United States v. Bennett

November 3, 1994
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1732

UNITED STATES,
Appellant,

v.

GEORGE S. BENNETT, JR.,
Defendant, Appellee.

ERRATA SHEET
ERRATA SHEET

The opinion of this Court issued on September 20, 1994 is
amended as follows:

On page 23, delete footnote 14.

On page 29, fourth line from the bottom, after ". . .
clearly erroneous." Add new footnote (and renumber subsequent
footnotes). The text of the new footnote is as follows:

Having stressed that post-trial acceptance of
responsibility is the exception and must
normally be borne out by pre-trial actions,
we nevertheless do not intend to establish
any blanket rule; the guideline's own
application note leaves open the possibility
of exceptions. But we do think that unless
some obvious basis is apparent from the
record, it may be difficult to uphold a
reduction in cases where the defendant went
to trial, asserted his or her innocence, and
has nothing substantial in the way of pre-
trial conduct to show earlier acceptance of
responsibility -- unless the district court

is able to point to some persuasive reason
for this determination. Thus, even where
there may ordinarily be no special
requirement for a statement of reasons in
making sentence determinations, cases like
this one may present situations in which an

explanation by the district court is as a
practical matter essential to establish that
the guideline's rather stringent standards
for post-trial conversions have been
satisfied.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1732

UNITED STATES,

Appellant,

v.

GEORGE S. BENNETT, JR.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, U.S. District Judge]

Before

Selya, Circuit Judge,

Campbell, Senior Circuit Judge, and

Lagueux, District Judge.*

William P. Stimson, Assistant U.S. Attorney, Economic Crimes

Division, with whom Donald K. Stern, United States Attorney, was on

brief for appellant.

Morris M. Goldings, with whom John F. Aylmer, II and Mahoney,

Hawkes & Goldings were on brief for appellee.

September 20, 1994

*Of the District of Rhode Island, sitting by designation.

CAMPBELL, Senior Circuit Judge. George S. Bennett,

Jr., defendant-appellee, was formerly a general manager,

officer, and director of Daniel Webster Mortgage Company,

Inc., which originated, underwrote, and sold mortgage loans.

Bennett was also an attorney. On December 2, 1991, Bennett

was charged, in a nine-count indictment, with violating the

bank fraud statute, 18 U.S.C. 1344 (1988).1 The

indictment alleged that, from August 1988 until October 1989,

Bennett obtained nine loans corresponding to the nine

counts totaling $900,000 by, among other things, providing

knowingly false and misleading information concerning the

identity of the borrower or borrowers and by concealing his

and his wife's interest in the loans.

On February 16, 1993, a jury trial began in the

United States District Court for the District of

1. 18 U.S.C. 1344 provides:

Whoever knowingly executes, or attempts
to execute, a scheme or artifice

(1) to defraud a financial
institution; or

(2) to obtain any of the moneys,
funds, credits, assets, securities, or
other property owned by, or under the
custody or control of, a financial
institution, by means of false or
fraudulent pretenses, representations, or
promises;

shall be fined not more than $1,000,000
or imprisoned not more than 30 years, or
both.

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Massachusetts. Eight days later, the jury found Bennett

guilty on all nine counts. Following a sentencing hearing on

May 18 and 19, 1993, the district court sentenced Bennett to

twenty-four months probation with six months home detention.

He was also ordered to pay a special assessment of $450

pursuant to 18 U.S.C. 3013 (1988). Judgment was entered on

May 24, 1993. The Government appeals from the sentence.2

We vacate and remand for resentencing.

I.

BACKGROUND

A. The Scheme

Daniel Webster Mortgage Company, Inc. ("Daniel

Webster"), which maintained a place of business in

Marshfield, Massachusetts, originated and underwrote

residential mortgage loans for consumers. To finance its

mortgage underwriting activities, Daniel Webster borrowed

money under lines-of-credit that it maintained with Plymouth

Federal Savings Bank ("Plymouth Federal") a federal mutual

savings bank with its principal place of business in

Plymouth, Massachusetts and New Bedford Institution for

Savings (NBIS) a state-chartered bank based in New

2. Bennett cross-appealed from the conviction, but the
cross-appeal was later voluntarily dismissed pursuant to Fed.
R. App. P. 42(b).

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Bedford, Massachusetts.3 To obtain line-of-credit advances,

Daniel Webster needed only to contact the banks by telephone

and provide a borrower's name and an amount to be disbursed.

After making a mortgage loan, Daniel Webster would assign the

promissory note and the accompanying mortgage from its

customer to whichever bank advanced the funds. Daniel

Webster would also record the mortgage and the assignment at

the appropriate registry of deeds. When the mortgage loan

was sold on the secondary market, Daniel Webster would use

the proceeds to repay the principal borrowed from the lending

bank, plus accrued interest.

George S. Bennett, Jr. was general manager of

Daniel Webster from August 1985 until May 3, 1990, when he

was asked to resign. He was also an officer of the company

from May 1986 and a director from April 1987. On May 20,

1988, Bennett obtained two mortgage loans from Daniel

Webster, each for $159,000. Bennett used the proceeds to

purchase two parcels of real property in Hingham,

Massachusetts. Title to these parcels was taken in the names

of two nominee realty trusts, Prospect Woods Realty Trust and

Prospect Forest Realty Trust. Bennett and his wife, Patricia

A. Bennett, were the sole beneficiaries of each trust, and

Mrs. Bennett was appointed trustee. Bennett's plan was to

3. We will refer to Plymouth Federal and NBIS collectively
as "the banks."

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develop two homes on the parcels, occupy one, and sell the

other.

In or about September 1988, Bennett applied

directly to Robert E. Dawley, then-president of Plymouth

Federal, for financing to construct the two residences on the

Hingham property. He sought loans of $410,000 and $425,000.

Dawley thought that Plymouth Federal should not lend Bennett

this money. Accordingly, after consulting with Plymouth

Federal's loan committee, Dawley rejected Bennett's

applications.

