IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
F I L E D
No. 06-11198 September 5, 2007
Charles R. Fulbruge III
Clerk
UNITED STATES OF AMERICA
Plaintiff - Appellee
v.
JERRY EDWARD HOLBROOK
Defendant - Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before KING, GARZA, and BENAVIDES, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
The appellant, Jerry Edward Holbrook (“Holbrook”), argues that the
district court’s application of United States Sentencing Guideline Manual
(“U.S.S.G.”) § 2B1.1 (2005) erroneously calculated the actual loss of his fraud
scheme. We disagree and affirm the sentence of the district court.
I
The facts of the offense itself are not contested. Holbrook and his co-
defendants, Shane Sharp (“Sharp”) and Randy Throckmorton (“Throckmorton”),
were the owners and operators of Command Staffing, an employment agency in
Dallas, Texas. Command Staffing was operating at a loss, so, to increase their
cash flow, Holbrook and his co-defendants created fictitious customer accounts
No. 06-11198
showing that six companies owed Command Staffing money. In March 2002,
Command Staffing entered into a master purchase and sales agreement with
Sun Capital, Inc. (“Sun Capital”), whereby Sun Capital purchased the accounts
receivable for the six customer accounts, not knowing that the accounts were
fictitious. Holbrook, Sharp, and Throckmorton created fake invoices for the
customer accounts and sent them to Sun Capital; Sun Capital then wired 80%
of the invoice amount to Command Staffing and the “customers” were then to
pay the entire invoice amount to Sun Capital. To keep the scheme going,
Holbrook, Sharp, and Throckmorton created fake bank accounts in the names
of the customers and made “Ponzi” payments to Sun Capital from the same
funds that Sun Capital had wired to Command Staffing. This occurred for over
12 months. During that time, Command Staffing submitted false invoices
totaling $10.9 million to Sun Capital, on which Sun Capital paid Command
Staffing $8.8 million. Command Staffing returned $5.6 million to Sun Capital
through Ponzi payments.
Eventually, the scheme was revealed, and Sun Capital attempted to place
a lien on Command Staffing’s stock, properties, and assets, which were offered
as collateral in the master purchase and sales agreement. Sun Capital
discovered, though, that an individual investor already had a lien against
Command Staffing as collateral for a prior business loan. Sun Capital
purchased the lien from the investor and then acquired all of the shares of
Command Staffing and its subsidiary companies, including a software company
known as Symbio Solutions, which was developing a web-based human resource
application for use by hospitals.1 After Sun Capital took possession of Symbio
1
Before the district court, there was some dispute over whether the master purchase
and sales agreement included Symbio Solutions as part of the collateral. The district court
assumed without finding that Symbio Solutions was part of the collateral included in the
agreement. That dispute is not continued on appeal, so we likewise assume without finding
that Symbio Solutions was part of the collateral.
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Solutions, a company which at the time was not producing a profit, it invested
$10 million into the company hoping to turn an unprofitable company into a
profitable one.
Holbrook was charged with and pleaded guilty to mail fraud and aiding
and abetting thereof, in violation of 18 U.S.C. §§ 1341 and 2. In determining
Holbrook’s total offense level and Guideline range, the district court applied an
eighteen-level enhancement based on the total loss attributed to the fraudulent
scheme; the district court found a total loss of $3.2 million. U.S.S.G.
§ 2B1.1(b)(1)(J). Holbrook argued before the district court, and now argues on
appeal, that this loss calculation insufficiently accounts for the collateral
Command Staffing offered in the master purchase and sales agreement and
which Sun Capital took possession of after it became aware of the scheme.
U.S.S.G. § 2B1.1 cmt. n.(3)(E)(ii). The district court found that the collateral had
little or no value and whatever little value it had would not have affected the
Guideline range calculation.
We review the district court’s application of the Guidelines de novo and
factual determinations for clear error. United States v. Austin, 479 F.3d 363, 367
(5th Cir. 2007). “The court need only make a reasonable estimate of the loss.
The sentencing judge is in a unique position to assess the evidence and estimate
the loss based upon that evidence. For this reason, the court's loss
determination is entitled to appropriate deference.” U.S.S.G. § 2b1.1 cmt.
n.(3)(C).
Holbrook argues that the district court erred by miscalculating the value
of the collateral obtained by Sun Capital, specifically the value of Symbio
Solutions. “The Guidelines themselves do not address whether or how collateral
is to be applied, but the commentary provides specific loss-calculation rules,
including rules regarding collateral.” Id. at 367. “[C]ommentary in the
Guidelines Manual that interprets or explains a guideline is authoritative unless
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it violates the Constitution or a federal statute, or is inconsistent with, or a
plainly erroneous reading of, that guideline.” Stinson v. United States, 508 U.S.
