05-2516-cr(L), 05-3303*-cr(L), 05-6178*-cr(XAP)
USA v. Cutler
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 - - - - - -
4 August Term, 2006
5 (Argued: April 24, 2007 Decided: March 17, 2008)
6
7 Docket Nos. 05-2516(L), 05-3303*-cr(L), 05-6178-cr*(XAP)
8 _________________________________________________________
9 UNITED STATES OF AMERICA,
10 Appellant,
11 - v. -
12 JAMES CUTLER,
13 Defendant-Appellee.
14 UNITED STATES OF AMERICA,
15 Appellee-Cross-Appellant,
16 - v. -
17 SANFORD FREEDMAN,
18 Defendant-Appellant-Cross-
19 Appellee.
20 _________________________________________________________
21 Before: JACOBS, Chief Judge, KEARSE and POOLER, Circuit Judges.
22 Appeals by the United States challenging the sentences
23 imposed on the above defendants in the United States District Court
24 for the Southern District of New York, Loretta A. Preska, Judge,
25 following their convictions of, inter alia, bank fraud, tax
* Appeals by the government consolidated for purposes of this
opinion.
1 evasion, and false statements, and conspiracy to commit those
2 offenses and mail fraud, 18 U.S.C. §§ 371, 1014, 1341, 1344, and
3 1623, and 26 U.S.C. § 7201.
4 Vacated and remanded for resentencing.
5 Judge Pooler concurs in a separate opinion.
6 JUSTIN S. WEDDLE, Assistant United States
7 Attorney, New York, New York (Michael J.
8 Garcia, United States Attorney for the
9 Southern District of New York, Stanley J.
10 Okula, Jr., Peter G. Neiman, Assistant
11 United States Attorneys, New York, New
12 York, on the brief), for Appellant in No.
13 05-3303.
14 STANLEY J. OKULA, Jr., Assistant United
15 States Attorney, New York, New York
16 (Michael J. Garcia, United States Attorney
17 for the Southern District of New York,
18 Justin S. Weddle, Barbara A. Ward, Celeste
19 L. Koeleveld, Assistant United States
20 Attorneys, New York, New York, on the
21 brief), for Appellee-Cross-Appellant in
22 No. 05-6178.
23 WILLIAM J. SCHWARTZ, New York, New York
24 (Jason M. Koral, Kronish Lieb Weiner &
25 Hellman, New York, New York, on the
26 brief), for Defendant-Appellee James
27 Cutler in No. 05-3303.
28 AUDREY STRAUSS, New York, New York (Andrew
29 T. Gardner, Lisa H. Bebchick, Sloan S.
30 Johnston, Fried, Frank, Harris, Shriver &
31 Jacobson, New York, New York, on the
32 brief), for Defendant-Appellant-Cross-
33 Appellee Sanford Freedman in No. 05-6178.
34 KEARSE, Circuit Judge:
35 Defendants James Cutler and Sanford Freedman, following a
36 jury trial in the United States District Court for the Southern
37 District of New York, Loretta A. Preska, Judge, were convicted,
38 along with others, on various charges relating to extensive bank
39 frauds and tax frauds. Issues raised in an appeal by Freedman have
40 been dealt with in a summary order filed today, see United States v.
-2-
1 Freedman, Nos. 05-2516, -6068. This opinion deals with an appeal by
2 the government, No. 05-3303, challenging the sentence imposed on
3 Cutler, and a cross-appeal by the government, No. 05-6178,
4 challenging the sentence imposed on Freedman.
5 Cutler was convicted on one count of conspiracy to commit
6 bank fraud, in violation of 18 U.S.C. § 371; two counts of bank
7 fraud, in violation of 18 U.S.C. § 1344; one count of making false
8 statements, in violation of 18 U.S.C. § 1014; one count of tax fraud
9 conspiracy, in violation of 18 U.S.C. § 371; and two counts of tax
10 evasion, in violation of 26 U.S.C. § 7201. He was sentenced
11 principally to a prison term of one year and one day, to be followed
12 by five years' supervised release, and was ordered to pay
13 restitution in the amount of $29,775,000 and to forfeit $1,381,974.
14 Freedman was convicted on one count of conspiring, in violation of
15 18 U.S.C. § 371, to defraud financial institutions and the Internal
16 Revenue Service ("IRS") through false statements in violation of 18
17 U.S.C. § 1014, bank fraud in violation of 18 U.S.C. § 1344, and mail
18 fraud in violation of 18 U.S.C. § 1341; four counts of bank fraud,
19 in violation of 18 U.S.C. § 1344; six counts of making false
20 statements, in violation of 18 U.S.C. § 1014; and one count of
21 perjury, in violation of 18 U.S.C. § 1623. Freedman was sentenced
22 principally to a three-year term of probation and was ordered to
23 perform 700 hours of community service per year during the
24 probationary period, to pay restitution in the amount of
25 $14,600,000, and to forfeit $3,013,739.48.
26 The government contends that under the 1997 version of the
27 Sentencing Guidelines ("Guidelines"), which was applied to both
28 defendants, and to which reference is made throughout this opinion,
-3-
1 a proper sentencing calculation for Cutler would have resulted in a
2 recommended prison term in the range of 78-97 months. It contends
3 that the district court abused its discretion in granting downward
4 departures to reach a range of 12-18 months and that the prison term
5 imposed, one year and one day, was substantively unreasonable. As
6 to Freedman, the government contends that proper sentencing
7 calculations would have resulted in a Guidelines-recommended prison
8 term in the range of 108-135 months. The government contends that
9 the district court erred in certain Guidelines-application rulings
10 and abused its discretion in granting downward departures, and that
11 the sentence imposed--in failing to order a substantial term of
12 imprisonment--was substantively unreasonable. For the reasons that
13 follow, we vacate both sentences and remand for resentencing.
14 I. BACKGROUND
15 The prosecutions that are the focus of these appeals arose
16 out of the business and financial dealings in the early 1990s of
17 codefendants Stanley S. Tollman and Monty D. Hundley, hotel magnates
18 whose principal business organization in the 1980s, Tollman-Hundley
19 Hotels ("Tollman-Hundley"), owned a network of hotels, including the
20 Days Inn of America ("Days Inn") chain and more than 100 individual
21 hotels. Hundley was tried with Cutler, codefendant Howard Zukerman,
22 and Freedman and convicted on 28 counts relating to these matters.
23 Tollman left the United States just prior to his scheduled
24 arraignment in this case and remains a fugitive.
25 Cutler was Tollman-Hundley's chief financial officer.
-4-
1 Zukerman was vice president for finance. Freedman was Tollman-
2 Hundley's executive vice president for development and its general
3 counsel. Government exhibits ("GX") showed that Freedman also owned
4 various percentages (generally between 2.5 and 4.75 percent) of most
5 of the business entities owned by Tollman and Hundley. (See, e.g.,
6 GX 601 (Freedman's 1993 application for a Mississippi gaming
7 license); GX 601-B (Tollman's 1995 application for a Mississippi
8 gaming license).)
9 The evidence as to the principal events, taken in the
10 light most favorable to the government, is described below.
11 A. The $100 Million Bank Fraud Scheme
12 By the late 1980s, Tollman and Hundley each had an
13 estimated net worth of over $100 million, gained largely from the
14 Tollman-Hundley venture. Tollman and Hundley had financed the
15 growth of their hotel network by borrowing hundreds of millions of
16 dollars from banks and others. Although they usually borrowed the
17 money through limited liability entities, they also gave their
18 creditors personal guarantees.
19 In the early 1990s, many of the Tollman-Hundley properties
20 were unable to meet their debt service obligations, and a voluntary
21 restructuring of the debt ensued. Part of the restructuring
22 required Tollman and Hundley to sign deficiency notes instead of
23 guarantees. These notes made Tollman and Hundley personally
24 obligated to Tollman-Hundley creditors for much of its debt. (See
25 Trial Transcript ("Trial Tr.") at 4256 (contrasting guarantees,
26 which are obligations to pay "in case someone else doesn't," with
-5-
1 deficiency notes, which "[a]re direct obligations to pay").)
2 Ultimately, Tollman and Hundley emerged from the restructuring of
3 the Tollman-Hundley debt personally responsible for approximately
4 $100 million of the debt. Freedman participated in the negotiations
5 that led to this restructuring.
6 1. Coordination and Misrepresentations by Freedman
7 Also in the early 1990s, Tollman and Hundley negotiated an
8 agreement to sell key assets of Days Inn to Hospitality Franchise
9 Systems ("HFS" (now known as Cendant Corporation)), in exchange for
10 the right to receive a specified amount of HFS stock over a several-
11 year period if Days Inn franchises met certain financial targets
12 (the "earn-out agreement"). The performances of those franchises
13 ultimately resulted in Tollman and Hundley receiving HFS shares
14 worth "somewhat in excess of 100 million dollars." (Trial Tr. 3155;
15 see also GX 1504 (citing 16 other exhibits) showing net proceeds
16 totaling more than $107 million from the sales of the HFS stock
17 accruing to Tollman and Hundley.)
18 Due in large part to the more than $100 million in HFS
19 stock earn-out rights accruing to Tollman and Hundley during the
20 course of the earn-out agreement, Tollman and Hundley appeared to
21 have the capacity to pay off their approximately $100 million in
22 deficiency-note debts to the Tollman-Hundley creditors in full.
23 Instead, Tollman and Hundley planned to use the proceeds from their
24 HFS stock to fund a riverboat casino venture in Mississippi.
25 However, the large outstanding Tollman-Hundley debt, along with the
26 obligations of Tollman and Hundley on the deficiency notes (the
27 first payments on which were due on June 1, 1993), had the potential
-6-
1 to lay claim to $100 million of the proceeds from the HFS stock and
2 to cast a pall on their casino plans. Accordingly, Tollman and
3 Hundley embarked on a plan in early 1993, assisted principally by
4 Freedman, Zukerman, and Cutler, to induce the Tollman-Hundley
5 creditors to settle for far less than the balances due on the loans.
6 In the spring of 1993, the coconspirators did the
7 following. Tollman and Hundley assigned their rights under the HFS
8 earn-out agreement to Bryanston Group, Inc. ("Bryanston" or
9 "Bryanston Group"). Bryanston Group was owned principally by
10 Tollman and Hundley; Freedman owned 4.75 percent and was its
11 executive vice president. The assignment agreement was signed for
12 Bryanston by Freedman.
13 In addition, Tollman, Hundley, Zukerman, and Freedman
14 contacted Tollman-Hundley's creditors and represented that Tollman
15 and Hundley were having "great financial problems" (Trial Tr. 2071)
16 and would be unable to satisfy their deficiency-note obligations.
17 Richard Werner, a manager at Marine Midland Bank (now HSBC),
18 testified that beginning early in 1993, he had several discussions
19 on that subject, meeting principally with Zukerman and Freedman.
20 (See id. at 2068-69.) Zukerman told the bankers that the cash flow
21 from the hotels owned by Tollman-Hundley was insufficient to satisfy
22 all the debts and that Tollman-Hundley itself and Tollman and
23 Hundley individually would consider filing for bankruptcy if they
24 were not able to get all the creditor banks to enter into repayment
25 agreements; Zukerman said they "were in deep financial trouble."
26 (Id. at 2071.)
27 Freedman, "[i]n those conversations and throughout those
28 conversation[s], . . . made other comments in support of those
-7-
1 claims about the[] financial distress [of Tollman and Hundley]."
2 (Id. at 2072.) Werner testified that Freedman "made statements in
3 support of they don't have the financial wherewithal to meet these
4 obligations." (Id.)
5 Contemporaneously with these representations, in
6 connection with their casino plans, Tollman, Hundley, and Freedman
7 were submitting applications to the Mississippi Gaming Commission
8 (or "Gaming Commission") for gaming licenses. Each application
9 attached a schedule ("D Schedule") listing the applicant's business
10 assets and showing, inter alia, the name of the asset, its market
11 value, the names of the other investors in each asset, and the
12 market value of each investor's interest in the asset. Freedman's
13 D Schedule showed that the total market value of his own interests
14 in these assets was $3,224,805; it also showed the total market
15 values of Tollman's interests, $34,477,181, and Hundley's interests,
16 $37,183,441. (See GX 601.) The D Schedules attached to the
17 applications of Tollman and Hundley were identical to that of
18 Freedman. (See GX 601-B, 601-E.)
19 In addition to contacting Tollman-Hundley creditors and
20 telling them that Tollman and Hundley were in deep financial
21 trouble, Tollman and Hundley enlisted the aid of unindicted
22 coconspirator James Cohen, who was to be an investor in the
23 riverboat casino venture, to approach some of the creditor banks and
24 offer to buy their Tollman-Hundley loans at steeply discounted
25 prices. Hundley and Freedman instructed Cohen to conceal his
26 relationship with Tollman and Hundley and to tell the banks instead
27 that he represented an off-shore investor that wanted to do business
28 with Tollman-Hundley and wanted to own the Tollman-Hundley debts,
-8-
1 but that the interested investor would not be willing, in light of
2 the (supposed) financial straits of Tollman and Hundley, to pay more
3 than pennies on the dollar to purchase those debts. Freedman gave
4 Cohen a list of banks to contact, showing the maximum amounts for
5 which they hoped to persuade the banks to settle, to wit, 20 percent
6 or less of the outstanding balances. Cohen was instructed on what
7 to say, in the conversations with the banks, by Hundley and
8 Freedman. (See Trial Tr. 3736-39.) During the period of his
9 negotiations, Cohen made progress reports to Freedman and continued
10 to receive general overall instructions from Tollman, Hundley, and
11 Freedman. (See, e.g., id. at 3751.)
12 There was, however, no independent interested off-shore
13 investor. In order to provide the purchaser supposedly represented
14 by Cohen, Freedman had Tollman-Hundley's outside counsel incorporate
15 two companies, Paternoster Second Holdings Inc. ("Paternoster") and
16 Chelsea Acquisitions Inc. ("Chelsea"), that Cohen would say were
17 controlled by the foreign investor. These companies were in fact
18 controlled by Tollman and Hundley, their expenditures being funded
19 by Bryanston (see GX 1506 ("Debt Purchases by Paternoster/Chelsea
20 Funded by Bryanston")), which was owned by Tollman, Hundley, and
21 Freedman. Nonetheless, when Chemical Bank made its willingness to
22 sell certain of its Tollman-Hundley loans to Chelsea contingent on
23 the receipt of assurances that Chelsea was not owned or controlled
24 by Tollman or Hundley, Freedman sent the bank a letter stating that
25 the assurances were enclosed; he enclosed a letter signed by Tollman
26 and Hundley "certify[ing] to Chemical Bank that neither [Tollman nor
27 Hundley] owns any legal or beneficial interest, directly or
28 indirectly, in [Chelsea]." (GX CH-9 (Letter from Freedman to Thomas
-9-
1 H. Kozlark, Vice President, Chemical Bank, dated May 23, 1994,
2 attaching May 12, 1994 letter signed by Tollman and Hundley).)
3 Tollman and Hundley recruited others, including relatives
4 of Tollman who had surnames other than Tollman, to pose as officers
5 of Paternoster and Chelsea and to sign documents for those
6 companies. For example, Leon Smith, Tollman's nephew by marriage,
7 testified that he signed Paternoster contracts at the request of
8 Freedman and signed Paternoster tax returns at the request of
9 Cutler. Smith had never invested in Paternoster and did not know
10 the names of its investors; he had never received any money from
11 Paternoster and did not know the name of anyone who had; he did not
12 "know of any telephone number that anybody could dial in the 1990s
13 where somebody would have answered 'Paternoster.'" (Trial Tr. 2613-
14 14.)
15 When banks eventually agreed with Cohen to sell their
16 Tollman-Hundley debts, some were paid from escrow accounts held by
17 Tollman-Hundley's outside counsel that had ostensibly been funded by
18 Paternoster or Chelsea. (See GX 1506-A to 1506-D (charts listing
19 the various transactions).) The funds had in fact come largely from
20 Bryanston Group, to which Tollman and Hundley had assigned the
21 lucrative HFS stock rights. (See GX 1506 (chart showing amounts
22 paid for Tollman-Hundley debt from Bryanston accounts).)