Thereafter, Bennett used his position with Daniel

Webster to cause the banks to lend him money under their

lines-of-credit.4 On more than ten separate occasions,

Bennett obtained advances under the lines-of-credit by

misrepresenting to the banks that he was financing mortgage

loans underwritten by Daniel Webster in its regular course of

business. To conceal his personal interest in the loans,

Bennett, on many occasions, gave the banks fictitious

borrower names such as "Woods," "Forest," "Foster," "Floras,"

"Powers," and "Kallan." Although Bennett and/or his wife

executed promissory notes and mortgages for each new loan,

4. Eight of the loans described in the indictment were
originally funded using advances from the Plymouth Federal
line-of-credit, and one such loan was funded using an advance
from the NBIS line-of-credit. By May 1990, however, Plymouth
Federal had purchased all the loans at issue that had been
charged to the NBIS line-of-credit.

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Bennett failed to record any of the mortgages or assign them

to the banks. Consequently, the line-of-credit advances were

effectively unsecured, and Bennett avoided creating a public

record of his borrowing activity. Bennett also created a

lender loan file for each new loan that contained "filler"

documents such as settlement statements, credit

applications, title insurance policies, and real estate

appraisals that, upon close inspection, bore no

relationship to the particular loan. Rather, many of these

documents were photocopies of the materials prepared in

connection with the two $159,000 loans obtained by Bennett in

May 1988. To avoid detection, Bennett kept the promissory

notes, mortgages, and loan files in his personal possession.

In or about March and April 1990, the Federal

Deposit Insurance Corporation (FDIC) examined Plymouth

Federal, including the Daniel Webster line-of-credit. One

examiner demanded the supporting documentation for a $125,000

advance under the name "Bennett" Count 7 of the

indictment. In response, Bennett provided, among other

things, a promissory note, a mortgage, and an assignment of

the mortgage to Plymouth Federal. The mortgage and the

assignment had recording stamps, bearing instrument numbers

36241 and 36242, indicating that they had been received by

the Plymouth County Registry of Deeds on May 12, 1989, at

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12:12 p.m. On further inspection, however, the mortgage and

the assignment were found to be unrecorded, and the recording

stamps to have been forged. A search at the Plymouth County

Registry of Deeds revealed that the instrument numbers

belonged to documents filed in an unrelated transaction.

The full extent of Bennett's borrowing was revealed

on or about May 3, 1990. Plymouth Federal thereupon

terminated its line-of-credit, putting Daniel Webster out of

business. Bennett was asked to resign from Daniel Webster.

On May 22, 1990, Plymouth Federal and Daniel

Webster sued Bennett, claiming, inter alia, that he had

committed fraud. Bennett denied liability. On February 1,

1991, the parties entered into a settlement agreement.

Bennett agreed to turn over to Plymouth Federal certain cash

and other property, including the part of the Hingham

property that had not earlier been sold. The district court

found the value of the cash and property transferred in the

settlement to be "at least" $660,000.

B. The Flow of Funds

During the civil law suit, Bennett, in answers to

interrogatories, listed the loans that he had obtained from

May 20, 1988, through March 1, 1990. The Government provides

the following chart, which includes the nine transactions,

designated A through I, charged in the indictment:

Whether "Borrower Date Princ.
Charged/ Name" on Princ. Balance

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Date Design. Amount Bank Docs. Repaid (5-3-90)

5-20-88 no $159,000 Bennett - $159,000
5-20-88 no 159,000 Bennett - 159,000
7-5-88 no 180,000 Bennett 9-30-88
8-11-88 yes (A) 40,000 Woods 9-22-88
9-22-88 no 185,000 Bennett 10-13-88
9-22-88 yes (B) 90,000 Forest 7-7-89
10-4-88 no 100,000 Bennett - 100,000
10-4-88 yes (C) 141,700 Woods 7-7-89
10-4-88 yes (D) 145,300 Foster 7-7-89
3-31-89 yes (E) 75,000 Woods - 75,0005
3-31-89 yes (F) 105,000 Floras 7-7-89
5-12-89 yes (G) 125,000 Bennett - 125,000
8-2-89 yes (H) 67,000 Powers 9-30-89
10-2-89 yes (I) 111,000 Kallan - 111,000
3-1-90 no 108,000 Sou - 108,000

$1,791,000 $837,000

As the Government's chart indicates, several of the loans

were repaid before May 3, 1990, the date when Bennett's

offense was discovered. According to Bennett, the remaining

loans were repaid when he entered into the settlement

agreement with Daniel Webster and Plymouth Federal on

February 1, 1991.

C. Sentencing

At sentencing, the Government maintained that,

because Bennett's scheme to defraud continued after the

November 1, 1989, amendment to the loss table in U.S.S.G.

5. The Government's appellate brief indicates that this loan
was actually repaid on September 30, 1989. Bennett states in
his brief, however, that he did not repay the $75,000 loan
until February 1, 1991. This later date is consistent with
representations made by the Government to the district court.
Accordingly, we will assume that the $75,000 loan was still
outstanding as of May 3, 1990. If our assumption is
incorrect, the district court should make the necessary
correction on remand.

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2F1.1(b)(1), there was no ex post facto problem created by

using as is ordinarily done the version of the

Guidelines Manual that was in effect (i.e, November 1, 1992)

when Bennett was sentenced. The Government also argued that

(1) in addition to the $900,000 in charged loans, the

district court should consider $1,016,000 in other loans as

relevant conduct, for a total loss of $1,916,000;6 (2) the

$1,916,000 loss figure should not be reduced to reflect any

repayments made by Bennett because this was not a "fraudulent

loan application" case within the meaning of U.S.S.G.

2F1.1, comment. (n.7(b)); (3) Bennett did nothing to manifest

any appreciation of the criminality of his conduct; and (4)

the district court should apply upward adjustments to the

offense level under U.S.S.G. 2F1.1(b)(2) and 3B1.3.

