.
16 No. 09-1611
Accordingly, we V ACATE the sentence and R EMAND for
resentencing without the § 3B1.3 adjustment.
3-17-11