23 The banks contacted by Cohen were not immediately
24 persuaded to sell their Tollman-Hundley loans cheaply. For example,
25 a representative of First National Bank of Chicago ("First Chicago")
26 with whom Cohen had negotiated (see Trial Tr. 3748) stopped by
27 Cohen's office in New York to "make sure [Cohen] existed" (id. at
28 3749) and expressed concern that Cohen might be seeking to purchase
- 10 -
1 the loans for Tollman or Hundley (see id.). Cohen gave his
2 assurance, as instructed by Hundley and Freedman, that this was not
3 the case. First Chicago was eventually persuaded to sell its
4 Tollman-Hundley loans, the balances on which totaled approximately
5 $4.5 million, to Cohen for $1.25 million, selling them to a company
6 that Cohen testified he had set up for "[f]raudulent transactions"
7 (id. at 3752). Although the agreement with First Chicago recited
8 that Cohen had no agreement to resell the Tollman-Hundley loans to
9 any entity controlled by Tollman or Hundley, Cohen purchased the
10 loans with the understanding that they would be repurchased by
11 Tollman and Hundley, having received that understanding from
12 Tollman, Hundley, and Freedman. (See, e.g., id. at 3752-54.)
13 Paternoster later purchased those loans from Cohen's company, paying
14 Cohen $1.25 million plus interest. (See id. at 3755-57.)
15 On another occasion, Cohen was able to reach a deal in
16 which his sham foreign investor was to purchase certain of Chemical
17 Bank's Tollman-Hundley loans, whose balances totaled $21.7 million,
18 for 10 percent of that sum. Cohen called Freedman to find out
19 whether Cohen would be expected to advance the $2.17 million.
20 Freedman immediately responded that Cohen "didn't need to worry
21 about it. It was taken care of." (Id. at 3762-63.)
22 The banks repeatedly sought personal financial information
23 from Tollman and Hundley themselves as to their ability to pay the
24 deficiency notes. Marine Midland, for example, owning Tollman-
25 Hundley loans whose balances totaled some $12.5 million, asked
26 Zukerman and Freedman to provide written financial statements for
27 Tollman and Hundley individually, such as balance sheets, tax
28 returns, and forecasts of future income and cash flow. At times,
- 11 -
1 Marine Midland was told that information was not available; at other
2 times it received documents that were many inches thick but
3 contained no meaningful information. (See, e.g., id. at 2073,
4 2102.) Marine Midland eventually sold its loans to Paternoster for
5 $1.75 million.
6 2. Misrepresentations by Cutler
7 For creditors who remained unsatisfied by the documents
8 provided by Tollman and Hundley through Zukerman and Freedman,
9 misinformation was sent by Cutler, Tollman-Hundley's chief financial
10 officer. For example, in January 1995, Cutler sent Wells Fargo Bank
11 ("Wells Fargo") financial statements for Tollman and Hundley "dated
12 as of December 31, 1992," which Cutler represented were "the most
13 recently prepared" financial statements. (GX WF-6 (Letter from
14 Cutler to Christine Rotter, Vice President/Manager, Wells Fargo
15 Bank, and Michael Sherrow, Eastdil Realty, Inc., dated January 26,
16 1995, at 1).) These 1992 statements were not in fact Tollman's and
17 Hundley's most recent financial statements; in 1993, Tollman and
18 Hundley had submitted to the Mississippi Gaming Commission personal
19 financial statements as of March 31, 1993, which also showed the
20 anticipated value of Bryanston as of May 31, 1993. The statements
21 that Cutler sent to Wells Fargo in January 1995 contained an entry
22 for Bryanston--but only under its former name, "Buckhead"--and the
23 Buckhead entry did not include the value of the HFS stock, nearly
24 $45 million of which had been received by mid-February 1994.
25 In August and September 1995, Cutler provided disparate
26 financial information to three banks and to the Mississippi Gaming
27 Commission. During that period, he was meeting with and giving
- 12 -
1 financial information to the Financial Evaluator for the Mississippi
2 Gaming Commission in support of Tollman's July 31, 1995 application
3 for a Mississippi gaming license. On August 18, 1995, Cutler sent
4 a letter to the Gaming Commission enclosing numerous schedules "[a]s
5 a follow-up" to supplement and correct Tollman's application,
6 including recent financial statements of Bryanston. (GX 1014-A
7 (Letter from Cutler to James M. Prewitt, Financial Evaluator,
8 Mississippi Gaming Commission, dated August 18, 1995).) Tollman's
9 application stated that the value of his stock in Bryanston was
10 $21,135,746 (see GX 601-B, Schedule C); his Summary Financial
11 Questionnaire (see GX 601-B, at 2) stated that his net worth was
12 $27,371,230.
13 Contemporaneously, Cutler sent letters to two of the
14 creditor banks stating that he was "[e]nclos[ing] . . . the latest
15 information on the financial condition of Stanley S. Tollman and
16 Monty D. Hundley." (E.g., GX CH-14 (Letter from Cutler to Thomas
17 Kozlark, Chemical Bank, dated August 18, 1995); GX WF-9 (Letter from
18 Cutler to Dale Christiansen, Wells Fargo Bank, dated September 27,
19 1995).) A similar letter was sent to Bank of America. Attached to
20 Cutler's letters to the banks were financial schedules that
21 supposedly summarized the business interests, personal assets, and
22 obligations of Tollman and Hundley. Those schedules represented
23 that Tollman and Hundley, respectively, had personal assets, as of
24 July 31, 1995, of little more than $125,000 and $80,000.
25 The schedules that Cutler sent to the banks did not
26 mention the HFS stock or the ownership interests of Tollman and
27 Hundley in Bryanston; nor did Cutler's letters mention the HFS stock
28 or Bryanston. Further, in purporting to show other outstanding
- 13 -
1 debts of Tollman and Hundley, with which the debts of each creditor
2 bank would ostensibly be competing for collection, the documents
3 sent by Cutler to the banks identified most of the current note
4 holders as Paternoster or Chelsea--which, of course, unbeknownst to
5 the banks, Tollman and Hundley owned. (See, e.g., GX WF-9 (Letter
6 from Cutler to Dale Christiansen, Wells Fargo Bank, dated September
7 27, 1995 (unpaginated attachments)).)
8 Government exhibits listing the assets that were held in
9 the name of Tollman or Hundley as of July 31, 1995, but not included
10 on the schedules that Cutler sent to the banks, showed that as to
11 Tollman, the "total value of assets not listed" was $31,592,019
12 (GX 1501 (emphasis in original)), and that as to Hundley, the "total
13 value of assets not listed" was $25,640,795 (GX 1500 (emphasis in
14 original)). Tollman and Hundley each had an interest in Bryanston
15 alone worth more than $21 million. (See GX 1500, 1501.)
16 During the course of his participation in the bank frauds,
17 Cutler received more than $900,000 in salary (see GX JD-7), which
18 the district court ultimately found was compensation for his
19 participation in those frauds (see Cutler Sentencing Transcript
20 ("Cutler S.Tr.") 106, 113). As additional compensation, Tollman and
21 Hundley gave Cutler the right to purchase stock in the casino
22 venture worth some $400,000. (See GX 54; Trial Tr. 6664-65.)
23 The trial with respect to the above conduct resulted in,
24 inter alia, (1) the convictions of Cutler and Freedman (along with
25 Hundley and Zukerman) for conspiracy to commit bank fraud; (2) the
26 conviction of Freedman on four substantive counts of bank fraud and
27 six counts of making false statements to federally insured banks for
28 purposes of influencing their decisions with respect to selling the
- 14 -
1 Tollman-Hundley loans; and (3) the conviction of Cutler on two
2 substantive counts of bank fraud and one count of making a false
3 statement to a federally insured bank.
4 In addition, Freedman had given deposition testimony under
5 oath in a bankruptcy proceeding in which Paternoster had filed a
6 claim. When questioned with respect to Tollman-Hundley debt that
7 Paternoster had purchased, Freedman testified, inter alia, that he
8 had no idea whether Paternoster had ever collected anything on that
9 debt and that Tollman and Hundley had expressed "concern . . . that
10 that debt has to be paid." (GX EM-5X.) Having initiated the
11 creation of Paternoster on behalf of Tollman and Hundley and
12 overseen Paternoster's purchases of Tollman-Hundley notes precisely
13 to avoid having Tollman and Hundley called on to pay their
14 deficiency notes, Freedman was convicted of perjury.
15 B. The $29 Million Tax Frauds
16 In addition to the above bank frauds, there were tax
17 frauds. Cutler, as Tollman-Hundley's chief financial officer, was
18 responsible for the tax reporting of Tollman-Hundley and the
19 entities it comprised. For nearly a decade, Cutler caused the
20 salaries of the senior leaders of Tollman-Hundley and certain of
21 their aides to be paid in ways that were designed to evade proper
22 taxation. For example, instead of being generated by a payroll
23 service, as was the case with respect to most Tollman-Hundley
24 employees, salary checks to these top employees were handwritten by
25 someone who reported directly to Cutler; they were drawn on accounts
26 of entities whose records were not sent to the payroll service; and
27 on orders from Cutler, those entities did not report those salary
- 15 -
1 payments to the IRS. Further, salaries were frequently paid in a
2 form--such as car payments or insurance premiums--that disguised the
3 fact that they were salary; these payments too went unreported to
4 the IRS. In addition, some salary payments were simply misdescribed
5 as nontaxable reimbursement for expenses. This system, overseen by
6 Cutler with respect to more than a dozen employees, resulted in the
7 Tollman-Hundley entities' failure to report more than $29 million of
8 the employees' earned income.
9 Cutler himself took advantage of the system he oversaw by
10 causing tens of thousands of dollars paid to him each year not to be
11 reported to the IRS. For example, he had Tollman-Hundley pay a
12 portion of his salary indirectly by making rent payments directly to
13 his landlord. And on his own tax returns he underreported his
14 income. During one seven-year stretch, Cutler understated his
15 income by a total of more than $236,000.
16 In connection with these acts, Cutler was convicted on one
17 count of conspiracy to commit tax fraud and two counts of tax
18 evasion (collectively the "tax frauds").
19 C. The Sentences
20 The Probation Department prepared a presentence report
21 ("PSR") on each defendant. The PSRs calculated the total losses
22 from the bank fraud conspiracy by subtracting the amounts for which
23 the banks sold the Tollman-Hundley loans from the balances on those
24 loans. The losses totaled more than $106 million.
25 Accordingly, the PSRs for both Cutler and Freedman began
26 with a base offense level of 6 pursuant to Guidelines § 2F1.1,
27 applicable to offenses involving "[f]raud and [d]eceit," and
- 16 -
1 recommended that that level be increased by 18 steps because the
2 loss exceeded $80,000,000, see Guidelines § 2F1.1(b)(1)(S). The
3 PSRs also recommended an additional two-step increase in offense
4 level because "the offense involved . . . more than minimal
5 planning," Guidelines § 2F1.1(b)(2)(A). Thus, the initial
6 enhancements for Cutler and Freedman resulted in an offense level
7 of 26.
8 Additional distinct adjustments were recommended for each
9 defendant.
10 1. Cutler
11 With respect to Cutler's conviction on one count of
12 conspiracy to commit tax fraud and two substantive counts of tax
13 evasion, the PSR calculated an offense level of 22 pursuant to
14 Guidelines §§ 2T1.1 and 2T4.1, based on a federal tax loss of more
15 than $5 million. Combining, pursuant to Guidelines § 3D1.4, the
16 offense levels for Cutler's bank frauds (26) and his tax frauds
17 (22), the PSR recommended a combined total offense level of 28. As
18 Cutler had no known criminal convictions, his criminal history
19 category was I. Thus, with an offense level of 28, his Guidelines-
20 recommended range of imprisonment was 78-97 months.
21 Although noting that Cutler apparently had been motivated
22 by monetary gain and that his participation was critical to the
23 success of the frauds, the PSR recommended that the court impose a
24 prison term of only 60 months. It stated the probation officer's
25 belief that 78 months of imprisonment would cause undue hardship to
26 Cutler's three children (who lived with his ex-wife), to whose
27 support he contributed a total of $1,900 per month, and would
- 17 -
1 slightly overstate the level of his culpability in the offense.
2 Cutler challenged the PSR's offense-level calculation on
3 the ground that it overstated the bank fraud losses and that the PSR
4 failed to find that he had played a minor role in the bank frauds;
5 and he moved for downward departures on grounds relating to the
6 nature of his participation in the frauds and his family
7 circumstances. As to the amount of loss, Cutler argued that the
8 PSR's calculation was erroneous because parts of the bank debts were
9 nonrecourse, and hence uncollectible against Tollman and Hundley
10 individually; thus, Tollman and Hundley could have repaid the
11 recourse portions of the debts and the banks would have lost the
12 remainder even in the absence of the frauds. Cutler argued that the
13 losses caused by the frauds thus totaled only between $40 million
14 and $80 million, rather than in excess of $80 million, and therefore
15 that the offense-level enhancement for amount of loss should have
16 been 17 steps rather than 18 steps. The court quickly rejected that
17 contention, finding that the amounts of loss caused by the frauds
18 were the differences between the loan balances and the amounts the
19 banks received.
20 As to his participation in the bank frauds, Cutler
21 contended that the PSR should have recommended a downward adjustment
22 in offense level pursuant to Guidelines § 3B1.2(b), on the basis
23 that he played only a minor role. The court also rejected this
24 contention, finding "a downward adjustment for role in the offense"
25 inappropriate "because of the criticality of Mr. Cutler's role in
26 the success of what we have been calling the money lie." (Cutler
27 S.Tr. 29.) The court thus "conclude[d] that a total offense level
28 of 28 is appropriate." (Id. at 30.)
- 18 -
1 Cutler moved for a downward departure pursuant to
2 Guidelines § 2F1.1, arguing that he performed only a few fraudulent
3 acts and that his personal gain was minimal, and hence that the
4 magnitude of the loss overstated his role and culpability in, and
5 his gain from, the offense. See generally id. Application Note 10
6 ("In a few instances, the loss determined under subsection (b)(1)
7 may overstate the seriousness of the offense. This may occur, for
8 example, where a defendant attempted to negotiate an instrument that
9 was so obviously fraudulent that no one would seriously consider
10 honoring it. In such cases, a downward departure may be
11 warranted."). Cutler also moved for a departure pursuant to
12 Guidelines § 5H1.6 (Policy Statement), arguing that he had
13 "extraordinary family circumstances" (Cutler S.Tr. 30), to wit,
14 three children to whose support he would not be able to contribute
15 if he were in prison.
16 In opposition to these requests, the government pointed
17 out, inter alia, that Cutler had derived substantial benefits from
18 the offense in the form of stock and inflated salary; that, even if
19 he had not, a lack of personal profit is not ordinarily a ground for
20 departure; and that Cutler's lesser interest in the bank fraud
21 offenses, in comparison to that of Hundley, was reflected in the
22 fact that the Guidelines-recommended range of imprisonment for
23 Hundley was twice that recommended for Cutler. The government also
24 argued that a defendant's inability, while incarcerated, to support
25 his dependents did not ordinarily provide a ground for departure and
26 that, in addition, Cutler had artificially created his inability to
27 support his children. It stated that Cutler had sold some of the
28 proceeds of the bank fraud, to wit, his shares in the casino
- 19 -
1 venture, and used those proceeds to buy property in Nevada; however,
2 he did not keep that property in his own name but rather put it in
3 his current wife's name, out of the reach of his creditors, his ex-
4 wife, and his children.
5 The district court granted Cutler's departure motion on
6 both grounds, reducing his offense level by a total of 15 steps.
7 First, the court departed downward by six levels, from 28 to 22, on
8 the ground that the offense level calculated on the basis of the
9 loss to the banks overstated the seriousness of Cutler's role,
10 conduct, and offense:
11 With respect to the application for departure
12 on the ground that level 28 overstates the
13 seriousness of Mr. Cutler's role in the bank fraud
14 conspiracy, that application is granted.