Accordingly, the Government urged the district court to

determine Bennett's Total Offense Level as follows:

2F1.1(a) (base offense level) 6
2F1.1(b)(1)(M) (loss of $1,916,000) 12
2F1.1(b)(2) (more than minimal planning) 2
3B1.3 (abuse of position of trust) 2

TOTAL OFFENSE LEVEL 22

6. On appeal, the Government maintains that the total amount
of charged and uncharged transactions amounts to $1,791,000
as opposed to $1,916,000. See chart, supra. The Government

explains that, at sentencing, the $1,916,000 figure included
a $236,000 loss on the "Kallan" loan (Loan I). On further
reflection, however, the Government concedes that only
$111,000 of this loan can be shown to have been funded with
bank money.

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This offense level, says the Government, would have resulted

in a sentencing range of 41 to 51 months incarceration and a

fine range of $7,500 to $75,000.

The district court refused to accept the

Government's position. Finding that the last date of the

offense of conviction was October 2, 1989, it decided to use

the November 1, 1988, Guidelines Manual which contained

the loss table in effect prior to the November 1, 1989,

amendment to avoid violating the Ex Post Facto Clause of

the United States Constitution. Moreover, for purposes of

calculating the loss to the banks, the district court, after

a two-day sentencing hearing during which it considered the

issue, included only those loans, totaling $900,000, that had

been charged in the indictment. From this gross loss figure,

the district court subtracted (1) the amount of the charged

loans that Bennett had repaid prior to the May 1990 discovery

of his crime (i.e., $589,000), and (2) the value of the

February 1991 settlement with Plymouth Federal and Daniel

Webster.7 Accordingly, the district court concluded that

the net loss to the banks was $0. It said, "[I]t's obvious

that what was charged in this case as criminal conduct was

$900,000, and that all of it, every cent, was paid off prior

7. The exact value of the settlement agreement is not
entirely clear. The presentence report pegged the value at
$694,707.15. The district court said the value was "at least
$660,000."

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to the initiation of any criminal proceeding." Moreover, the

district court determined that Bennett had accepted

responsibility for his conduct. In light of these findings,

the district court calculated Bennett's Total Offense Level

to be 8. According to the Government, the district court's

computations were as follows:

2F1.1 (base offense level) 6
2F1.1(b)(1) (zero loss) 0
2F1.1(b)(2) (minimal planning) 2
3B1.3 (abuse of position of trust) 2
3E1.1 (acceptance of responsibility) -2

TOTAL OFFENSE LEVEL 8

Based on this Total Offense Level and Bennett's Criminal

History Category (I), the district court concluded that the

sentencing range was 2 to 8 months imprisonment, with 24 to

36 months supervised release, and that the fine range was

$5,000 to $50,000. Nevertheless, the district court

sentenced Bennett to 24 months probation with 6 months home

detention. He was also directed to pay $450 in special

assessments. No fines were imposed.

II.

The Government argues that the following three

errors were committed during sentencing: the district court

improperly (1) calculated loss under U.S.S.G. 2F1.1(b)(1),

(2) granted Bennett a downward adjustment in his offense

level for accepting responsibility pursuant to U.S.S.G.

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3E1.1, and (3) used the November 1, 1988, Guidelines Manual.

We turn to each of these arguments.

A. The District Court's Loss Calculation

1. Relevant Conduct

The Government argues that the district court erred

in calculating the banks' losses by refusing to consider any

loans except the ones for which Bennett was charged.

According to the Government, U.S.S.G. 1B1.3 requires

sentencing courts to consider relevant conduct, even if such

conduct does not fall within any count of conviction. The

district court should, it says, have included in the loss

calculation the other loans for which Bennett was not

indicted. Bennett replies that the district court determined

that evidence of the uncharged loans was too meager to amount

to relevant conduct under U.S.S.G. 1B1.3.

To resolve these arguments, we need to decide

whether the district court determined, as a matter of law,

that, in calculating the loss, it would disregard loans that

were not alleged in the indictment, or whether it determined,

as a matter of fact, that the Government had failed to

establish, by a preponderance of the evidence, the existence

of relevant non-indicted loans.8 With regard to the former,

8. In United States v. Williams, 10 F.3d 910 (1st Cir.

1993), we said, "Only after the government has met its burden
of establishing, by a preponderance of the evidence, `a
sufficient nexus between the [extraneous] conduct and the

offense of conviction,' may the sentencing court, in its

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"[t]he legal determination as to the
proper interplay among related guidelines
is subject to plenary review." United

States v. Schultz, 970 F.2d 960, 962 (1st

Cir. 1992), cert. denied, U.S. ,

113 S. Ct. 1020, 122 L. Ed. 2d 167
(1993). Therefore, we review de novo the
district court's application of the
relevant conduct guideline, U.S.S.G.
1B1.3, to the [fraud or deceit]
guideline, U.S.S.G. [2F1.1].

United States v. Carrozza, 4 F.3d 70, 74 (1st Cir. 1993),

cert. denied, U.S. , 114 S. Ct. 1644, 128 L. Ed. 2d 365

(1994). Regarding the latter, "[a]bsent a mistake of law, we

review `relevant conduct' findings for clear error." United

States v. Williams, 10 F.3d 910, 913 (1st Cir. 1993) (citing

United States v. Wood, 924 F.2d 399, 403 (1st Cir. 1991)).

The transcript of Bennett's two-day sentencing

hearing strongly indicates that the district court

determined, as a matter of law, that it would not consider,

in establishing the loss to the banks, loans that were not

alleged in the indictment. At the very beginning of the

sentencing hearing, the district court asked:

And how much money was obtained,
according to the counts? Because my
understanding is that the determination
of how much time the guidelines call for,
is it determined on the amount charged in
the counts?

sound discretion, make a `relevant conduct' adjustment." Id.

at 913 (quoting United States v. Sklar, 920 F.2d 107, 110

(1st Cir. 1990)) (emphasis added in Williams).

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A short time later, the district court engaged in the

following colloquy with the Government:

MR. STIMSON: You have to live with the
guidelines, your Honor.

THE COURT: I understand you have to look
at the guidelines, but I'll tell you,
when you start getting into relevant
conduct that is not charged, that goes
against my sense of justice. I don't
mind sentencing somebody on something
that he's been charged with. When you're
trying to get [$]800,000 more on
something he's not charged with, there is
something that is unjust about it. . . .