36, 38 (1993).
According to the Guidelines’s commentary, the district court shall reduce
the victim’s loss by “the amount the victim has recovered at the time of
sentencing from disposition of the collateral, or if the collateral has not been
disposed of by that time, the fair market value of the collateral at the time of
sentencing.” U.S.S.G. § 2B1.1 cmt. n.(3)(E)(ii). Sun Capital did not dispose of
the collateral, and Holbrook contends that the fair market value of Symbio
Solutions at the time of sentencing was substantial. Ronald Caddell (“Caddell”),
the new chief financial officer of Symbio Solutions, stated at sentencing that Sun
Capital would not sell Symbio Solutions for less than the money it invested in
it, $10 million. Had the district court applied a $10 million value to Symbio
Solutions and used it to offset Sun Capital’s loss, it would have resulted in a
total loss value of zero, and a substantially lower Guideline range.
Holbrook does not contest the district court’s factual finding that the value
of Symbio Solutions at the time of sentencing was “either entirely or almost
entirely the result of [Sun Capital]’s investment into the collateral.” Essentially,
the district court found that but for the victim’s post-acquisition investment in
Symbio Solutions, the company would have been worth nothing or almost
nothing at the time of sentencing. There is substantial evidence in the record
to support this finding. Symbio Solutions had no assets and the assets of other
Command Staffing enterprises were valued at about $25,000 to $30,000 in
computer equipment and furniture. Steven Camp, Sun Capital’s legal counsel
in many of the relevant transactions, testified at sentencing that at the time Sun
Capital acquired the collateral, Symbio Solutions was in the process of
developing software but was not generating any revenue. Further, he stated
that the software Symbio Solutions did have was not patented, was for
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No. 06-11198
demonstration purposes only, was not commercially viable, and had to be
completely rewritten. Caddell said that although they expected Symbio
Solutions to begin turning a profit within a year of the sentencing, the
profitability potential was “because of the introduction of new products that
[they were] building that [had] nothing to so with the initial product.” Caddell
went on to say that but for the injection of $10 million, Symbio Solutions would
not have had anything.
Rather than contesting the district court’s factual findings, Holbrook
argues that a “literal” interpretation of the sentencing enhancement requires the
district court to consider the fair market value of Symbio Solutions at the time
of sentencing, regardless of whether its market value stemmed from Sun
Capital’s $10 million investment and introduction of new products. U.S.S.G. §
2B1.1 cmt. n.(3)(E)(ii). We do not agree with Holbrook’s interpretation of the
sentencing enhancement.2 Sun Capital’s investment into Symbio Solutions is
not part of the collateral, even if it was later part of Symbio Solutions. Black’s
Law Dictionary defines collateral as, “Property that is pledged as security
against a debt.” Black’s Law Dictionary 278 (8th ed. 2004). Clearly, Sun
Capital’s $10 million investment was not part of the property Command Staffing
offered as security against the debt owed to Sun Capital.
The collateral, offered by Holbrook and acquired by Sun Capital, was
Symbio Solutions as it was prior to Sun Capital’s investment of financial and
human capital))that consisted of Symbio Solutions’s incomplete, unworkable,
and unpatented software. The district court found that the collateral was
2
Even if Holbrook were right and his reading were a literal interpretation of the
sentencing enhancement, we would not apply such a literal interpretation. We interpret the
Sentencing Guidelines following the “ordinary rules of statutory construction.” United States
v. Carbajal, 290 F.3d 277, 283 (5th Cir. 2002). One rule is that we do not interpret the
Sentencing Guidelines to produce absurd results. Austin, 479 F.3d at 368-69 (interpreting
U.S.S.G. § 2B1.1 cmt. n.(3)(E) to avoid “arbitrary or absurd results”). Allowing money spent
by the victim to offset the loss to the victim would certainly create an absurd result.
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essentially worthless both at the time of acquisition and at the time of
sentencing. It was only the value added to the collateral by Sun Capital that
made Symbio Solutions worth a substantial amount. Therefore, the district
court did not err by failing to consider the actual value of Symbio Solutions at
the time of sentencing, because the actual value of Symbio Solutions did not
represent the value of the collateral.
The district court’s application of the U.S.S.G. § 2B1.1 was proper and the
sentence imposed is AFFIRMED.
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