15 This is, in my view, analogous to the Court of
16 Appeals decision in United States v. Restrepo in
17 which the court noted that "the [sentencing]
18 commission apparently contemplated some connection
19 between the quantity of money implicated and the
20 extent of a defendant's participation in the
21 offense." 936 F.2d 661, [667] (2d Cir. 1991)[,]
22 and, indeed, it appears that the commission so
23 contemplated that relationship.
24 Here, however that relationship does not exist,
25 in my view, to an extent not contemplated by the
26 commission.
27 Here, Mr. Cutler's communications, including
28 those set out by the government today during
29 sentencing, although they were necessary to the
30 scheme, were a small part of the scheme and he
31 received little, if any, personal gain from the bank
32 fraud scheme.
33 Without reviewing it in detail, if the huge
34 amount of money involved in the bank fraud scheme
35 were reduced to a level more consistent with the
36 seriousness of Mr. Cutler's offense, the offense
37 level would likely be at or about 22. So the
38 request for a downward departure on the ground that
39 the seriousness of Mr. Cutler's conduct is
40 overstated by the offense level is granted.
- 20 -
1 (Cutler S.Tr. 97-98 (emphases added).)
2 From level 22, with respect to both the bank fraud counts
3 and the tax counts, the court departed downward nine levels for
4 family circumstances that the court found to be extraordinary. (See
5 id. at 98-100, 122.) The district court "acknowledge[d] that that
6 is a disfavored basis for a departure" (id. at 98), but it concluded
7 nevertheless I believe in this case it has been
8 demonstrated that the extraordinary circumstances
9 present are of a kind and to a degree not taken into
10 account by the guidelines.
11 Here, as we have discussed, Mr. Cutler has
12 three children, one of whom has finished,
13 apparently, two years in college. The children's
14 ages are 20, 14 and 11.
15 Mr. Cutler has been ordered to pay child
16 support and has in fact paid that support over time.
17 As I understand it from the presentence report,
18 other costs of those children have been paid by Mr.
19 Cutler or he has caused them to be paid, including
20 costs of visits with him.
21 As we also know from the presentence report and
22 from counsel's submissions, the children's mother
23 makes approximately $25,000 a year as a school bus
24 driver. And in her letter [she] pointed out that
25 the child support payments pay the rent and
26 otherwise allow the children who remain in lower and
27 secondary school to remain in the public school
28 system in which they have been brought up in.
29 The former Mrs. Cutler also writes that,
30 without the support that Mr. Cutler provides, the
31 children would have to be taken out of the Somers
32 School System and the college student would be
33 prevented from returning to college and, in all
34 likelihood, the entire family would have to move in
35 with Mrs. Cutler's sister in Georgia.
36 At this particularly vulnerable time in those
37 children's educational and emotional development, it
38 seems that that is an extraordinary price to pay.
39 I also find that a lengthy prison sentence
40 would prevent Mr. Cutler from making the required
41 payments, whether because child support payments
42 would be excused in New York, which I don't know and
43 do not rely on, or whether he just plain would not
- 21 -
1 be able to make them.
2 For those reasons, I find that a downward
3 departure on the basis of extraordinary family
4 circumstances is appropriate.
5 . . . .
6 . . . I think that the appropriate departure is
7 to a level 13 under the guidelines.
8 (Id. at 98-100.)
9 The court then turned to the sentencing factors set out in
10 18 U.S.C. § 3553(a). It stated that
11 with respect to the nature and circumstances of the
12 offense, I take into account that Mr. Cutler was the
13 chief financial officer of the company with respect
14 to the bank fraud conspiracy, and I take into
15 account his responsibility for the tax documents of
16 the company with respect to the tax fraud
17 conspiracy.
18 I note, however, that, in addition, I have
19 defined [sic - declined] a further reduction in
20 offense level based on Mr. Cutler's role in the
21 offense.
22 Taking into account, however, the nature and
23 circumstances of the offense under Section
24 [3553](a)(1), I do note, however, that the degree of
25 culpability of Mr. Cutler is far less than the
26 degree of culpability of other defendants. His role
27 in the offense was far more limited than the role of
28 other defendants and, as I mentioned, although
29 necessary to the offense, far more limited.
30 I also take into account that . . . [Cutler]
31 received little, if any, direct compensation as a
32 result of it and relative to the $106 million
33 amount, a relatively small amount of compensation
34 indirectly as a result of the bank fraud conspiracy.
35 For those reasons, the nature and circumstances
36 of the offense dictate a lower sentence than is
37 required by the guidelines.
38 (Cutler S.Tr. 101-02.)
39 The court later clarified that these statements with
40 respect to Cutler's role and culpability related only to the bank
- 22 -
1 fraud counts and that the court did "not" find that the offense
2 level of 22 "overstat[ed] the seriousness" of Cutler's tax offenses.
3 (See id. at 121-22.) The court ruled that "[t]o the extent that
4 there was departure application with regard to that offense level,
5 it is denied." (Id. at 121.)
6 With respect to 18 U.S.C. § 3553(a)(2)(B), which requires
7 the sentencing court to consider "the need for the sentence imposed
8 . . . to afford adequate deterrence to criminal conduct," the
9 district court stated,
10 some jail time is required to provide adequate
11 deterrence to this type of criminal conduct. With
12 respect to this type of an offense, however, the
13 relative length of the sentence does not seem to be
14 as important in providing deterrence.
15 (Cutler S.Tr. 102.) The court also cited "the need to provide
16 restitution" and stated that "in that respect, as with Mr. Cutler's
17 family obligations, a lesser rather than greater custodial sentence
18 is required." (Id. at 103.)
19 The Guidelines-recommended range of imprisonment for an
20 offense level of 13 (the level resulting from the granted
21 departures) and a criminal history category of I is 12-18 months.
22 The district court sentenced Cutler to a prison term of 12 months
23 and one day, to be followed by a five-year term of supervised
24 release. (Id. at 103.) In response to a question from the
25 government, the court stated that even if the Guidelines departures
26 it had granted were found inappropriate as a matter of law on
27 appeal, it would still sentence Cutler to the year-and-a-day term of
28 imprisonment by imposing a non-Guidelines sentence and applying the
29 § 3553(a) factors. (See id. at 123.)
- 23 -
1 2. Freedman
2 The PSR on Freedman, after the initial offense-level
3 increases discussed above, i.e., 18 steps for amount of loss and two
4 steps for more than minimal planning, leading to an enhanced offense
5 level of 26, recommended additional increases, including, as
6 discussed in Part II.C.1. below, a two-step increase pursuant to
7 Guidelines § 3C1.1 on the ground that Freedman had engaged in
8 obstruction of justice by making false statements to IRS
9 investigators in connection with its investigation of the tax
10 frauds. With all of the recommended increases, the PSR calculated
11 that Freedman's total offense level was 31. Given an offense level
12 of 31 and a criminal history category of I, the Guidelines-
13 recommended imprisonment range for Freedman would be 108-135 months.
14 Freedman principally challenged the recommended loss-
15 amount enhancement to his offense level, and he moved for downward
16 departures on several grounds. In challenging the loss-amount
17 enhancement, Freedman made essentially the same arguments as Cutler
18 for exclusion of the nonrecourse parts of the loans, contending that
19 the loss figure should be only $40-$80 million, with a resulting 17-
20 step, rather than 18-step, increase. The government opposed these
21 contentions on the same grounds on which it had opposed the
22 arguments when made by Cutler.
23 The district court rejected Freedman's contention that the
24 loss-amount, for purposes of calculating his offense level, should
25 have included only the recourse part of the Tollman-Hundley debts.
26 (See Freedman Sentencing Transcript ("Freedman S.Tr.") 53, 56; see
27 also id. at 54 (accepting the PSR-recommended adjustment for more
28 than minimal planning).) However, the court stated that "the
- 24 -
1 $100 million amount with respect to those defendants other than Mr.
2 Hundley, and that, of course, means Mr. Freedman, substantially
3 overstates the amount with the culpability of these defendants" and
4 "overstates [Freedman]'s participation in the offense." (Id. at
5 53.) "[A]ccordingly," the court stated, "whether it's 18, as I
6 accept, . . . or 17 as proposed by the defendants--[it] wildly
7 overstates the culpability of the defendant." (Id.) The court
8 "note[d] in particular that under Restr[e]po, the loss amount is in
9 general thought to be . . . somewhat related to the gain to the
10 defendant," and stated, "[h]ere, of course, we know that they are
11 wildly disparate." (Id.) The court indicated that it would deal
12 with the "vast[] overstate[ment of] this defendant's culpability in
13 the offense" by way of a departure. (Id. at 56.)
14 Freedman made several applications for downward
15 departures. In addition to moving for a departure pursuant to
16 Guidelines § 2F1.1 Application Note 10 based on the argument that
17 the loss amount greatly overstated his culpability in the offense,
18 he sought a departure pursuant to § 5H1.6 for extraordinary family
19 circumstances, arguing that his relationships with his elderly,
20 mentally retarded brother who has cerebral palsy and with his
21 elderly mother-in-law were so important to his family members' well-
22 being that they merited a departure from the Guidelines. Freedman
23 also sought a departure for health circumstances pursuant to
24 Guidelines § 5H1.4 (Policy Statement), due to a serious heart
25 condition (along with attendant maladies) and depression.
26 The government opposed all of Freedman's departure
27 requests. As to the contention that the loss amount overstated
28 Freedman's culpability, the government argued, inter alia, that
- 25 -
1 Freedman had benefited substantially from the frauds and that his
2 role was extensive and significant. With respect to Freedman's
3 family circumstances, the government pointed out that Freedman is
4 not the primary care-giver with respect to either his brother or his
5 mother-in-law, as each of them resides in an assisted living
6 facility. The government contended that, if necessary, alternative
7 arrangements could be made for the care of each, and that therefore
8 neither situation qualified as extraordinary.
9 As to Freedman's heart condition, there were two stages of
10 presentations. In response to Freedman's initial motion for a
11 departure on this basis, the government submitted a letter from the
12 Health Systems Administrator of the Bureau of Prisons ("BOP"),
13 stating that the BOP was capable of providing adequate monitoring of
14 Freedman's conditions. The letter noted that the BOP houses
15 thousands of inmates with the same conditions as Freedman (see Part
16 II.C.4 below), and, after elaborating on the medical facilities
17 available in the BOP system, it asserted that "[b]ased on the
18 information provided to me and my knowledge of BOP's medical
19 resources, the BOP will be able to provide appropriate care for Mr.
20 Freedman." (Letter from Barbara J. Cadogan, Health Systems
21 Administrator, BOP, to Stanley J. Okula, Jr., Assistant United
22 States Attorney, dated March 18, 2005 ("First Cadogan Letter"), at
23 2.) The government argued that a departure on the basis of
24 Freedman's heart condition would thus not be justified.
25 Subsequent to these submissions and prior to sentencing,
26 Freedman suffered a near-fatal attack of sepsis from a urinary tract
27 infection, which required his hospitalization in intensive care for
28 over a week. Accordingly, additional material was submitted with
- 26 -
1 respect to his request for a downward departure on account of his
2 health. Freedman's cardiologist wrote the district court stating
3 that the attack of urosepsis "demonstrate[d] the necessity of
4 careful and ongoing medical care, given Mr. Freedman's cardiac
5 condition. Without rapid attention to his deteriorating status he
6 would not have survived." (Letter from Dennis S. Reison, M.D., to
7 Judge Preska dated May 23, 2005 ("Reison May 23 Letter"), at 1.)
8 Freedman's urologist wrote that Freedman's problem had been caused
9 by kidney stones; that Freedman "will need to be watched very
10 closely in order to make sure that he does not have a recurrence of
11 his problem"; that a small fragment of stone remained; that "[i]f
12 this fragment does not pass," Freedman will need to have it removed;
13 and "until he is stone-free and until his condition is completely
14 stabilized, that he will need to be watched closely." (Letter from
15 Michael Wechsler, M.D., to Judge Preska dated May 10, 2005
16 ("Wechsler May 10 Letter").)
17 In response, the government summarized Freedman's medical
18 records from his recent health problem and argued that the "medical
19 records show that [Freedman] had a serious medical scare, but that
20 he ha[d] essentially recovered." (Letter from Peter G. Neiman et
21 al., Assistant United States Attorneys, to Judge Preska dated June
22 10, 2005 ("Neiman Letter"), at 3.) According to the summary of the
23 medical records, after his discharge from the hospital, Freedman was
24 essentially "'good, tolerating [a] regular diet[ and] ambulat[ing]
25 independently without problems'" (id. (quoting Discharge Summary
26 Note for Freedman, Sanford, by Michael Wechsler, M.D., dated April
27 20, 2005)), and was "'feel[ing] well,'" though "'fatigu[ing]
28 easily,'" (Neiman Letter at 3 (quoting cardiologist's notes)). The
- 27 -
1 government also submitted a second letter from the BOP, which noted
2 that it had received and assessed the additional information
3 regarding Freedman's medical condition. The BOP concluded that "the
4 Bureau will be able to provide appropriate care for Mr. Freedman,"
5 explaining that
6 [w]hen medical emergencies and the need for surgical
7 procedures arise, . . . major medical centers [with
8 which the BOP has contracts] offer the Bureau a wide
9 range of trained surgical specialists. Each
10 institution has procedures in place to contact local
11 emergency transportation teams for the timely
12 transportation to one of the local medical centers.
13 If Mr. Freedman requires hospitalization during his
14 term of incarceration, for either a routine or
15 emergency admission, the Bureau can accommodate this
16 need.
17 (Letter from Barbara J. Cadogan, Health Systems Administrator, BOP,
18 to Stanley J. Okula, Jr., Assistant United States Attorney, dated
19 June 10, 2005 ("Second Cadogan Letter"), at 1.)
20 The district court granted Freedman's requests for
21 departure based on his age, health, and family circumstances. The
22 court made no determination as to what Freedman's total offense
23 level or recommended imprisonment range would be under the
24 Guidelines; and it did not specify the extent to which it was
25 granting a departure on account of its view that the loss amount
26 "vastly overstate[d Freedman]'s culpability in the offense"
27 (Freedman S.Tr. 56 ("[r]ather than actually putting a number on it,
28 I think I will await both the departure findings and the
29 consideration of the 3553(a) factors")).
30 Notwithstanding the BOP's position that it would be able
31 to provide adequate care for Freedman, the court granted Freedman's
32 applications for downward departures, based in part on a
33 "combin[ation of] Mr. Freedman's age and his health situation" (id.
- 28 -
1 at 57). The court stated as follows:
2 [T]he BOP does not have the ability, in my view, to
3 monitor Mr. Freedman's situation constantly and to
4 respond immediately.
5 And the recent health issue has made it very,
6 very plain that without that ability to monitor
7 constantly and respond immediately, sending Mr.
8 Freedman to prison would in effect be a death
9 sentence. . . .
10 I also note, of course, in the Bureau of
11 Prisons letter that the rider suggests that, and I
12 know it to be true, that in each facility there are
13 contracts with outside medical facilities. I also
14 know it to be true, however, that one does not get
15 the immediate monitoring and immediate response that
16 in this instance has proved so necessary literally
17 for Mr. Freedman's life.
18 And I also note that the recent medical bills
19 apparently were in excess of $200,000. It's my
20 experience in reviewing material from prisoners from
21 the Bureau of Prisons that this is not the kind of
22 outlay that would easily be expended within the
23 Bureau of Prisons, for very obvious reasons. But I
24 find that a departure is appropriate.
25 (Id. at 58 (emphases added).)