MR. STIMSON: Your Honor, the
government's position is based upon the
total amount of each loan.
Now, we can put[] aside for a moment
the issue of whether we're talking just
about the loans that were described in
the indictment or about the other loans.

THE COURT: I want to go with those
charged in the indictment.

MR. STIMSON: Okay.

THE COURT: Because if you're asking for
any more time than that, it's going to be
tried. I'm not sentencing anybody on
time [sic] that he's not been tried on.
I'm not going to. So stick with the
[$]900,000 as charged or anything else
that you say is charged within the nine
counts.

Towards the end of the first day of the sentencing hearing,

the district court stated the manner in which it was inclined

to calculate the net loss to the banks:

I'll tell you [w]hat, have we all
got the issue, and I want it on the
record. [T]he issue is this: The
$900,000 charged less money paid back to

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the victim bank in whatever form prior to
the initiation of criminal action . . .
iswhat I amgoing to determineas the law.9

The district court further said that it was "willing to

disregard the relevant conduct."

During the second day of the sentencing hearing,

the district court once again visited the issue of relevant

conduct. In this regard, it made the following observations

and findings:

I can see that maybe a significant
portion, if not all of the charged loans,
ha[s] been paid. However, we have this
concept of related conduct. It's obvious
that, although he's paid off over
$900,000 and maybe close to [$1,200,000],
he hasn't paid off all the related loans.
So if I do not take those into
consideration, then you may have a short-
lived victory, because the upper [c]ourt,

9. The parties dispute whether the last word of this
statement was "law" or "loss." On June 3, 1994, counsel for
Bennett filed an affidavit of Patricia A. Casey-Price, the
official court reporter at Bennett's sentencing hearing.
Attached to the affidavit were revised pages of the
sentencing hearing transcript, indicating that the court had
said "loss" not "law." Subsequent to oral argument, however,
the Government submitted a supplemental affidavit of Patricia
A. Casey-Price, dated June 9, 1994. In it she said, "Based
upon a careful review of my stenographic notes, . . . I have
concluded that . . . I in fact recorded the word `law,' not
the word `loss.'"
The parties did not follow the correct procedure for
correcting the record. See Fed. R. App. P. 10(e) (describing

the correct procedure for correcting or modifying the
record). But the difference between "law" and "loss" is of
little consequence. In either event, the district court was
setting forth the legal framework in which it was inclined to
calculate the net loss.

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I am absolutely confident, [is] going to
require them to be taken into
consideration.

***

On the other hand, there is some
relevant conduct resulting in debts in
excess of $900,000, which under the
current interpretation of the guidelines
has to be considered.
When the so-called relevant conduct
is considered, that is matters not
charged, there is a debt owing. It's
very difficult to determine what that
precise amount is, but it's my judgment,
based on all the evidence in the case,
that it's somewhere between [$100,000]
and $200,000.
So I'm in a position, were I to
sentence strictly with respect to charged
conduct, the loss I would find is
nothing. If I am to sentence him on the
basis of charged conduct and related
activity, the loss is between [$100,000]
and $200,000.

Notwithstanding its conclusion that there was relevant

conduct and that the net loss to the banks, if the relevant

conduct were considered, was between $100,000 and $200,000,

the district court sentenced Bennett only on the basis of the

loans for which he was charged, finding a net loss to the

banks of $0. It explained:

Here is what I'm going to have to
do, have it set up for a new trial.
In some types of cases relevant
conduct is appropriate. Loss under the
cases is not just mathematical, it's
intended loss. My judgment, based on
hearing this case, and the amount of
money that's been paid back by this
defendant, [is] that it was always his
intention to [re]pay the money. That

being so, there is no evidence in this

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record, in the trial or in anything

that's happened subsequent thereto,

that's going to allow me, in determining

the [e]lusive concept of cause,10
to

take into consideration loans which were

not subject to any criminal charge[;] nor

has anyone said that they were false in

any way.

So the first decision I'm making is
that I'm concerned with loss resulting
from criminal conduct, because that's all
that's really relevant to the sentencing
of this individual. That being so, it's
obvious that what was charged in this
case as criminal conduct was $900,000,
and that all of it, every cent, was paid
off prior to the initiation of any
criminal proceeding.

(emphasis and footnote added).

In light of the court's comments, we see little

merit in Bennett's insistence that the district court found,

as a matter of fact, that the Government did not establish by

a preponderance of the evidence that the uncharged loans

amounted to relevant conduct. Rather the court's message was

10. The parties dispute whether Judge Harrington said
"cause" or "loss." On June 3, 1994, counsel for the
defendant submitted the affidavit of Patricia A. Casey-Price,
the court stenographer, in which she indicated that Judge
Harrington had said "loss." However, in a June 9, 1994,
supplemental affidavit, filed by the Government, Ms. Casey-
Price said, "[After] listening to the magnetic audiotape of
the May 19, 1993[,] proceedings, I have confirmed that, on
May 19, 1993, Judge Harrington in fact used the word `cause,'
not the word `loss.'"
As we described, see supra note 9, the parties have not

followed the proper procedure for correcting the transcript.
See Fed. R. App. P. 10(e). In any event, we see nothing to

be gained by asking the district court to clarify the record.
Our decision is not influenced by whether Judge Harrington
said "cause" or "loss."

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that, no matter what the evidence, it was not going to "take

into consideration loans which were not subject to any

criminal charge[s]." Any possible doubt as to this

interpretation is removed by the court's finding that there

was relevant conduct, which, if considered, would result in a

net loss to the banks of between $100,000 and $200,000.

Because the court thought it unfair to consider relevant

conduct here, it sentenced Bennett only on the basis of the

loans for which he was charged and convicted, concluding that

the net loss to the banks from these was $0, and disregarding

the losses on other loans.

A sentencing court may not, however, simply

disregard relevant conduct. E.g., United States v. Restrepo,

946 F.2d 654, 655 (9th Cir. 1991) (accepting defendant's

argument that the Sentencing Guidelines severely reduce the

district court's sentencing discretion and require the court

to consider the sentencing effect of uncharged crimes), cert.

denied, U.S. , 112 S. Ct. 1564, 118 L. Ed. 2d 211

(1992); Lauren Greenwald, Relevant Conduct and the Impact of

the Preponderance Standard of Proof Under the Federal

Sentencing Guidelines: A Denial of Due Process, 18 Vt. L.

Rev. 529, 530 (1994) ("The guidelines altered the effect that

these aggravating factors had on sentencing by changing the

judge's consideration of relevant conduct from discretionary

to mandatory."); see United States v. Schaper, 903 F.2d 891,

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897-98 (2d Cir. 1990) (finding error in the district court's

refusal to consider amounts of narcotics that were not

charged in the indictment because "[t]he Sentencing

Guidelines clearly provide . . . that a sentencing court must

consider a defendant's involvement with quantities of

narcotics not charged in the count(s) of conviction when such

conduct was undertaken in the same course of conduct as the

offense of conviction"). Accordingly, we vacate the sentence

and remand for resentencing. On remand, the district court

shall include in the loss calculation the dollar amount of

any and all uncharged loans that constitute relevant conduct.

2. Deductions from the Loss

In calculating the loss to the banks, the district

court credited Bennett with, inter alia, the estimated value

of his February 1, 1991, settlement of the civil suit brought

against him by Plymouth Federal and Daniel Webster. The

Government assigns error, citing, U.S.S.G. 2F1.1, comment.

(n.7(b)) (Nov. 1, 1993):11

In fraudulent loan application cases and
contract procurement cases, the loss is

11. Application Note 7(b), in its present form, took effect
on November 1, 1992. Hence, it was not in the Guidelines
Manual used by the district court. Nevertheless, it is
appropriate to consider Note 7(b) because it represents a
clarification, not a substantive change, of the Sentencing
Guidelines. See U.S.S.G. App. C, amend. 470; U.S.S.G.

1B1.11(b)(2) ("[I]f a court applies an earlier edition of the
Guidelines Manual, the court shall consider subsequent
amendments, to the extent that such amendments are clarifying
rather than substantive changes.").

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the actual loss to the victim (or if the

loss has not yet come about, the expected
loss). For example, if a defendant

fraudulently obtains a loan by

misrepresenting the value of his assets,

the loss is the amount of the loan not

repaid at the time the offense is

discovered, reduced by the amount the

lending institution has recovered (or can

expect to recover) from any assets

pledged to secure the loan. However,

where the intended loss is greater than
the actual loss, the intended loss is to
be used.

(emphasis added). The Government contends that, in light of

Note 7(b), the district court, in calculating the actual loss

to the banks, could not credit Bennett with amounts repaid

after May 3, 1990, the date his offense was discovered.

Bennett counters that the district court properly considered

the amount of his settlement which came ten months before

he was indicted in calculating the banks' actual loss.

Bennett cites United States v. Gallegos, 975 F.2d 712 (10th

Cir. 1992), in which the Tenth Circuit said that a settlement

agreement entered into between the defendant and the victim

bank after the offense was discovered could "be viewed as an

offset." Id. at 712-13.

Notwithstanding the Tenth Circuit's decision,

Application Note 7(b) is binding on the federal courts.12

Stinson v. United States, U.S. , 113 S. Ct. 1913, 1915,

123 L. Ed. 2d 598 (1993) ("[C]ommentary in the Guidelines

12. The Tenth Circuit cited Application Note 7(b), but did
not discuss it.

-22-

Manual that interprets or explains a guideline is

authoritative unless it violates the Constitution or a

federal statute, or is inconsistent with, or a plainly

erroneous reading of, that guideline."). The parties agree

that Application Note 7(b) applies to "fraudulent loan

application cases and contract procurement cases . . . ."

Note 7(b) instructs how to calculate the actual loss in cases

where "a defendant fraudulently obtains a loan by

misrepresenting the value of his assets." Here, Bennett

fraudulently obtained line-of-credit advances by, among other

things, misrepresenting the existence and, a fortiori, the

value of residential mortgages. Accordingly, as Note 7(b)

goes on to describe, "[T]he loss is the amount of the loan

not repaid at the time the offense is discovered, reduced by

the amount the lending institution has recovered (or can

expect to recover) from any assets pledged to secure the

loan." Because the parties agree that the full extent of

Bennett's borrowing activity (i.e., his offenses) was

discovered on May 3, 1990, the district court erred in giving

Bennett credit for payments made after that date. It should

have calculated the "actual loss" to the victim banks as

follows:

1. The amount of the illegal loans
(i.e., those for which Bennett was

convicted),

plus

-23-

2. the amount of the loans constituting
relevant conduct,

less

3. the amount of the loans in 1 and 2
that Bennett had repaid as of May 3,
1990,

less

4. the amount the victim banks have
recovered (or can expect to recover) from
any assets pledged to secure the loans in
1 and 2.

This is the framework adopted by other courts of appeals that

have construed Application Note 7(b). E.g., United States v.

Jindra, 7 F.3d 113, 114 (8th Cir. 1993) (holding that, in

light of Application Note 7(b), the loss was the amount of

the loans outstanding when the offense was discovered because

the defendant did not pledge assets to secure the loans),

cert. denied, U.S. , 114 S. Ct. 888, 127 L. Ed. 2d 82

(1994); United States v. Menichino, 989 F.2d 438, 441 (11th

Cir. 1993) ("[I]n a loan application case involving

misrepresentation of assets, the loss is the amount of the

loan not repaid at the time the offense is discovered,

reduced by the amount the lender could recover from

collateral.").