26 The district court also granted a departure for
27 extraordinary family circumstances, based on Freedman's
28 relationships with his disabled brother and, separately, his mother-
29 in-law. It found that
30 the defendant's relationship with his brother,
31 Elliot, is a particularly extraordinary relationship
32 for a variety of reasons. First there is, of
33 course, the length of the relationship, but there is
34 the fact that it is a two-way relationship; the fact
35 that, as attested to by Dr. Gibeault[, former
36 Program Coordinator for the Department of Mental
37 Retardation for the Commonwealth of Massachusetts],
38 that Elliot calls Mr. Freedman several times a week
39 at all hours of the day and night and depends upon
40 his availability to sooth[e] whatever problem is
41 bothering Elliot, and otherwise to provide him with
42 a type of support that others simply cannot provide
43 and have not provided. That Mr. Freedman has been
44 Elliot's foremost advocate and has achieved for him
45 the highest possible level of independent living
- 29 -
1 attests to the results of this very obviously
2 vigorous relationship.
3 In addition, the doctor's recitation of Mr.
4 Freedman's including Elliot in the family events
5 leads me to conclude that this relationship is
6 indeed of a kind not taken into account by the
7 guidelines.
8 (Id. at 59.) With regard to Freedman's relationship with his
9 mother-in-law, Evelyn, the district court noted that it was
10 tak[ing] into account Mr. Freedman's role in
11 managing Evelyn's affairs and taking her out. And
12 while I find that this relationship is extraordinary
13 to an extent not contemplated by the guidelines, it
14 is not as extraordinary as the life-long
15 relationship with Elliot. But I find that both
16 entitle Mr. Freedman to a downward departure.
17 (Id. at 59-60 (emphasis added).)
18 The district court then discussed the factors set out in
19 18 U.S.C. § 3553(a), and noted that
20 [i]n considering the nature and circumstances of the
21 offense, I've set out most of my conclusions with
22 respect to those factors, but reiterate here that
23 the loss amount of $100,000[,000] very seriously
24 overstates the participation of this defendant and
25 his culpability in the offense.
26 . . . .
27 And I have discussed already I think at some
28 length the history and characteristics of this
29 defendant, particularly with respect to his age and
30 health situation, his extraordinary family ties, his
31 past charitable works and the like. Certainly the
32 history and characteristics of the defendant, most
33 specifically his age and health situation, argue for
34 a noncustodial sentence. The nature and
35 circumstances of the offense considered alone would
36 argue for a custodial sentence.
37 With respect to the seriousness of the offense
38 and promoting respect for the law, in the ordinary
39 circumstance a custodial sentence would be required
40 to reflect the seriousness of the offense and to
41 promote respect for the law.
42 With respect to the discussion of providing
43 just punishment for the offense, I take into account
- 30 -
1 the discussion in [Freedman]'s sentencing materials
2 that in light of the public nature of the
3 prosecution, the public humiliation that the
4 defendant has suffered, the loss of his law license
5 and various other consequences, and the certainty of
6 prosecution, both just punishment and deterrence in
7 the general sense ha[ve] been accomplished here.
8 Again, all other factors being equal, just
9 punishment would ordinarily require a custodial
10 sentence. Here I think we all agree that there is
11 no need to protect the public from further crimes of
12 this defendant.
13 With respect to [§ 3553(a)(2)(D)], the only
14 applicable factor seems to be providing the
15 defendant with needed medical care. The record is
16 very clear, and as I've mentioned, I find that
17 adequate medical care for this defendant cannot be
18 accomplished in prison.
19 I have taken into account, and obviously
20 counsel have made submissions regarding the kinds of
21 sentences available, the kinds of sentences and
22 sentencing ranges established for these offenses and
23 the policy statements set out by the sentencing
24 commission. I have also taken into account the need
25 to avoid unwarranted sentence disparities among
26 defendants with similar records and, of course, will
27 take into account in discussing restitution the need
28 to provide restitution to any victims of the crime.
29 (Freedman S.Tr. 63-64 (emphases added).) The district court
30 proceeded to impose a sentence on Freedman that included three years
31 of probation but no incarceration.
32 The court stated that it did not need to make a final
33 ruling as to Freedman's offense-level calculation, given the
34 difficulty of that question in light of the court's "find[ing] that
35 the amount of the loss . . . far overstates Mr. Freedman's
36 culpability" and the court's views as to an appropriate sentence.
37 (Id. at 82.) The court stated that in light of the departures it
38 found appropriate, "it is my view that a nonincarceratory sentence
39 is one that I would impose in any event, regardless of what the
40 offense level computation was," and that "consideration of the
- 31 -
1 3553(a) factors also would lead me to impose a nonincarceratory
2 sentence regardless of what the outcome of the guidelines
3 calculation, including departures, was." (Id.)
4 Judgment was entered sentencing Freedman to a three-year
5 period of probation, ordering him to perform 700 hours of community
6 service per year during the course of his probation (id. at 65, 80),
7 and ordering him to pay restitution in the amount of $14,600,000,
8 and to forfeit $3,013,739.48.
9 We note that although the judgment shows this forfeiture
10 amount, it also states that it is based on the court's forfeiture
11 order. The amounts listed in that order, however, total
12 $3,080,739.48. See Order dated October 17, 2005, at 1-2. We leave
13 it to the district court to remedy this discrepancy.
14 II. DISCUSSION
15 In its appeals, the government contends that the district
16 court erred or abused its discretion (a) in depreciating the
17 seriousness of the bank fraud offenses based on the sums of money
18 that Cutler and Freedman personally received and finding that the
19 total amount of loss suffered by the defrauded banks overstated
20 these defendants' roles and culpability; (b) in fashioning its
21 sentence on Cutler without giving sufficient consideration to his
22 conviction on the tax counts; (c) in refusing to adjust Freedman's
23 offense level on account of, inter alia, obstruction of justice; (d)
24 in granting these defendants downward departures for family
25 circumstances; and (e) in concluding that Freedman could not be
26 incarcerated because of his age and health. The government contends
- 32 -
1 that the sentences imposed, to the extent that they ordered
2 imprisonment of no more than one year and a day for Cutler and no
3 imprisonment at all for Freedman, are substantively unreasonable.
4 For the reasons that follow, we conclude that there were errors in
5 certain of the district court's Guidelines applications and in its
6 departure decisions; that the sentences imposed did not properly
7 interpret certain of the sentencing factors that the court was
8 required to consider under 18 U.S.C. § 3553(a), such as just
9 "punishment" and deterrence of others; and that some of the court's
10 rationales would promote disrespect for the law.
11 A. Required Sentencing Considerations and Standards of Review
12 In the wake of United States v. Booker, 543 U.S. 220
13 (2005), which ruled that the Guidelines are advisory, a sentencing
14 judge may impose either a Guidelines sentence or a non-Guidelines
15 sentence. See, e.g., id. at 245-46; United States v. Crosby, 397
16 F.3d 103, 113 (2d Cir. 2005) ("Crosby"). In arriving at either type
17 of sentence, the sentencing judge must consider the factors set
18 forth in 18 U.S.C. § 3553(a). That section provides in pertinent
19 part as follows:
20 (a) Factors to be considered in imposing a
21 sentence.--The court shall impose a sentence
22 sufficient, but not greater than necessary, to
23 comply with the purposes set forth in paragraph (2)
24 of this subsection. The court, in determining the
25 particular sentence to be imposed, shall consider--
26 (1) the nature and circumstances of the
27 offense and the history and characteristics of
28 the defendant;
29 (2) the need for the sentence imposed--
30 (A) to reflect the seriousness of the
31 offense, to promote respect for the law, and to
- 33 -
1 provide just punishment for the offense;
2 (B) to afford adequate deterrence to
3 criminal conduct;
4 . . . .
5 (4) the kinds of sentence and the
6 sentencing range established for--
7 (A) the applicable category of offense
8 committed by the applicable category of
9 defendant as set forth in the guidelines--
10 (i) issued by the Sentencing
11 Commission . . . ;
12 (5) any pertinent policy statement--
13 (A) issued by the Sentencing
14 Commission pursuant to section 994(a)(2)
15 of title 28, United States Code . . . ;
16 . . . .
17 (6) the need to avoid unwarranted sentence
18 disparities among defendants with similar
19 records who have been found guilty of similar
20 conduct; and
21 (7) the need to provide restitution to any
22 victims of the offense.
23 18 U.S.C. §§ 3553(a)(1), (a)(2)(A), (a)(2)(B), (a)(4)(A)(i),
24 (a)(5)(A), (a)(6), and (a)(7).
25 Recent decisions by the Supreme Court have clarified both
26 the procedures to be followed by the district court in arriving at
27 either type of sentence and the standard of review to be applied by
28 the courts of appeals. See, e.g., Gall v. United States, 128 S. Ct.
29 586, 594, 596-97 (2007); Kimbrough v. United States, 128 S. Ct. 558,
30 570, 574-75 (2007); Rita v. United States, 127 S. Ct. 2456, 2467-68
31 (2007). Because "§ 3553(a) explicitly directs sentencing courts to
32 consider the Guidelines,"
33 district courts must begin their analysis with the
34 Guidelines and remain cognizant of them throughout
- 34 -
1 the sentencing process.
2 Gall, 128 S. Ct. at 597 n.6. The Gall Court elaborated that
3 [a]s we explained in Rita, a district court
4 should begin all sentencing proceedings by correctly
5 calculating the applicable Guidelines range. See
6 . . . 127 S.Ct. 2456. As a matter of administration
7 and to secure nationwide consistency, the Guidelines
8 should be the starting point and the initial
9 benchmark. The Guidelines are not the only
10 consideration, however. Accordingly, after giving
11 both parties an opportunity to argue for whatever
12 sentence they deem appropriate, the district judge
13 should then consider all of the § 3553(a) factors to
14 determine whether they support the sentence
15 requested by a party.
16 Gall, 128 S. Ct. at 596.
17 In Kimbrough, which dealt with the disparities between
18 sentences prescribed for powder cocaine and crack cocaine, the Court
19 stated that
20 as a general matter, courts may vary [from
21 Guidelines ranges] based solely on policy
22 considerations, including disagreements with the
23 Guidelines. . . . [C]f. Rita v. United States, [127
24 S. Ct. at 2465] (2007) (a district court may
25 consider arguments that "the Guidelines sentence
26 itself fails properly to reflect § 3553(a)
27 considerations").
28 Kimbrough, 128 S. Ct. at 570 (bracketed phrase in original) (other
29 internal quotation marks omitted). In Gall, the Court noted that it
30 is
31 clear that a district judge must give serious
32 consideration to the extent of any departure from
33 the Guidelines and must explain his conclusion that
34 an unusually lenient or an unusually harsh sentence
35 is appropriate in a particular case with sufficient
36 justifications. For even though the Guidelines are
37 advisory rather than mandatory, they are, as we
38 pointed out in Rita, the product of careful study
39 based on extensive empirical evidence derived from
40 the review of thousands of individual sentencing
41 decisions.
42 Gall, 128 S. Ct. at 594 (emphases added); see Rita, 127 S. Ct. at
- 35 -
1 2464. Thus,
2 [i]f [the sentencing judge] decides that an outside-
3 Guidelines sentence is warranted, he must consider
4 the extent of the deviation and ensure that the
5 justification is sufficiently compelling to support
6 the degree of the variance. . . . [A] major
7 departure should be supported by a more significant
8 justification than a minor one.
9 Gall, 128 S. Ct. at 597 (emphasis added). Finally,
10 [a]fter settling on the appropriate sentence, he
11 must adequately explain the chosen sentence to allow
12 for meaningful appellate review and to promote the
13 perception of fair sentencing.
14 Id. (emphasis added); Rita, 127 S. Ct. at 2468.
15 In the wake of Booker, this Court is to apply a
16 "reasonableness standard" in reviewing sentences, Booker, 543 U.S.
17 at 262 (internal quotation marks omitted); "'reasonableness' review
18 merely asks whether the trial court abused its discretion," Rita,
19 127 S. Ct. at 2465; see, e.g., Gall, 128 S. Ct. at 594 ("Our
20 explanation of 'reasonableness' review in the Booker opinion made it
21 pellucidly clear that the familiar abuse-of-discretion standard of
22 review now applies to appellate review of sentencing decisions. See
23 [Booker,] 543 U.S., at 260-262 . . . ."). Thus,
24 [r]egardless of whether the sentence imposed is
25 inside or outside the Guidelines range, the
26 appellate court must review the sentence under an
27 abuse-of-discretion standard. It must first ensure
28 that the district court committed no significant
29 procedural error, such as failing to calculate (or
30 improperly calculating) the Guidelines range,
31 treating the Guidelines as mandatory, failing to
32 consider the § 3553(a) factors, selecting a sentence
33 based on clearly erroneous facts, or failing to
34 adequately explain the chosen sentence--including an
35 explanation for any deviation from the Guidelines
36 range. Assuming that the district court's
37 sentencing decision is procedurally sound, the
38 appellate court should then consider the substantive
39 reasonableness of the sentence imposed under an
40 abuse-of-discretion standard. When conducting this
41 review, the court will, of course, take into account
- 36 -
1 the totality of the circumstances, including the
2 extent of any variance from the Guidelines
3 range. . . . [I]f the sentence is outside the
4 Guidelines range, the court may not apply a
5 presumption of unreasonableness. It may consider
6 the extent of the deviation, but must give due
7 deference to the district court's decision that the
8 § 3553(a) factors, on a whole, justify the extent of
9 the variance.
10 Gall, 128 S. Ct. at 597 (emphases added); see id. at 594-95 (While
11 generally the district court need not have found "'extraordinary'
12 circumstances to justify a sentence outside the Guidelines range,"
13 an appellate court "reviewing the reasonableness of a sentence
14 outside the Guidelines range, . . . may . . . take the degree of
15 variance into account and consider the extent of a deviation from
16 the Guidelines."). And
17 while the Guidelines are no longer binding, closer
18 review may be in order when the sentencing judge
19 varies from the Guidelines based solely on the
20 judge's view that the Guidelines range "fails
21 properly to reflect § 3553(a) considerations" even
22 in a mine-run case.
23 Kimbrough, 128 S. Ct. at 575 (quoting Rita, 127 S. Ct. at 2465).
24 In making our assessment of a sentencing decision, we bear
25 in mind the "familiar abuse-of-discretion standard of review."
26 Gall, 128 S. Ct. at 594 (citing Booker, 543 U.S. at 260-62). At the
27 cited pages of Booker, the Court embraced the standard established
28 by Koon v. United States, 518 U.S. 81, 99 (1996), which in turn had
29 endorsed the approach taken in Pierce v. Underwood, 487 U.S. 552,
30 558-60 (1988), and had "adopt[ed] the abuse-of-discretion standard
31 in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990)," Koon, 518
32 U.S. at 99. The Booker Court indicated that, although 18 U.S.C.
33 § 3553(a) did not explicitly set forth a standard of review, the
34 abuse-of-discretion standard was inferable "from related statutory
- 37 -
1 language, the structure of the statute, and the 'sound
2 administration of justice.'" Booker, 543 U.S. at 260-61 (quoting
3 Pierce, 487 U.S. at 559-60) (other internal quotation marks
4 omitted).
5 As to the elements of abuse-of-discretion review, Koon
6 pointed out that a district court's discretion is not boundless.
7 For example,
8 whether a factor is a permissible basis for
9 departure under any circumstances is a question of
10 law, and the court of appeals need not defer to the
11 district court's resolution of the point. . . .
12 [A]n abuse-of-discretion standard does not mean a
13 mistake of law is beyond appellate correction.
14 Cooter & Gell, [496 U.S.] at 402. A district court
15 by definition abuses its discretion when it makes an
16 error of law. [Id.] at 405. . . . The abuse-of-
17 discretion standard includes review to determine
18 that the discretion was not guided by erroneous
19 legal conclusions.
20 Koon, 518 U.S. at 100 (emphasis added).
21 Further, as noted in Cooter & Gell, a district court's
22 findings of fact, while accorded deference, are likewise subject to
23 review:
24 When an appellate court reviews a district court's
25 factual findings, the abuse-of-discretion and
26 clearly erroneous standards are indistinguishable:
27 A court of appeals would be justified in concluding
28 that a district court had abused its discretion in
29 making a factual finding only if the finding were
30 clearly erroneous.
31 Cooter & Gell, 496 U.S. at 401. "A district court would necessarily
32 abuse its discretion if it based its ruling . . . on a clearly
33 erroneous assessment of the evidence." Id. at 405.