B. Downward Adjustment for Acceptance of Responsibility

The Government contends that the district court

erred in granting Bennett a two-level downward adjustment in

his offense level pursuant to U.S.S.G. 3E1.1 because there

-24-

is nothing in the record to support its conclusion that

Bennett accepted responsibility for his criminal conduct.13

It insists that, from the time Bennett's crime was discovered

and through his sentencing hearing, Bennett never conceded

that he had engaged in bank fraud or expressed any remorse or

contrition for his conduct. Furthermore, the Government

submits that Bennett's settlement with Plymouth Federal and

Daniel Webster was not a "voluntary payment of restitution,"

U.S.S.G. 3E1.1, comment. (n.1(c)) (Nov. 1, 1993) (emphasis

added), that would entitle Bennett to a downward adjustment

in his offense level. Bennett responds that the district

court's decision was justified by his settlement offer and

13. Apparently, the district court adopted the presentence
report's recommendation when it awarded Bennett a two-point
reduction for acceptance of responsibility. That report, as
amended on November 1, 1992, said, inter alia:

On 2/1/91, prior to Bennett's indictment
on the instant offense, he entered into a
settlement agreement with the Plymouth
Federal Savings Bank in which a portion
of restitution was paid by the defendant.
The payment of restitution suggests that
the defendant has accepted responsibility
for his actions. Per [U.S.S.G. 3E1.1,
comment. (n.1(c)) (Nov. 1, 1993)], in
determining whether a defendant qualifies
for the acceptance of responsibility
reduction, appropriate considerations
include voluntary payment of restitution
prior to adjudication of guilt.
Considering the fact that restitution was
paid prior to the guilty verdict in the
instant matter, Bennett will be granted a
two-level reduction for acceptance of
responsibility.

-25-

eventual settlement with Plymouth Federal and Daniel Webster

prior to conviction, and by his demonstration of contrition

and remorse at the sentencing hearing. We cannot agree.

Although a district court's conclusion that a

defendant has accepted responsibility "is entitled to great

deference on review[,]" U.S.S.G. 3E1.1, comment. (n.5)

(Nov. 1, 1993); e.g., United States v. Royer, 895 F.2d 28, 29

(1st Cir. 1990) (describing "clearly erroneous" standard of

review), there must be some articulable basis or foundation

for it, e.g., United States v. Amos, 952 F.2d 992, 995 (8th

Cir. 1991), cert. denied, U.S. , 112 S. Ct. 1774, 118 L.

Ed. 2d 432 (1992). We find no such basis for the district

court's decision.

To begin with, U.S.S.G. 3E1.1 "is not intended to

apply to a defendant who puts the government to its burden of

proof at trial by denying the essential factual elements of

guilt, is convicted, and only then admits guilt and expresses

remorse."14 U.S.S.G. 3E1.1, comment. (n.2) (Nov. 1,

14. This version of Application Note 2 became effective on
November 1, 1990. Hence, it was not included in the November
1, 1988, Guidelines Manual used by the district court.
Application Note 2 in that manual read:

Conviction by trial does not preclude a
defendant from consideration under this
section. A defendant may manifest
sincere contrition even if he exercises
his constitutional right to a trial.
This may occur, for example, where a
defendant goes to trial to assert and
preserve issues that do not relate to

-26-

1993) (footnote not in original). Bennett pleaded not guilty

to all nine counts and denied "the essential factual elements

of [his] guilt." During his opening statement, Bennett's

counsel asserted and suggested, among other things, that (1)

there was nothing "out of the ordinary" about Bennett's

loans, (2) the lending banks were adequately secured, (3) the

slumping real estate market, not Bennett's conduct, caused

Plymouth Federal's losses, and (4) Bennett never had any

intent to defraud the banks. Bennett's counsel reiterated

this last point at the very end of his closing argument when

he said, "And I suggest no intent to defraud has been shown

beyond a reasonable doubt on this evidence."

After he was convicted, Bennett apologized to his

family and said that he accepted the verdict, but steadfastly

maintained that he had never intended to defraud the banks.

At the close of the sentencing hearing, Bennett told the

district court:

I just want to say . . . how sorry I
am to have been the force behind the
series of events that led to this trial
in February, to the sentencing hearing

factual guilt (e.g., to make a

constitutional challenge to a statute or
a challenge to the applicability of a
statute to his conduct).

See U.S.S.G. App. C, amend. 351. As we described, see supra

note 11, it is appropriate to consider the current
Application Note 2 because it constitutes a clarifying,
rather than a substantive, change. See U.S.S.G.

1B1.11(b)(2).

-27-

here in a criminal case. That I've put a
terrible burden on my wife and my
children and my mother and sisters and
the rest of my family who has supported
me through it. I never intended to . . .

defraud anybody. I never intended to

harm anybody.
I'm not here to fight the verdict, I

accept the verdict. I had simply

intended to try to build a couple of
houses, and at a time when it looked like
a good thing to do[ ]one to live in and
one to sell to make it an affordable
project. And when I, after having
discussed with the bank over a period of
six months for construction financing for
that project, and eventually being turned
down, or at least they failed to make the
loan to me, I responded poorly to it in
the way that I financed it.

(emphasis added). Even assuming the above was meant to

express remorse or contrition, Application Note 2 expressly

says that U.S.S.G. 3E1.1 is not intended to apply to a

defendant who challenges essential factual elements of guilt,

is convicted, and only then admits guilt and expresses

remorse.

This is not to say that by going to trial a

defendant necessarily loses his opportunity for a downward

adjustment under U.S.S.G. 3E1.1. Application Note 2 goes

on to state:

Conviction by trial . . . does not
automatically preclude a defendant from
consideration for such a reduction. In
rare situations a defendant may clearly

demonstrate an acceptance of

responsibility for his criminal conduct

even though he exercises his
constitutional right to a trial. This
may occur, for example, where a defendant

-28-

goes to trial to assert and preserve
issues that do not relate to factual
guilt (e.g., to make a constitutional

challenge to a statute or a challenge to
the applicability of a statute to his
conduct). In each such instance,
however, a determination that a defendant
has accepted responsibility will be based
primarily upon pre-trial statements and
conduct.

U.S.S.G. 3E1.1, comment. (n.2) (emphasis added). The

downward adjustment this commentary allows is reserved for

"rare situations" where a defendant who exercises his right

to trial may "clearly demonstrate" an acceptance of

responsibility for his criminal conduct. An example of such

a situation, described in Application Note 2, occurs "where a

defendant goes to trial to assert and preserve issues that do

not relate to factual guilt." This case does not fit within

that example. Bennett, it is true, made the somewhat

unattractive legal argument that 18 U.S.C. 1344 did not

apply to his conduct as any fraud allegedly committed by him

was a fraud upon the Daniel Webster Mortgage Company, which

was not a financial institution under the statute. But he

denied his factual guilt also. At closing, Bennett's counsel

argued:

Now the key position of the defense
in this case is that the vital element of
these charges, that the defendant must be
proved to have intentionally, with
criminal specific intent, attempted or
intended to defraud the banks. That's
the key that I'm going to suggest to you
by a review of the evidence and in
particular several of the exhibits,

-29-

that's the key where the government has
failed and that consequently the
defendant is entitled to an acquittal.

There are other "rare situations," not described in

Note 2, in which courts have allowed a downward adjustment

even though a defendant puts the Government to its burden of

proof at trial by denying the essential factual elements of

his guilt. E.g., United States v. McKinney, 15 F.3d 849,

852-855 (9th Cir. 1994) (holding "that, in appropriate

circumstances[,] the reduction is also available in cases in

which the defendant manifests genuine contrition for his acts

but nonetheless contests his factual guilt at trial[]").

Where a defendant exercises his right to trial, however, a

determination that he has clearly demonstrated acceptance of

responsibility for his criminal conduct "will be based

primarily upon pre-trial statements and conduct." U.S.S.G.

3E1.1, comment. (n.2). The issue then is whether Bennett, by

settling the lawsuit brought by Plymouth Federal and Daniel

Webster before trial, clearly showed that he had accepted

responsibility for his illegal activities. We think not.

Settling a pending lawsuit scarcely demonstrates

contrition. Nor does it indicate a "willingness to adhere to

political society's laws." United States v. Bean, 18 F.3d

1367, 1369 (7th Cir. 1994). In Bean, the defendant, Bill

Gene Bean, kited checks, totaling $75,000, "to cover a cash-

flow shortage in his recycling business." Id. at 1368. Bean

-30-

was charged with committing bank fraud in violation of 18

U.S.C. 1344. Over a period of two years before trial, Bean

repaid the $75,000. He then went to trial, denying that he

had intended to defraud a bank, and was convicted by a jury

as charged. In these circumstances, the Seventh Circuit

observed:

The Sentencing Guidelines permit a judge
to reduce the sentence for repayment
whether or not the defendant pleads
guilty to the charge. Application Note
1(c) to 3E1.1 lists "voluntary payment
of restitution prior to adjudication of
guilt" as an independent reason for a
two-level acceptance-of-responsibility
reduction. Bean repaid the bank before
the adjudication of guilt, and the
district court therefore was entitled to
award a reduction for acceptance of
responsibility even though Bean denied
guilt.

Bean, 18 F.2d at 1368.

Unlike Bean, Bennett paid restitution here as part

of the settlement of a civil lawsuit.15 We agree with the

Government that Bennett's payment by way of settlement was

not a "voluntary payment of restitution prior to adjudication

of guilt," U.S.S.G. 3E1.1, comment. (n.1(c)), that

15. Bennett indicates that a settlement offer he made to
Daniel Webster and Plymouth Federal in May 1990, before they
filed their civil suit, was rejected. Even if we accept this
assertion at face value, for purposes of acceptance of
responsibility under the Sentencing Guidelines, an offer to
pay restitution is not the same as actually paying it. See

U.S.S.G. 3E1.1, comment. (n.1(c)) (Nov. 1, 1993)
("voluntary payment of restitution prior to adjudication of

guilt").

-31-

justifies a reduction for acceptance of responsibility.

Under U.S.S.G. 3E1.1, the downward adjustment "must be

consistent with the attitude the Commission took toward

restitution, which is that restitution is relevant to the

extent it shows acceptance of responsibility." United States

v. Miller, 991 F.2d 552, 553 (9th Cir. 1993). Accordingly,

"the payment [must] have been genuinely voluntary, rather

than motivated primarily by a collateral consideration such

as a desire to settle the civil lawsuit [brought] by the

bank[s]." Id. (emphasis added).

We hold that the district court's decision to grant

Bennett a two-level reduction for acceptance of

responsibility was clearly erroneous16.

C. Use of the November 1, 1988, Guidelines Manual

16. Having stressed that post-trial acceptance of
responsibility is the exception and must normally be borne
out by pre-trial actions, we nevertheless do not intend to
establish any blanket rule; the guideline's own application
note leaves open the possibility of exceptions. But we do
think that unless some obvious basis is apparent from the
record, it may be difficult to uphold a reduction in cases
where the defendant went to trial, asserted his or her
innocence, and has nothing substantial in the way of pre-
trial conduct to show earlier acceptance of responsibility --
unless the district court is able to point to some persuasive

reason for this determination. Thus, even where there may
ordinarily be no special requirement for a statement of
reasons in making sentence determinations, cases like this
one may present situations in which an explanation by the
district court is as a practical matter essential to
establish that the guideline's rather stringent standards for
post-trial conversions have been satisfied.

-32-

Effective November 1, 1989, the loss table in

U.S.S.G. 2F1.1(b)(1) was amended. Among other things, the

amendment "increase[d] the offense levels for offenses with

larger losses to provide additional deterrence and better

reflect the seriousness of the conduct." U.S.S.G. App. C,

amend. 154. All of the line-of-credit advances that

corresponded with the nine counts of conviction were obtained

prior to the November 1, 1989, amendment to the loss table.

Consequently, when Bennett was sentenced in May 1993, there

was an issue as to whether using the version of the

Guidelines Manual then in effect (i.e., the November 1, 1992,

edition) which included the amended loss table would

violate the Ex Post Facto Clause of the United States

Constitution. U.S. Const. art. I, 9, cl. 3; see United

States v. Havener, 905 F.2d 3, 5 (1st Cir. 1990) ("[T]he

Constitution's [E]x [P]ost [F]acto [C]lause forbids the

application of any law or rule that increases punishment to

preexisting criminal conduct." (emphasis in original)). With

this concern in mind, the district court, pursuant to

U.S.S.G. 1B1.1117 and the presentence report's

17. U.S.S.G. 1B1.11 (Nov. 1, 1993) states in relevant
part:

(a) The court shall use the Guidelines
Manual in effect on the date that
the defendant is sentenced.