34 In addition, we have noted that even where the decision is
35 not necessarily the product of an error of law or a clearly
36 erroneous finding of fact,
- 38 -
1 [a] sentencing court abuses or exceeds its
2 discretion when its decision . . . "'cannot be
3 located within the range of permissible decisions.'"
4 [United States v.] Brady, 417 F.3d [326, 333 (2d
5 Cir. 2005)] (quoting Zervos v. Verizon N.Y., Inc.,
6 252 F.3d 163, 169 (2d Cir.2001)).
7 United States v. Canova, 485 F.3d 674, 679-80 (2d Cir. 2007). See,
8 e.g., Crosby, 397 F.3d at 114 (district court has abused its
9 discretion if "the decision on its merits exceeded the bounds of
10 allowable discretion"); Eastway Construction Corp. v. City of N.Y.,
11 821 F.2d 121, 123 (2d Cir. 1987) ("All discretion is to be exercised
12 within reasonable limits. The concept of discretion implies that a
13 decision is lawful at any point within the outer limits of the range
14 of choices appropriate to the issue at hand; at the same time, a
15 decision outside those limits exceeds or, as it is infelicitously
16 said, 'abuses' allowable discretion.").
17 As to substantive reasonableness, Booker instructed that
18 "[s]ection 3553(a) . . . sets forth numerous factors that guide
19 sentencing. Those factors [are to] guide appellate courts . . . in
20 determining whether a sentence is unreasonable." 543 U.S. at 261.
21 Accordingly, "tak[ing] into account the totality of the
22 circumstances, including the extent of any variance from the
23 Guidelines range," in order to determine whether a sentence is
24 substantively unreasonable, i.e., an abuse of discretion, Gall, 128
25 S. Ct. at 597, we look to see whether the sentencing court erred in
26 interpreting any of the § 3553(a) factors or made any other error of
27 law, whether it made any clear error in assessing the evidence, and
28 whether its decision was beyond the outer limits of the range of
29 decisions permitted by § 3553(a).
- 39 -
1 B. Cutler
2 With respect to the sentencing of Cutler, our review of
3 the record persuades us that the district court erred by
4 disregarding the Guidelines provision addressing a defendant's
5 culpability for jointly conducted activity, by exceeding its
6 departure authority, and by misinterpreting certain of the § 3553(a)
7 factors. In addition, certain of the court's findings are clearly
8 erroneous, and certain of its rationales are detrimental to the
9 "perception of fair sentencing," Gall, 128 S. Ct. at 597.
10 1. Departure on the Theory that the Loss Amount Overstated
11 Cutler's Role, Culpability, and Gain With Respect to the
12 Bank Frauds
13 The district court's departure on the ground that the loss
14 amount overstated Cutler's role in and culpability for the bank
15 fraud offenses reflects a misapplication of the guidelines relating
16 to a defendant's responsibility for losses caused by activity in
17 concert with others and a misapprehension of its departure authority
18 with respect to role. See generally United States v. O'Neil, 118
19 F.3d 65, 75 (2d Cir. 1997) ("O'Neil") ("loss measur[es] the gravity
20 of the offense, while the role adjustment measur[es] the culpability
21 of a defendant's conduct in the commission of the offense")
22 (internal quotation marks omitted), cert. denied, 522 U.S. 1064
23 (1998).
24 As to the amount of loss for which a defendant is
25 personally responsible, the guidelines as to relevant conduct, see
26 Guidelines § 1B1.3 ("Factors that Determine the Guideline Range"),
27 provide, inter alia, that in "'the case of a jointly undertaken
- 40 -
1 criminal activity,'" such as a conspiracy to commit fraud, the
2 amount of loss attributable to a defendant is the reasonably
3 foreseeable pecuniary loss caused by all "'reasonably foreseeable
4 acts and omissions of others in furtherance of the jointly
5 undertaken criminal activity.'" O'Neil, 118 F.3d at 74 (quoting
6 Guidelines § 1B1.3(a)(1)(B)). Although there may be unusual cases
7 in which the record reveals a combination of circumstances that
8 warrant a departure from the application of this principle, any
9 finding of such circumstances in this case--had one been made--would
10 be clearly erroneous. As discussed below, there can be no doubt
11 that Cutler's fraudulent representations to the banks were part of
12 the conspiracy among Tollman, Hundley, Freedman, Zukerman, Cutler,
13 and others, to cause the banks to sell more than $100 million worth
14 of loans for a small fraction of their outstanding balances. The
15 coconspirators set out to, and did, inflict on the victim banks
16 losses totaling more than $106 million. In light of the fact that
17 Cutler not only could foresee losses in that magnitude but also was
18 well aware that losses in that magnitude were intended, the court,
19 in departing on the ground that the amount of loss was
20 disproportionate to the seriousness of Cutler's conduct and offense,
21 failed to apply the principle set forth in § 1B1.3(a)(1)(B).
22 As to a defendant's role in the offense, § 3B1.2 of the
23 Guidelines provides for either a two-step or a four-step reduction
24 of the offense level of a defendant who is found to have "play[ed]
25 a part in committing the offense that makes him substantially less
26 culpable than the average participant." Guidelines § 3B1.2
27 Background (emphasis added). Under § 3B1.2(b) a two-step "minor"
28 role adjustment is available for a defendant "who is less culpable
- 41 -
1 than most other participants, but whose role could not be described
2 as minimal." Guidelines § 3B1.2 Application Note 3 (emphasis
3 added). Thus, as a general matter, the Sentencing Commission has
4 taken into consideration that a defendant may play a lesser role in
5 the offense than his coparticipants played or than the average
6 participant would play.
7 In granting a departure to Cutler on the ground that the
8 offense level resulting from the sizeable loss overstated his role,
9 the court stated that it viewed this case as "analogous to the Court
10 of Appeals decision in United States v. Restrepo." (Cutler S.Tr.
11 97.) See United States v. Restrepo, 936 F.2d 661 (2d Cir. 1991)
12 ("Restrepo"). Given the facts of Restrepo, we find the analogy
13 inapt. Restrepo arose from the government's seizure of, inter alia,
14 $18,300,000 in cash narcotics proceeds; the sentencing court found
15 that the offense levels calculated by reference to that amount of
16 money overstated the roles of three defendants who were merely
17 "laborers whose sole function was to load the boxes of money at the
18 warehouse on [a particular date]." Id. at 667 (internal quotation
19 marks omitted); see, e.g., id. at 668 ("[T]he probation department,
20 after interviewing the surveillance agent and reviewing the facts of
21 the case, concluded that the roles of Andrade, Martinez, and Lara
22 were limited to loading the boxes of money."). The Restrepo
23 district court found those three defendants to be at most minimally
24 culpable, and it thus lowered their offense levels to the full
25 extent provided by § 3B1.2. It concluded that, in addition, a four-
26 level downward departure was warranted because the effect that the
27 amount of cash seized had on the offense levels of participants
28 whose roles were so de minimis was far beyond that contemplated by
- 42 -
1 the Sentencing Commission in fashioning the Guidelines. This Court
2 affirmed on the ground that the "offense level ha[d] been
3 extraordinarily magnified" and that the amount of money involved
4 "b[ore] little relation to th[os]e defendant[s'] role in the
5 offense." Id. at 667.
6 In the present case, the district court's departure on the
7 ground that Cutler's role was overstated is inconsistent both with
8 the bases for our affirmance of the departure in Restrepo and with
9 the proper confines of departures. First, the district court in
10 Restrepo had adjusted the three defendants' offense levels downward
11 pursuant to § 3B1.2(a), i.e., as far as the Guidelines permitted for
12 minimal participation; thus that court was justified in viewing the
13 Sentencing Commission as not having made adequate provision for
14 participation that was even less than minimal. Here, in contrast,
15 the district court did not find Cutler's participation minimal; it
16 found that Cutler's role could not be regarded as even minor. If
17 Cutler's role were significantly less than that of the average
18 participant in such an offense, the Guidelines made adequate
19 provision for a reduction in his offense level. Accordingly, we
20 conclude that departure on this basis constituted a
21 misinterpretation of Restrepo, as well as a misapplication of the
22 Guidelines.
23 Second, to the extent that the district court here
24 concluded that this case was analogous to Restrepo by finding that
25 the large amount of money lost bore little relation to Cutler's role
26 in the offense, that finding is clearly erroneous. The magnitude of
27 the losses suffered by the defrauded banks was precisely what the
28 coconspirators intended, and there can be no doubt that Cutler knew
- 43 -
1 the goal and that he took significant steps to help achieve it. As
2 chief financial officer of Tollman-Hundley, Cutler was of course
3 aware of the size of the Tollman-Hundley debt and of the personal
4 liability of Tollman and Hundley on the deficiency notes they had
5 given in order to restructure the Tollman-Hundley debt. Those notes
6 made Tollman and Hundley personally liable for approximately
7 $100 million of Tollman-Hundley's debt; Cohen was instructed to
8 negotiate to purchase the targeted banks' loans for 20 cents or less
9 on the dollar. The frauds were thus explicitly designed to induce
10 the banks to sell their Tollman-Hundley loans at losses in excess of
11 $80 million.
12 Aware of the magnitude of Tollman's and Hundley's
13 exposure, Cutler made significant misrepresentations to persuade the
14 banks that Tollman and Hundley had little in the way of personal
15 assets, and we see no error in the district court's denial of
16 Cutler's request to lower his offense level on the basis that he
17 played only a minor role. Although Cutler may not have been
18 involved in the everyday communications with the banks that the
19 coconspirators were attempting to defraud, his position as chief
20 financial officer of Tollman-Hundley made him a natural person for
21 the banks to contact for information when they could not get
22 information from Zukerman and Freedman. The record shows that in
23 response to repeated inquiries from banks that refused to sell their
24 loans cheaply without additional information, Cutler wrote several
25 letters to creditor banks, sending what he represented were the most
26 recent financial statements of Tollman and/or Hundley. The
27 statements that Cutler sent in mid-1995, for example, showed Tollman
28 and Hundley as having assets of little more than $125,000 and
- 44 -
1 $80,000, respectively, when at the same time Cutler was overseeing
2 Tollman's application to the Mississippi Gaming Commission
3 representing that Tollman had a net worth of more than $27 million.
4 The documents that Cutler sent to the banks concealed assets of
5 Tollman totaling $31,592,019 (see GX 1501) and concealed assets of
6 Hundley totaling $25,640,795 (see GX 1500).
7 Had Cutler not participated in the frauds but given the
8 banks true information as to the personal assets of Tollman and
9 Hundley, the frauds would not have succeeded. The district court
10 accordingly found that Cutler was not a minor participant because
11 his actions were "necessary" (e.g., Cutler S.Tr. 98), and indeed
12 "critical[]" (id. at 29), to the success of the bank fraud
13 conspiracy. The court's departure on the ground that the amount of
14 loss overstated Cutler's role in the bank fraud offenses was
15 inconsistent with these findings and with its appropriate refusal to
16 find that Cutler was either "less culpable than most other
17 participants," as specified in Guidelines § 3B1.2 Application
18 Note 3, or "substantially less culpable than the average
19 participant," as specified in the Guidelines § 3B1.2 Background.
20 In sum, the coconspirators' explicit goal--reflected in
21 the list of banks, with loan balances and purchase price targets,
22 that was given to Cohen--was to induce banks that held Tollman-
23 Hundley loans with balances totaling more than $100 million to sell
24 their loans for 20 percent or less of those balances. Freedman and
25 Zukerman represented that Tollman-Hundley itself and Tollman and
26 Hundley individually would consider filing for bankruptcy if they
27 could not get all the creditor banks to sell the loans cheaply; and
28 Cutler supported those misrepresentations by sending the banks
- 45 -
1 schedules that failed to disclose a total of more than $57 million,
2 or more than 99 percent, of Tollman's and Hundley's assets. We
3 conclude that, in departing on the ground that the $106 million loss
4 resulted in an offense level that overstated either Cutler's conduct
5 or his role in the offense, the district court misinterpreted the
6 Guidelines in concluding that it had authority to depart downward on
7 the basis of a role that could not be considered either minimal or
8 minor, made an error of law in disregarding the principle that a
9 defendant is to be charged with the reasonably foreseeable losses
10 caused by his own conduct and the reasonably foreseeable conduct of
11 his coconspirators, and clearly erred in finding that the magnitude
12 of the banks' losses overstated Cutler's conduct and role, given
13 that his fraudulent statements to the banks were intended to defraud
14 them of those amounts and were, as the court found, critical to the
15 success of the fraud.
16 To the extent that the court viewed the loss calculation
17 as overstating the seriousness of the offense itself (see Cutler
18 S.Tr. 97-98), we see no basis in the Guidelines--or in fact--for
19 such a view. Although the commentary to Guidelines § 2F1.1 states
20 that "[i]n a few instances, the loss determined under subsection
21 (b)(1) may overstate the seriousness of the offense" and warrant a
22 downward departure, Guidelines § 2F1.1 Application Note 10, the
23 example given--an "attempt[] to negotiate an instrument that was so
24 obviously fraudulent that no one would seriously consider honoring
25 it," id.--plainly relates to intended loss, not to realized loss.
26 "The example suggests that this departure typically applies in cases
27 where there is no meaningful chance that the attempted crime would
28 have succeeded to the extent indicated by the stated loss," that is,
- 46 -
1 "where the intended loss is almost certain not to occur." Canova,
2 485 F.3d at 680 (internal quotation marks omitted). That commentary
3 to § 2F1.1 has no applicability here. The $106 million in losses
4 not only were intended but were realized. The coconspirators set
5 out to induce the creditor banks to sell their loans at losses of
6 more than $80 million, and they did.
7 In sentencing Cutler to a prison term of only 12 months
8 and one day for his bank fraud crimes, rather than the advisory-
9 Guidelines-recommended term of 78-97 months, the court sentenced
10 Cutler as if the frauds had resulted in losses of little more than
11 $70,000. The court stated that
12 some jail time is required to provide adequate
13 deterrence to this type of criminal conduct. With
14 respect to this type of an offense, however, the
15 relative length of the sentence does not seem to be
16 as important in providing deterrence.
17 (Cutler S.Tr. 102 (emphases added).) The implicit finding that a
18 fraud causing losses of more than $100,000,000 is no more serious
19 than one causing losses of little more than $70,000 reflects an
20 erroneous interpretation of § 3553(a)(2)(A)'s requirement for
21 punishment that is "just" and is antithetical to the need to
22 "promote the perception of fair sentencing," Gall, 128 S. Ct. at
23 597.
24 Finally we reject the district court's determination that
25 Cutler should be granted a departure on the basis that he "received
26 little, if any, personal gain from the bank fraud scheme" (Cutler
27 S.Tr. 98), as that finding, given the present record, is clearly
28 erroneous. Preliminarily, we note that a defendant's lack of
29 personal profit from the offense of conviction is not ordinarily a
30 ground for departure. See, e.g., United States v. Broderson, 67 F.3d
- 47 -
1 452, 459 (2d Cir. 1995) ("Broderson"). Although we found the
2 defendant in Broderson worthy of an exception to this general rule,
3 we did so principally not only because Broderson had not profited
4 personally from the fraud, but also because his conduct was not
5 "mainstream fraud" but was fraud only because of an unusual
6 statutory provision (requiring that the government be given the
7 benefit of a government-contractor's subsequently negotiated lower
8 costs), and because Broderson had not set out to perpetrate a fraud.
9 See id.
10 This case bears little resemblance to Broderson. The bank
11 fraud conspiracy here was an unadulterated effort to induce creditor
12 banks to part with their property for a small fraction of its fair
13 value. The frauds were perpetrated through, inter alia, express
14 misrepresentations, an elaborate set of front-men and sham entities
15 (whose façade of lack of affiliation with Tollman and Hundley was
16 assisted by Cutler's having Paternoster's tax documents signed by
17 front-man Smith), false threats that Tollman and Hundley would file
18 for bankruptcy, and Cutler's sending the banks financial schedules
19 that concealed more than 99 percent of Tollman's and Hundley's
20 personal assets.
21 The PSR concluded that Cutler had been motivated by
22 monetary gain, and the district court found that both Cutler's
23 salary during the period of the bank fraud conspiracy (totaling more
24 than $970,000) and his receipt of stock in the casino venture (worth
25 more than $400,000) resulted from his participation in the bank
26 fraud conspiracy. At the sentencing hearing, the court began by
27 noting that
28 the clear language of 18, U.S.C., Section 982(a)(2)
- 48 -
1 requires that the forfeiture amount be limited to
2 property [or substitute property] constituting or
3 derived from the proceeds the defendant obtained
4 directly or indirectly as a result of the violation,
5 here, the bank fraud conspiracy[, and]
6 . . . that the clear language of the statute
7 requires that at some point in time the defendant
8 must have directly or indirectly, physically or
9 constructively, come into possession of those
10 proceeds.
11 (Cutler S.Tr. 105.) The court concluded:
12 That having been said, it is my intention,
13 taking into account the evidence in the case, to
14 require forfeiture of Mr. Cutler's salary amounts
15 during the years in question and the amount of
16 substitute property of the value of his Alpha
17 Hospitality stock . . . .
18 (Id. at 106.) The district court's subsequent forfeiture order
19 ruled that the "proceeds obtained by [Cutler] as a result of the
20 [bank fraud and bank fraud conspiracy offenses of which he was
21 convicted]" totaled "$1,381,974." Final Order of Forfeiture as to
22 James Cutler dated April 15, 2005, at 2. Although this was the
23 equivalent of but a small percentage of the banks' total
24 $106 million loss, it is clearly erroneous--and hardly promotes
25 respect for the law--to characterize an individual's $1.3 million
26 profit from crime as "little, if any, personal gain" (Cutler S.Tr.
27 98).
28 2. Departure on the Theory that the Length of Sentence Is
29 Relatively Unimportant in Providing Deterrence
30 In imposing sentence on Cutler, the court generally dealt
31 with his bank fraud offenses and his tax offenses jointly, stating,
32 "I am only going to [explain the reasons for the extent of the
33 departure] once instead of twice" (Cutler S.Tr. 100). After giving
34 its explanations, the court clarified that its departure on the
- 49 -
1 basis that the Guidelines-recommended range of imprisonment
2 "overstat[ed] the seriousness" of Cutler's offenses was not meant to
3 apply to his tax offenses. (Id. at 121-22.) The court did not make
4 a similar disavowal with respect to its rationale that "[w]ith
5 respect to this type of an offense, . . . the relative length of the
6 sentence does not seem to be as important in providing deterrence"
7 (id. at 102).
8 To the extent that the district court's views that this
9 "type" of offense did not warrant a long sentence and that the
10 relative length of the sentence was relatively unimportant in
11 providing deterrence were meant to apply to Cutler's convictions for
12 tax evasion and tax fraud conspiracy, the court's views were
13 squarely contrary to the policy judgments articulated by the
14 Sentencing Commission. The Commission stated that
15 [t]he criminal tax laws are designed to protect
16 the public interest in preserving the integrity of
17 the nation's tax system. Criminal tax prosecutions
18 serve to punish the violator and promote respect for
19 the tax laws. Because of the limited number of
20 criminal tax prosecutions relative to the estimated
21 incidence of such violations, deterring others from
22 violating the tax laws is a primary consideration
23 underlying these guidelines. Recognition that the
24 sentence for a criminal tax case will be
25 commensurate with the gravity of the offense should
26 act as a deterrent to would-be violators.
27 Guidelines Ch. 2, Pt. T, 1, Introductory Commentary (emphasis
28 added). Accordingly, the guidelines for tax offenses provide a
29 scale of recommended prison ranges that increase with the size
30 of the loss. See Guidelines § 2T1.1 (base offense level for offense
31 resulting in a tax loss is the "[l]evel from §2T4.1 (Tax Table)
32 corresponding to the tax loss"). The commentary to § 2T1.1 states
33 that
- 50 -
1 [t]his guideline relies most heavily on the amount
2 of loss that was the object of the offense. Tax
3 offenses, in and of themselves, are serious
4 offenses; however, a greater tax loss is obviously
5 more harmful to the treasury and more serious than a
6 smaller one with otherwise similar characteristics.
7 Furthermore, as the potential benefit from the
8 offense increases, the sanction necessary to deter
9 also increases.
10 Guidelines § 2T1.1 Background (emphases added).
11 Cutler's tax offenses resulted in tax losses of more than
12 $5 million. In the Sentencing Commission's view, the tax offenses
13 of which Cutler was convicted are the type of offense for which the
14 length of prison term is especially related to the need for
15 deterrence. His offense level for those convictions alone would
16 have been 22, and his recommended range of imprisonment for those
17 offenses alone would have been 41-51 months.
18 Although, as discussed above, a sentencing court is
19 allowed to impose a sentence that varies from the Guidelines based
20 solely on policy considerations, including disagreements with the
21 Guidelines, the court is required by § 3553(a)(4) to consider the
22 pertinent Guidelines, and it is required to state the basis for its
23 disagreement, along with "sufficient justifications" for "the extent
24 of any departure," Gall, 128 S. Ct. at 594. Here, the court gave no
25 explanation for its disagreement with the Commission's policy
26 judgments, reflected in the Guidelines as explained by the
27 background commentary, that tax offenses, in and of themselves, are
28 serious offenses; that the greater the tax loss, the more serious
29 the offense; and that the greater the potential gain from the tax
30 offense, the greater the sanction that is necessary for deterrence.
31 The court's conclusory statement that "the relative length of the
32 sentence does not seem to be as important in providing deterrence"
- 51 -
1 (id. at 102) provided no explanation whatever.
2 Thus, if the court intended its statement to apply to
3 Cutler's tax offenses, this rationale constituted procedural error
4 because it failed to provide an adequate explanation for the
5 disagreement, the departure, or the extent of the departure. If,
6 instead, the court did not mean this statement to apply to the tax
7 offenses, we see in the record no indication that the court in fact
8 gave the requisite consideration to the guidelines relating to
9 Cutler's tax offenses as was required by § 3553(a)(4). In the
10 absence of any explanation by the court, we conclude that the prison
11 term of 12 months and one day--even if all of that term were
12 attributable to Cutler's tax frauds, and none of it were
13 attributable in part to his participation in the $100 million bank
14 frauds--was not commensurate with the seriousness of the offense,
15 would not act as a deterrent to would-be violators, did not promote
16 respect for the tax laws, and was substantively unreasonable.
17 3. Departure Based on Cutler's Family Circumstances
18 "Family ties and responsibilities . . . are not ordinarily
19 relevant in determining whether a sentence should be outside the
20 applicable guideline range." Guidelines § 5H1.6 (Policy Statement).
21 This policy statement was mandated by Congress in the Sentencing
22 Reform Act, which instructed that "in recommending a term of
23 imprisonment or length of a term of imprisonment," the Commission
24 "shall assure that" the Guidelines and policy statements "reflect
25 the general inappropriateness of considering the . . . family ties
26 and responsibilities . . . of the defendant." 28 U.S.C. § 994(e)
- 52 -
1 (emphasis added). Accordingly, "[b]ecause the Guidelines disfavor
2 departure based on family responsibilities, such a departure is not
3 permitted except in extraordinary circumstances." United States v.
4 Smith, 331 F.3d 292, 294 (2d Cir. 2003) ("Smith").
5 We have found family circumstances to be extraordinary,
6 and hence a permissible basis for departure, where the defendant
7 provided substantial support for two children, his wife spoke
8 limited English and had a limited earning capacity, and his elderly
9 parents were likely to require both physical and financial
10 assistance in the near future, see United States v. Galante, 111
11 F.3d 1029, 1035 (2d Cir. 1997) ("Galante"); where the defendant was
12 the sole support of several young children, one of whom was an
13 infant, see United States v. Johnson, 964 F.2d 124, 129-30 (2d Cir.
14 1992) ("Johnson"); and where the defendant supported his wife, two
15 children, his paternal grandmother, and his disabled father who
16 depended also on the defendant's physical strength to help him get
17 in and out of his wheelchair, see United States v. Alba, 933 F.2d
18 1117, 1122 (2d Cir. 1991) ("Alba").
19 "It is not unusual, however, for a convicted defendant's
20 incarceration to cause some hardship in the family." Smith, 331
21 F.3d at 294. We have found that family circumstances departures
22 were unauthorized in circumstances less compelling than those in
23 Galante, Johnson, and Alba,
24 especially where other relatives could meet the
25 family's needs, see United States v. Madrigal, 331
26 F.3d 258, 260 (2d Cir. 2003), or the defendant's
27 absence did not cause a "particularly severe"
28 hardship, United States v. Smith, 331 F.3d 292, 294
29 (2d Cir. 2003).
30 United States v. Selioutsky, 409 F.3d 114, 119 (2d Cir. 2005).
- 53 -
1 In Smith, for example, we found a family-circumstances
2 departure not authorized where it was based on the facts that the
3 defendant had a two-year-old son with whom he had a close
4 relationship and in whose daily care he played a major role; that
5 his wife attended college part-time and would be forced to stop if
6 the defendant were incarcerated; and that his wife's job netted
7 approximately $17,000 a year after taxes, which was less than the
8 family's total expenses for rent and child-care. We noted that
9 Smith was neither the sole care-giver for his son nor the sole
10 financial support of the family, and that Smith's mother and half-
11 sister lived nearby and could assist in child care. Although
12 Smith's wife was likely to be forced to interrupt her college
13 studies and would need to supplement her income, the facts before
14 the court were simply "not the sort of extraordinary hardship that
15 justifies downward departure for family circumstances." Smith, 331
16 F.3d at 294.
17 We have also found such a departure impermissible in a
18 case in which the defendant was a recently-divorced father of three
19 children, aged 10, 11, and 13; the children lived with their mother;
20 the mother earned approximately $40,000 annually; and the defendant
21 had been contributing roughly $278 per week in child support
22 payments. See United States v. Faria, 161 F.3d 761, 762-63 (2d Cir.
23 1998). We concluded:
24 The financial and emotional consequences of Faria's
25 incarceration are no greater than those faced by
26 most criminal defendants who have a family, and in
27 fact may be somewhat less serious than those faced
28 by many such defendants--although Faria pays child
29 support, he no longer lives with his children, and
30 his ex-wife earns approximately $40,000 per year.
31 Under these circumstances, we cannot conclude that
32 Faria's family is uniquely dependent on the support
- 54 -
1 it currently receives from him. At a minimum, it is
2 clear that the facts presented in Faria's case are
3 far less grave than those that led us to approve the
4 downward departures granted to the defendants in
5 Alba, Johnson, and Galante.
6 Id. at 763 (emphasis added).
7 We see little difference between Faria and the present
8 case. The core factual findings made by the district court to
9 support granting Cutler a downward departure for extraordinary
10 family circumstances were that he had three children, a 20-year-old
11 in college, and a 14-year-old and an 11-year-old in public school;
12 that his ex-wife's salary was approximately $25,000; that Cutler had
13 contributed $1,900 per month to the children's support; and that if
14 Cutler were incarcerated for a period commensurate with his crime
15 and unable to continue that support, the 20-year-old would likely be
16 prevented from returning to college, and the other two children
17 might have to leave the school system they had attended and move
18 with their mother to live with her sister in Georgia. Although the
19 district court referred to this as a "particularly vulnerable time
20 in those children's educational and emotional development" (Cutler
21 S.Tr. 99), it gave no explanation as to why that was so. The only
22 facts found were Cutler's ex-wife's modest salary and the likelihood
23 that the cessation of Cutler's financial contributions would
24 interrupt the 20-year-old's college education and cause the family
25 to move away to live with a relative. Cutler's wife and children
26 will no doubt face hardship, but this is true whenever family
27 members are deprived of the company and/or support of a defendant
28 who is incarcerated. The facts found by the district court do not
29 take this case sufficiently out of the mainstream of family
30 hardships to warrant a downward departure.
- 55 -
1 More importantly, the record did not support a finding
2 that the imposition of a substantial prison term on Cutler would
3 cause him to be unable to support his children during the period of
4 his incarceration. In the district court proceedings, the
5 government contended that if in fact Cutler is unable to support his
6 children while he is in prison, it is because he sold the casino
7 venture stock he had been given for his role in the bank frauds, had
8 used the proceeds to buy land in Nevada, and had placed that
9 property in the name of his new wife Erika, beyond the reach of his
10 ex-wife and his children. The district court did not make a finding
11 on this contention. At the sentencing hearing, however, the court
12 noted that in view of the fact "that Mrs. Erika Cutler had not been
13 employed earning a great deal" (Cutler S.Tr. 33), it was "highly
14 unlikely that Mrs. Erika Cutler contributed in any material way
15 financially to that company which she owns" (id. at 35). The court
16 asked, "[w]here did the initial capital come from" to buy the land.
17 (Id. at 33.) Although Cutler took the position that the land had
18 been bought solely with a bank loan, not with the proceeds of the
19 sale of the casino stock, his attorney's statements at the hearing
20 included the following:
21 - "They created a new business that is in his wife's name"
22 (id. at 35);
23 - Erika Cutler did not contribute anything financially to
24 the property that is now in her name (see id. at 35-36);
25 - after getting the bank financing for the new business in
26 his wife's name, "Cutler did lend money to it, which he
27 lost" (id. at 36);
28 - "They structured the business . . . . The asset is in
29 his wife's name. There is no question about that." (Id.
30 at 33, 34);
31 - "Erika Cutler owns these properties, . . . he owns the
- 56 -
1 management company, . . . he earns money in the management
2 company" (id. at 75); his earning any money "is very
3 unlikely without his personal services" (id. at 36);
4 - They structured the business so that it could continue
5 to operate if Cutler went to jail: "Cutler and his wife
6 set up a business to provide for his wife . . . while he
7 is away"; he would "provide for his children by working"
8 when "he is out" (id. at 35 (emphases added)).
9 Thus, the government's position, i.e., that it was
10 Cutler's choice to put his assets in the name of his new wife that
11 leaves him unable to support his children while he is in prison, was
12 supported by the plain implication of the above statements by
13 Cutler's attorney at sentencing, i.e., that the Nevada property into
14 which Cutler put money (whether as equity or debt, and regardless of
15 whether or not that money was proceeds from the bank frauds) is
16 capable of providing an income stream while Cutler is in prison.
17 That Cutler chose to put the property into his new wife's name to
18 provide for her, rather than leaving it in his own name to provide
19 for his children, may be an exceptional circumstance, but it is
20 surely not one that authorizes a downward departure. Allowing a
21 defendant to elude the vast majority of the prison term that is
22 appropriate for his crime, by putting his assets out of the reach of
23 his children and then pleading the need to be out of prison in order
24 to support them, can only promote disrespect for the law.
25 4. Departure Based on the Need for Restitution
26 Finally, in imposing on Cutler a term of imprisonment that
27 was a small fraction of the recommended term, the district court
28 stated that "the need to provide restitution," as well as "Mr.
29 Cutler's family obligations," led to the conclusion that "a lesser
- 57 -
1 rather than greater custodial sentence is required" (Cutler S.Tr.
2 103). In light of the record in this case, including that discussed
3 in the immediately preceding section, we conclude that the court's
4 emphasis on the need to provide restitution could not rationally
5 provide the necessary justification for reducing Cutler's sentence
6 from 78-97 months to 12 months and a day.
7 For example, the court's reliance on the proposition that
8 Cutler's ability to pay restitution would be impaired unless he
9 received a sentence of imprisonment to a term that is shorter than
10 what would be commensurate with his crime would appear to subvert
11 the principle that the court should "avoid unwarranted sentence
12 disparities among defendants with similar records who have been
13 found guilty of similar conduct," 18 U.S.C. § 3553(a)(6). An even-
14 handed application of the principle that a short prison term was
15 required for Cutler because of his restitution obligations would
16 imply that virtually all defendants who are required to pay
17 restitution in amounts exceeding their net worth should receive
18 short prison terms, a proposition that is patently untenable.