(b) (1) If the court determines that
use of the Guidelines Manual in

-33-

recommendation, employed the November 1, 1988, version of the

Guidelines Manual.

The Government complains of this decision. It

contends that using the November 1, 1992, Guidelines Manual

would not violate the Ex Post Facto Clause. According to the

Government, where a defendant engages in a series of offenses

comprising separate executions of a single scheme or plan,

and that scheme "straddles" the old law and the new law,

applying the new law does not violate the Constitution. The

Government maintains that each of the nine counts against

Bennett was a separate execution of a common scheme to

defraud the banks. It points out that certain activities

ancillary to one of the fraudulently induced loans, namely,

the loan of May 12, 1989, charged in Count 7, actually

occurred as late as April 1990. At this time, in an attempt

to conceal his borrowing activities, Bennett provided FDIC

examiners and Plymouth Federal employees with a doctored

mortgage and assignment that bore forged recording stamps.

Because of that conduct, the Government would have us view

the entire scheme to defraud, as reflected in all nine

effect on the date that the
defendant is sentenced would
violate the ex post facto

clause of the United States
Constitution, the court shall
use the Guidelines Manual in
effect on the date that the
offense of conviction was
committed.

-34-

counts, as continuing until at least April 1990, several

months after the November 1, 1989, amendment to the loss

table. We are not persuaded.

In rejecting the Government's argument, we are

guided by U.S.S.G. 1B1.11, comment. (n.2) (Nov. 1, 1993),

which states:

Under subsection (b)(1), the last date of
the offense of conviction is the
controlling date for ex post facto

purposes. For example, if the offense of
conviction (i.e., the conduct charged in

the count of the indictment or
information of which the defendant was
convicted) was determined by the court to
have been committed between October 15,
1991[,] and October 28, 1991, the date of
October 28, 1991[,] is the controlling
date for ex post facto purposes. This is

true even if the defendant's conduct

relevant to the determination of the

guideline range under 1B1.3 (Relevant

Conduct) included an act that occurred on

November 2, 1991 (after a revised

Guideline[s] Manual took effect).

(emphasis added). This Application Note requires district

courts to determine the last date of the offense of

conviction. In so doing, they must necessarily distinguish

"the conduct charged in the count of the indictment . . . of

which the defendant was convicted" from relevant conduct,

which is immaterial for ex post facto purposes, see U.S.S.G.

1B1.11, comment. (n.2).

The probation officer who prepared the presentence

report found that "the counts of conviction terminated on

10/2/89." She further concluded that Bennett's April 1990

-35-

acts of concealment, while relevant conduct, were not the

conduct charged in Count 7 of which Bennett was convicted.

The district court adopted these findings, which we think are

sound.

The indictment charged Bennett with nine counts of

bank fraud in violation of 18 U.S.C. 1344. Each count

corresponded with a different line-of-credit advance the

first on August 11, 1988, and the last on October 2, 1989.

The allegations in Count 7, which corresponded with the May

12, 1989, loan, were virtually identical to those of the

other counts. The only difference was that Count 7 did not

allege that Bennett had made false statements about the

identity of the borrower,18 and it included a paragraph,

not found in the other counts, which stated:

Created and caused to be created forms of
mortgage and assignment of mortgage for
Loan G, which documents indicated that
they had been duly recorded in the
Registry of Deeds for the County of
Plymouth, when in fact, as the defendant
then well knew, such documents had not
been recorded; and the defendant placed
and caused to be placed such false and
fraudulent documents in the lender loan
file for Loan G, where such documents had
the capacity to influence Plymouth
[Federal].

The Government argues that the above conduct, occurring in

April 1990, lengthens the last date of the offense of

18. The loan that corresponded with Count 7 differed from
the other charged loans in that it was the only one in which
Bennett used his real name. See chart, supra.

-36-

conviction until then. Our problem with this argument is

that the Government itself, in the prefatory section of the

indictment, alleged merely that defendant's obtaining of

illegal loans extended from August 1988 until October 1989.

In determining "the last date of the offense of conviction"

for ex post facto purposes and the Application Note, it is

only reasonable to hold the Government to its own alleged

dates. Count 7 alleged that Bennett knowingly executed, and

knowingly attempted to execute, a scheme and artifice to

defraud Plymouth Federal "in connection with a loan granted

on or about May 12, 1989." This was the focus of the illegal

activity charged in Count 7. While the deceptive activities

in April 1990 were unquestionably related to the charged

fraud, and fit well into the definition of "relevant conduct"

set out in U.S.S.G. 1B1.3, the date of relevant conduct is

not controlling for ex post facto purposes. We accept the

probation officer's view, impliedly adopted as a finding by

the district court, that Bennett's April 1990 chicanery was

relevant conduct, rather than an integral part of the offense

of conviction itself, the last date of the latter having been

October 2, 1989. We find no error in the district court's

decision to use the November 1, 1988, Guidelines Manual.

In this regard, the Government's reliance on United

States v. Regan, 989 F.2d 44 (1st Cir. 1993), is misplaced.

There, the defendant was charged with having committed 55

-37-

counts of embezzlement in violation of 18 U.S.C. 656

(1988). The conduct in the indictment of which the defendant

was convicted was expressly alleged to have run from November

1987 to July 16, 1991. Thus, some of the acts of

embezzlement charged in the indictment occurred after the

November 1, 1989, amendment to the relevant loss table in

U.S.S.G. 2B1.1(b)(1). Here, by contrast, the last alleged

date of the offense of conviction was October 2, 1989

prior to the November 1, 1989, amendment to the loss table in

U.S.S.G. 2F1.1(b)(1).

III.

Because the district court improperly calculated

the loss to the banks, and erroneously granted Bennett a

downward adjustment in his offense level for acceptance of

responsibility, we vacate the district court's sentencing

decision and remand for resentencing consistent with this

opinion. The district court's decision to use the November

1, 1988, Guidelines Manual is affirmed.

So ordered.

-38-