19 Further, any suggestion that even the restitution
20 objective of sentencing would be achieved by sentencing Cutler to
21 serve a prison term of not more than a year and a day is highly
22 unrealistic. Cutler claims that he lacks the wherewithal to provide
23 even $1,900 per month to support his children. The amount of
24 restitution that Cutler is ordered to pay is $29,775,000.
25 Objectives of sentencing such as the need for deterrence and the
26 need to promote respect for the law are hardly served by imposing a
27 term of imprisonment that is a small fraction of the period
28 appropriate for the defendant's offense simply because there is an
- 58 -
1 order for restitution, no more than a small fraction of which the
2 defendant is likely to pay.
3 C. Freedman
4 In sentencing Freedman, who was convicted on 12 counts
5 relating to the bank frauds (including one count of perjury
6 resulting from his testimony about the "concern" of Tollman and
7 Hundley that Paternoster, which they owned, might try to collect
8 from them on their deficiency notes), the district court rejected
9 the PSR's recommendation that Freedman's offense-level be increased
10 for, inter alia, obstruction of justice; it granted Freedman
11 downward departures on the grounds that Freedman had extraordinary
12 family circumstances, was aged, and was in poor health; and it
13 appears to have granted a departure on the ground that the offense
14 level resulting from the size of the banks' losses overstated
15 Freedman's participation and culpability in the offenses. In
16 sentencing Freedman to no term of imprisonment, the court stated
17 that it would arrive at this result either as a Guidelines sentence
18 or as a non-Guidelines sentence. We conclude both that there were
19 procedural errors and that the resulting sentence was substantively
20 unreasonable.
21 1. Refusal To Consider an Obstruction-of-Justice Adjustment
22 The Guidelines recommend a two-step increase in a
23 defendant's offense level "[i]f the defendant willfully obstructed
24 or impeded, or attempted to obstruct or impede, the administration
25 of justice during the investigation, prosecution, or sentencing of
26 the instant offense." Guidelines § 3C1.1. Among the acts that fall
- 59 -
1 within this Guideline is "providing a materially false statement to
2 a law enforcement officer that significantly obstructed or impeded
3 the official investigation or prosecution of the instant offense."
4 Id. Application Note 3(g). In order to impose the adjustment, the
5 district court must find that the defendant consciously acted with
6 the purpose of obstructing justice; but the pertinent facts need be
7 proven only by a preponderance of the evidence. See, e.g., United
8 States v. Agudelo, 414 F.3d 345, 349 (2d Cir. 2005); United States
9 v. Mafanya, 24 F.3d 412, 414 (2d Cir. 1994).
10 In the present case, the PSR on Freedman recommended, and
11 the government requested, an obstruction adjustment on the ground
12 that Freedman had made false statements to IRS investigators with
13 respect to Freedman's knowledge of the tax frauds, in an attempt to
14 impede the investigation of those frauds. The government argued
15 that Freedman's statements to the IRS agents had substantially
16 impaired the investigation into the tax fraud and thereby obstructed
17 justice within the meaning of § 3C1.1. Freedman contended that such
18 an adjustment was inappropriate because he did not lie to the
19 investigating IRS agents and that, in any event, his statements did
20 not obstruct the investigation.
21 The district court rejected the recommended obstruction-
22 of-justice adjustment stating as follows:
23 there was originally a charge to this effect. And I
24 believe it is the case, and I know the government
25 will correct me if I'm wrong, that following the
26 evidentiary ruling that not just the statements
27 alleged to have been false from an agent's report
28 could be shown to the jury, but the material in the
29 report surrounding those statements, that charge was
30 withdrawn. So for that reason I reject [the
31 obstruction-adjustment recommendation] of the
32 presentence report.
- 60 -
1 (See Freedman S.Tr. 55 (emphases added).) The court did not make
2 any findings as to whether or not Freedman had made false statements
3 or, if he had, whether those statements were intended to impede or
4 had the effect of impeding the IRS investigation.
5 The court's rejection of the obstruction adjustment on the
6 stated ground reflects an error of law. "Judicial authority to find
7 facts relevant to sentencing by a preponderance of the evidence
8 survives Booker," United States v. Garcia, 413 F.3d 201, 220 n.15
9 (2d Cir. 2005), and "a preponderance of the evidence is the
10 appropriate standard to be used in considering uncharged relevant
11 conduct for sentencing purposes," United States v. White, 240 F.3d
12 127, 136 (2d Cir. 2001) (so stating in the wake of Apprendi v. New
13 Jersey, 530 U.S. 466 (2000)). The fact that the government elected
14 not to have the obstruction count submitted to the jury at trial,
15 where the government's burden would have been to prove the relevant
16 facts beyond a reasonable doubt, did not provide a basis for the
17 court to refuse to consider the adjustment at sentencing, where
18 those facts need be proven only by a preponderance of the evidence.
19 The court's decision that it need not consider the proposed
20 obstruction adjustment was erroneous as a matter of law.
21 2. Departure on the Theory that the Loss Amount Overstated
22 Freedman's Participation and Culpability in, and His Gain
23 from, the Bank Frauds
24 Although the district court stated that it accepted the
25 PSR's determination that Freedman's base offense level was 6 and
26 should be increased by two steps for more than minimal planning and
27 by 18 steps for the $106 million loss amount (see Freedman S.Tr. 53,
28 54, 56), the court consciously declined to make a finding as to an
- 61 -
1 actual total offense level for Freedman (see, e.g., id. at 82).
2 This, in itself, was an error of the type mentioned in Gall. See
3 128 S. Ct. at 597 ("significant procedural error[s]" include
4 "failing to calculate . . . the Guidelines range").
5 Instead, the court made findings similar to those made
6 with respect to Cutler, to wit, that the "$100 million amount . . .
7 substantially overstates . . . the culpability of" the "defendants
8 other than Mr. Hundley" (Freedman S.Tr. 53), and that the 18-step
9 increase resulting from that loss amount "overstate[d Freedman's]
10 participation in the offense" (id.) and "vastly" and "wildly"
11 overstated his "culpability" (id. at 56, 53). Although the court
12 stated that it would deal with the effect of the loss amount by
13 means of departure (see id. at 56), relying on "Restr[e]po" (id. at
14 53) and "consideration of the 3553(a) factors" (id. at 56), the
15 court never actually stated the degree to which it departed on this
16 basis.
17 To the extent that the court departed at all based on its
18 view that the banks' loss overstated Freedman's culpability for
19 participating in the bank fraud conspiracy, we conclude that that
20 decision was error, essentially for the reasons discussed in Part
21 II.B.1. above with respect to Cutler. The court's view that the
22 "$100 million amount . . . substantially overstates . . . the
23 culpability of" the defendants other than Hundley disregarded the
24 principle set forth in Guidelines § 1B1.3(a)(1)(B) that a
25 coconspirator is to be held responsible for the reasonably
26 foreseeable amount of loss resulting from the reasonably foreseeable
27 acts of all of the coconspirators. Here, the massive losses
28 incurred by the banks not only were foreseeable, they were the
- 62 -
1 express goal of a highly orchestrated conspiracy.
2 Further, Freedman's participation in that conspiracy was
3 pervasive. For example, Freedman, along with Tollman, Hundley, and
4 Zukerman, made the initial contacts with Tollman-Hundley's creditors
5 in early 1993 to represent that Tollman and Hundley were having
6 great financial problems. Freedman attended several meetings with
7 Marine Midland at which he and Zukerman repeatedly represented that
8 Tollman and Hundley lacked "the financial wherewithal to meet
9 the[ir] obligations." (Trial Tr. 2072; see also id. at 2068-71.)
10 Freedman introduced Cohen to representatives of Chemical Bank to
11 facilitate Cohen's attempt to negotiate the purchase of Tollman-
12 Hundley loans from that bank and attended Cohen's first meeting with
13 representatives of that bank. (See id. at 3759-60.) Freedman
14 instructed Cohen on how much to offer Bank of America on its loans.
15 (See id. at 3768.) Cohen reported to Hundley and Freedman on the
16 progress of Cohen's negotiations with the banks (see id. at 3751),
17 having concealed the true identity of his principals as instructed
18 by Hundley and Freedman.
19 At the time Freedman was making representations to the
20 banks that Tollman and Hundley lacked the financial ability to meet
21 their deficiency-note obligations, he was plainly aware of the value
22 of Tollman's and Hundley's assets; he had between a 2.5 and a 4.75
23 percent ownership interest in most of their business assets.
24 Freedman's own application to the Mississippi Gaming Commission, as
25 well as those of Tollman and Hundley, showed that the market values
26 of Tollman's and Hundley's business interests exceeded,
27 respectively, $34 million and $37 million. Freedman was also
28 directly involved in the hiding by Tollman and Hundley of the HFS
- 63 -
1 stock accruing to them (worth more than $107 million) by assigning
2 their HFS stock rights to Bryanston; Freedman was executive vice
3 president of Bryanston and signed the assignment agreement on its
4 behalf, and he owned a 4.75 percent interest in Bryanston.
5 In addition, as described in Part I.A.1. above, Freedman
6 had Tollman-Hundley's outside attorneys create Paternoster and
7 Chelsea, which were funded by Bryanston and hence were owned by
8 Tollman, Hundley, and Freedman, to purchase the victim banks' loans.
9 Freedman had Smith sign Paternoster contracts; and Freedman sent at
10 least one victim bank a letter signed by Tollman and Hundley
11 certifying that they had no beneficial or legal interest, directly
12 or indirectly, in Chelsea.
13 Thus, while Freedman was not one of the two major
14 beneficiaries of the frauds, he plainly was a key participant, and
15 there can be no doubt that he was aware of the frauds' magnitude.
16 He had participated in the negotiations that led to the
17 restructuring of Tollman-Hundley's debt and hence was aware that
18 Tollman and Hundley were personally liable for about $100 million of
19 that debt. He gave Cohen a list of the creditor banks and the
20 outstanding balances, with instructions to negotiate to purchase
21 those loans for 20 percent or less of their balances.
22 Further, Freedman was a multi-million-dollar beneficiary
23 of the frauds. Although the district court stated that no part of
24 the banks' $106 million loss was actually paid to Freedman, that was
25 a consequence of the fact that the frauds were designed to result in
26 a reduction of debt rather than an extraction of cash. In fact,
27 however, the assignment by Tollman and Hundley to Bryanston of their
28 HFS stock--which might otherwise have had to be used to pay their
- 64 -
1 deficiency notes--inured to the benefit of Freedman as a part owner
2 of Bryanston. Given that the proceeds from the HFS stock exceeded
3 $107 million and that Freedman's share of Bryanston was 4.75
4 percent, the frauds resulted in an increase in the value of
5 Freedman's interest in that company by more than $5 million. Even
6 without regard to that increase in the value of Freedman's interest
7 in Bryanston, the amount that the district court found Freedman had
8 gained and should forfeit as a result of his participation in the
9 bank fraud offenses (to wit, salary, legal fees, and the value of
10 shares he received in the casino venture) exceeded $3 million.
11 Thus, we conclude that the court's finding that the
12 magnitude of the banks' losses overstated Freedman's culpability and
13 was "wildly" disproportionate to his gain was a clearly erroneous
14 assessment of the evidence in the record as to the nature and
15 pervasiveness of his actions and his substantial financial interest
16 in the success of the frauds. And to the extent that the district
17 court departed downward based on its refusal to consider the entire
18 loss caused by the coconspirators, it erred by ignoring the
19 principle that a coconspirator is to be held accountable for the
20 entire amount of loss that was reasonably foreseeable to him.
21 We also conclude that in determining the sentence to be
22 imposed on Freedman, the court erred in its interpretation of
23 § 3553(a)'s requirement that the court consider the need for "just
24 punishment for the offense," 18 U.S.C. § 3553(a)(2)(A), and, as a
25 consequence, in its view as to what constitutes "adequate deterrence
26 to criminal conduct," id. § 3553(a)(2)(B). The court ruled that
27 although the seriousness of Freedman's offense would ordinarily
28 warrant a prison term, Freedman had already received "just
- 65 -
1 punishment for the offense" because of "the public nature of the
2 prosecution, the public humiliation that the defendant has suffered,
3 the loss of his law license and various other consequences, and the
4 certainty of prosecution." (Freedman S.Tr. 63-64.) The court also
5 found that these factors were sufficient to accomplish "deterrence
6 in the general sense." (Id. at 64.) As a matter of law and reason,
7 we cannot agree.
8 First, the consequences listed by the court are hardly
9 unusual. An attorney convicted of a felony usually loses his
10 license to practice law. The imposition of a light sentence on this
11 basis is not within the court's discretion. See, e.g., Koon, 518
12 U.S. at 110 (finding the court's downward departure based on the
13 defendants' being "barred from future work in" their chosen
14 occupations to be an abuse of discretion: "Although cognizant of
15 the deference owed to the District Court, we must conclude it is not
16 unusual for a public official who is convicted of using his
17 governmental authority to violate a person's rights to lose his or
18 her job and to be barred from future work in that field." (emphasis
19 added)).
20 Nor is it unusual for a person convicted of participating
21 in a conspiracy to perpetrate massive frauds to be publicly
22 prosecuted and suffer public humiliation. Those are consequences
23 generally suffered by anyone accused and convicted of a crime,
24 especially a crime involving frauds causing losses of more than
25 $100 million. Thus, the imposition of a nonincarceratory sentence
26 on the basis that a defendant has suffered sufficiently simply
27 because he was prosecuted and convicted would create unwarranted
28 disparities among similarly situated defendants.
- 66 -
1 Finally, the circumstances referred to by the district
2 court do not constitute punishment. The public nature of criminal
3 prosecutions is part of our constitutional fabric; the public
4 humiliation suffered by one prosecuted and convicted of a crime is
5 an ordinary consequence of his conduct, not a condition imposed by
6 the criminal codes or the judicial process. These circumstances,
7 though adverse, are not what § 3553(a)(2)(A) means by "punishment."
8 Hence they cannot properly be viewed as fulfilling the need for the
9 imposition of just punishment. And given that the more massive a
10 fraud, the more likely it is that the prosecution will generate
11 publicity, the logical extension of the district court's view--i.e.,
12 that Freedman's public humiliation and the public nature of his
13 prosecution were punishment enough--would mean that the more
14 flagrant the crime, the less actual statutorily prescribed
15 "punishment" it would require. And of course, the less punishment
16 that is meted out, the less deterrent effect the sentence will have
17 on others contemplating similar crimes.
18 3. Departure for Freedman's Family Circumstances
19 As discussed in Part II.B.3. above, departures based on
20 family responsibilities are not permitted by the advisory Guidelines
21 except in extraordinary circumstances. The district court granted
22 such departures in favor of Freedman on the basis of his long
23 relationship with his brother, who is mentally retarded and has
24 cerebral palsy, and, separately, on the basis of his relationship
25 with his mother-in-law, who is elderly. While these circumstances
26 are sympathetic, they fall short, singly and in combination, of
27 showing the extraordinary circumstances needed to relieve Freedman
- 67 -
1 of a substantial prison term.
2 Freedman is not his disabled brother's primary care-giver.
3 His brother lives in an assisted living facility. Further, although
4 Freedman's relationship with his brother seems more substantial than
5 some sibling relationships, their relationship does not involve
6 frequent interaction in person. Freedman lives in New York and his
7 brother lives in Massachusetts; their communications are largely
8 telephonic. In addition, although the court found that Freedman
9 provides his brother with a type of support that others cannot
10 provide and have not provided, the court did not mention the fact,
11 noted in the PSR, that Freedman has a sister who lives in
12 Massachusetts and shares the responsibility for making decisions
13 with respect to their brother's affairs. It is beyond the bounds of
14 discretion to conclude that Freedman's brother's need to telephone
15 Freedman, sympathetic as it is, warrants the reduction of Freedman's
16 prison time from the PSR-recommended 108-135 months to zero.
17 Nor is Freedman the primary care-giver for his mother-in-
18 law. She too lives in an assisted living facility. And the court's
19 only finding in support of its conclusion that this relationship too
20 "entitle[d] Mr. Freedman to a downward departure" was that Freedman
21 "manag[es her] affairs and tak[es] her out." (Freedman S.Tr. 59-
22 60.) These circumstances fall far short of a basis for departure.
23 4. Departure on Account of Freedman's Age and Health
24 Finally, we turn to the court's departure on the basis of
25 Freedman's age--nearly 69 at the time of sentencing--and his health.
26 "Age . . . is not ordinarily relevant in determining whether a
27 sentence should be outside the applicable guideline range."
- 68 -
1 Guidelines § 5H1.1 (Policy Statement). This departure is most
2 troublesome because of the implications of the court's findings with
3 respect to the ability of the BOP to care for prisoners who have
4 heart conditions and because the evidence as to the ailment on which
5 the court principally relied indicated that that ailment was not
6 caused by Freedman's heart condition and was neither permanent nor
7 constant.
8 The Sentencing Reform Act provides that the Sentencing
9 Commission "shall consider whether" various factors, including a
10 defendant's physical condition, "have any relevance" to the
11 "imposition of [a] sentence[] of . . . imprisonment," and that it
12 "shall take th[ose factors] into account only to the extent that
13 they do have relevance." 28 U.S.C. § 994(d)(5). The Guidelines
14 state that a defendant's "[p]hysical condition . . . is not
15 ordinarily relevant in determining whether a sentence should be
16 outside the applicable guideline range," Guidelines § 5H1.4 (Policy
17 Statement). Accordingly, we have stated that in order to warrant a
18 departure resulting in a nonincarceratory sentence on the basis of
19 an extraordinary health condition, the "defendant must be seriously
20 infirm with [a] medical condition that cannot be adequately cared
21 for by [the] Bureau of Prisons . . . ." United States v. Martinez,
22 207 F.3d 133, 139 (2d Cir. 2000); see generally United States v.
23 Altman, 48 F.3d 96, 104 (2d Cir. 1995).
24 In connection with Freedman's heart condition, the
25 government submitted the BOP Health Systems Administrator's
26 statement that the inmates housed and cared for by the BOP include
27 "18,877 with hypertension, 4,016 with hyperlipidemia, 1,926 with
28 carotid artery disease, 4,000 with cardiac disease, 3,465 with
- 69 -
1 arteriosclerotic heart disease, 2,100 with cardiac arrhythmia, and
2 1,121 with congestive heart failure." (First Cadogan Letter at 2.)
3 The BOP represented that it could provide adequate medical care for
4 Freedman as well. In addition, following Freedman's near-fatal bout
5 with urosepsis, the government presented evidence that the BOP has
6 contracts with major medical centers that offer the BOP "a wide
7 range of trained surgical specialists," and that each prison has
8 procedures in place to provide both "routine" care and timely
9 "emergency transportation" to one of the local medical centers.
10 (Second Cadogan Letter at 1.)
11 The district court, in concluding that the BOP could not
12 adequately care for Freedman, stated that it knew that each prison
13 had contracts with outside medical facilities, but stated, "I also
14 know it to be true . . . that one does not get the immediate
15 monitoring and immediate response that in this instance has proved
16 so necessary literally for Mr. Freedman's life." (Freedman S.Tr. 58
17 (emphasis added).) The court found that "the BOP does not have the
18 ability, in my view, to monitor Mr. Freedman's situation constantly
19 and to respond immediately," and that "the recent health issue has
20 made it very, very plain that without that ability to monitor
21 constantly and respond immediately, sending Mr. Freedman to prison
22 would in effect be a death sentence." (Id. (emphases added).)
23 We have two principal difficulties with the court's
24 findings. Preliminarily, however, we note that the court's
25 statement that "sending Mr. Freedman to prison would in effect be a
26 death sentence" appears, on this record, to be hyperbole. After so
27 stating, the court proceeded to address other bases for departure
28 (e.g., Freedman's relationships with his brother and mother-in-law)
- 70 -
1 and concluded that both warranted a downward departure (see id. at
2 59-60). The court also considered Freedman's charitable works,
3 along with "the collateral consequences suffered here"--apparently
4 referring to Freedman's public humiliation and the loss of his
5 license to practice law--and "the substantially overlapping
6 enhancements"--apparently referring to the magnitude of the losses
7 and the need for more than minimal planning in order to defraud
8 banks of amounts of such magnitude (which were the only recommended
9 enhancements that were accepted by the court)--and concluded that
10 "all of these factors . . . in combination also independently
11 deserve[d] a downward departure." (Id. at 60). Without endorsing
12 the proposition that these factors could justify a downward
13 departure, we presume that there would have been no need to address
14 any other ground for departure if the court had literally meant that
15 a prison term for Freedman would result in his death.
16 Our main difficulties with the court's decision that
17 Freedman's health precluded imprisonment are (1) that the district
18 court's views constitute a clearly erroneous assessment of the
19 evidence, in light of Freedman's own evidence as to both the onset
20 and the outcome of his near-fatal episode of urosepsis, and (2) that
21 the court cited no evidentiary support for its assertion that the
22 BOP cannot provide adequate care for Freedman.
23 As to the state of Freedman's health, the court referred
24 to "the recent health issue," to a need for "constant[]" monitoring,
25 and to the availability of an "immediate response that in this
26 instance has proved so necessary literally for Mr. Freedman's life"
27 (id. at 58). The court did not refer, however, to any of the
28 details of Freedman's recent health scare, and those details raise
- 71 -
1 serious questions as to the court's conclusion that the BOP lacks
2 the ability to care for Freedman, for the evidence did not indicate
3 that he needs to be "monitor[ed] constantly."
4 First, while Freedman's heart condition made treatment for
5 his emergency problem difficult, the episode that was life-
6 threatening was not caused by his heart condition. Although it was,
7 as his cardiologist stated, "an unfortunate event" that
8 "demonstrate[d] the necessity of careful and ongoing medical care,
9 given [his] cardiac condition," it nonetheless was an "event"
10 (Reison May 23 Letter at 1), rather than either an aspect of his
11 chronic heart condition or an additional permanent condition.
12 Second, the reports of Freedman's physicians revealed the
13 transitory nature of the event, which began as kidney stones
14 blocking Freedman's urinary tract, causing pain and fever.
15 Freedman's urologist explained that, in the hospital, a catheter was
16 inserted, bypassing an obstructing stone, and that Freedman
17 thereafter went into shock and urosepsis. (See Wechsler May 10
18 Letter.) Hospital records show that after some 3½ weeks, nearly two
19 of which Freedman spent in intensive care, a procedure was performed
20 in which Freedman's kidney stones were broken up and most of the
21 pieces removed (see Discharge Summary Note for Freedman, Sanford, by
22 Michael Wechsler, M.D., dated April 20, 2005 ("Hospital Discharge
23 Summary Note"), at 2-3); that Freedman "tolerated the procedure well
24 and was sent to the recovery room in good condition" (Operative
25 Report of Michael Wechsler, M.D., dated April 19, 2005 ("Operative
26 Report"), at 2); and that there were no complications (see Hospital
27 Discharge Summary Note at 3).
28 One day after that procedure, Freedman was well enough to
- 72 -
1 leave the hospital. Upon his discharge, his condition was "[g]ood,
2 tolerating [a] regular diet," and he was able to "ambulate
3 independently without problems." (Id.) Although after the April 19
4 procedure a few tiny fragments of stone had remained, the
5 urologist's "feeling was that these fragments would easily pass."
6 (Operative Report at 2.) By the time of the urologist's May 10
7 letter to the court, only one fragment of stone remained; the letter
8 stated that if that remaining fragment did not pass, it would have
9 to be removed surgically; but there was no suggestion that there was
10 any impediment to that procedure should it be needed. (See Wechsler
11 May 10 Letter.) The need to "watch[ Freedman] closely" was
12 described only as persisting "until he is stone-free and until his
13 condition is completely stabilized." (Id.) The letter stated that
14 Freedman had "continued to do fairly well." (Id.)
15 As to the period following Freedman's discharge from the
16 hospital, the records of his visits to his cardiologist's office
17 reflected that Freedman "feels well" (Notes of Dr. Reison dated
18 April 28 and May 2, 2005), and that Freedman "feels OK but still
19 fatigues easily" (Notes of Dr. Reison dated May 23, 2005). The
20 cardiologist's May 23 letter to the district court stated that
21 Freedman's "recovery since his hospitalization has been slow but
22 steady. He currently is gaining strength . . . ." (Reison May 23
23 Letter at 1.)
24 There is no question that Freedman's episode with
25 urosepsis presented an emergency event that was nearly fatal; but
26 these records show that the event was transitory, an infection from
27 which Freedman recovered.
28 Third, the onset of Freedman's emergency was not sudden.
- 73 -
1 Freedman was admitted to the hospital on March 25; however, his
2 painful symptoms had begun days earlier. Freedman's wife, in a
3 letter to the district court, stated that "[d]uring the week of
4 March 20, [Freedman] was experiencing great pain from kidney stones.
5 His symptoms grew worse throughout the week . . . ." (Letter from
6 Frances Freedman to Judge Preska dated June 6, 2005 ("Frances
7 Freedman Letter"), at 1 (emphases added).) By the end of the week
8 his condition had so deteriorated that Freedman's cardiologist, Dr.
9 Reison, was consulted, and he instructed Mrs. Freedman to take
10 Freedman to the hospital emergency room. (See id.) The crucial
11 need for "rapid attention" was attributed by his cardiologist to
12 "his deteriorating status." (Reison May 23 Letter at 1.) However,
13 according to Freedman's wife's letter to the court, it had taken
14 nearly a week after the onset of his pain for Freedman's problem to
15 grow to crisis proportions.
16 The district court, in "find[ing] that adequate medical
17 care for [Freedman] cannot be accomplished in prison" (Freedman
18 S.Tr. 64), made no reference to any of these facts--the fact that
19 Freedman's urosepsis was not caused by his cardiac condition, the
20 transitory nature of the urosepsis, the length of time it had taken
21 for his condition to reach crisis proportions, and the physicians'
22 reports that Freedman was doing well after leaving the hospital.
23 Thus, in finding that adequate medical care cannot be provided
24 because "the BOP does not have the ability, in my view, to monitor
25 Mr. Freedman's situation constantly and to respond immediately" (id.
26 at 58 (emphasis added)), the court ignored the fact that Freedman
27 did not require "constant[]" monitoring: his condition did not
28 reach emergency proportions until he had been in "great pain" for a
- 74 -
1 week.
2 Further, the district court's view that Freedman's
3 condition requires "constant[]" monitoring was clearly erroneous in
4 light of the statements of Freedman's physicians and the medical
5 records. The cardiologist's statement that Freedman would not have
6 survived without "rapid attention to his deteriorating status"
7 (Reison May 23 Letter at 1) was focused on a status that had been
8 preceded by several days of Freedman's own delay in seeking medical
9 attention for his painful symptoms. As to Freedman's status after
10 leaving the hospital, the cardiologist stated that Freedman's
11 cardiac condition requires "careful and ongoing medical care" (id.),
12 and the urologist stated that Freedman "will need to be watched very
13 closely" "until he is stone-free and until his condition is
14 completely stabilized" (Wechsler May 10 Letter (emphases added));
15 but neither physician stated that Freedman needed to be monitored
16 "constantly."
17 Indeed, we see no suggestion in the record that, following
18 his release from the hospital, Freedman was so monitored. The
19 record does not indicate that he saw his cardiologist more than once
20 or twice a week; and the hospital's "discharge plans" called for
21 Freedman to "[f]ollow up with [his urologist] in 2 weeks" (Hospital
22 Discharge Summary Note at 3 (emphasis added)).
23 Thus, the major premise of the district court's finding
24 that the BOP cannot adequately care for Freedman, i.e., that he
25 requires "constant[]" monitoring, reflects a clearly erroneous
26 assessment of the evidence. As there was no evidence that
27 Freedman's heart condition requires constant monitoring, the court's
28 view that the BOP cannot provide constant monitoring for his heart
- 75 -
1 condition provides no basis for giving Freedman a nonincarceratory
2 sentence.
3 Finally, even if the record supported the court's premise
4 that Freedman's condition required constant monitoring, we see no
5 support in the record for the district court's finding that the BOP
6 could not or would not provide that care. The government presented
7 evidence that the BOP cares for many thousands of inmates who have,
8 inter alia, cardiac disease, hypertension, carotid artery disease,
9 arteriosclerotic heart disease, cardiac arrhythmia, and/or
10 congestive heart failure. Although the court stated that it
11 "know[s] it to be true . . . that one does not get . . . immediate
12 monitoring and immediate response" from the BOP, the court cited no
13 evidence to support that statement. If there is evidence to support
14 a finding that the BOP is incapable of providing prompt response to
15 inmates' emergency medical needs, its disclosure is not only
16 essential to the sustainability of the findings in this case, it is
17 essential for the avoidance of unwarranted disparities among
18 similarly situated defendants; and it is in the best interest of a
19 humane society that any such evidence be disclosed.
20 In sum, in all the circumstances indicated here, the
21 district court's reasons for imposing on Freedman a nonincarceratory
22 sentence are not supported by the evidence. The record does not
23 support the proposition that Freedman's medical condition cannot be
24 adequately cared for by the BOP, and we thus cannot conclude that
25 the departure on the basis of his health--either alone or in
26 combination with any other factors--was authorized.
27
- 76 -
1 CONCLUSION
2 We have considered and found to be without merit the
3 arguments of Cutler and Freedman in opposition to the government's
4 appeal and cross-appeal, respectively, challenging the sentences
5 imposed on them. Given the procedural errors, the clear factual
6 errors, and the misinterpretations of the § 3553(a) factors
7 discussed above--in particular of the needs to provide just
8 punishment, to afford adequate deterrence of crimes by others, to
9 avoid unwarranted disparities among similarly situated defendants,
10 and to promote respect for the law--we conclude that the court's
11 sentence on Cutler insofar as it ordered him to serve a relatively
12 short term of imprisonment, and its sentence on Freedman insofar as
13 it imposed no term of imprisonment, are substantively unreasonable
14 and constituted an abuse of discretion. Accordingly, the sentences
15 imposed on Cutler and Freedman are vacated, and the matters are
16 remanded for further proceedings not inconsistent with this opinion.
- 77 -
1 POOLER, Circuit Judge, concurring:
2 I agree with the majority that the two sentences about which we
3 write today must be vacated and the cases remanded to the district
4 court. My disagreement is, in part, with the breadth of the
5 discussion. The majority opinion skillfully explains the several
6 procedural errors committed by the district court in imposing
7 sentence. I need not repeat them here. Whether or not I agree with
8 each finding of error, I concur that remand for resentencing is
9 required. Since we find that the district court has not, as yet,
10 imposed a procedurally adequate sentence, my understanding of
11 United States v. Booker, 543 U.S. 220 (2005), and the triad of
12 recent cases, Rita v. United States, 127 S. Ct. 2456 (2007),
13 Kimbrough v. United States, 128 S. Ct. 558 (2007), and Gall v.
14 United States, 128 S. Ct. 586 (2007), is that it is premature for
15 the appellate court to engage in substantive review. I believe that
16 the district court is entitled to the opportunity to correct
17 procedural errors and, if or when a procedurally correct sentence is
18 imposed, and is appealed, we may engage in substantive
19 reasonableness review -- applying “a deferential abuse-of-discretion
20 standard,” Gall, 128 S. Ct. at 591, id. at 598, and, when a sentence
21 is outside the Guidelines range, giving “due deference to the
22 district court’s decision that the § 3553(a) factors, on a whole,
23 justify the extent of the variance,” Gall, 128 S. Ct. at 597. By
24 concluding that the sentences of Cutler and Freedman are
25 substantively unreasonable, the majority is substituting its view of
26 what their proper sentences are, for that of the district court, an
27 exercise we are reminded is not within our province to accomplish.
- 78 -
United States v. Cutler
Court: Court of Appeals for the Second Circuit
Date filed: 2008-03-17
Citations: 520 F.3d 136
Copy CitationsCombined Opinion