United States v. Chorney

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-1343

UNITED STATES OF AMERICA,

Appellee,

v.

HAROLD F. CHORNEY,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Raymond J. Pettine, Senior U.S. District Judge]

Before

Boudin, Circuit Judge,

Campbell, Senior Circuit Judge,

and Stahl, Circuit Judge.

Scott A. Lutes for appellant.

Sean Connelly, Department of Justice, with whom Sheldon

Whitehouse, United States Attorney, Seymour Posner and Margaret

Curran, Assistant United States Attorneys, were on brief for the

United States.

August 24, 1995

BOUDIN, Circuit Judge. Appellant Harold Chorney was

convicted of seven counts of making false statements or

reports to a federally insured bank, 18 U.S.C. 1014, and he

now appeals to challenge both his conviction and sentence.

We set forth the evidence in the light most favorable to the

verdict. United States v. Tuesta-Toro, 29 F.3d 771, 773 (1st

Cir. 1994), cert. denied, 115 S. Ct. 947 (1995).

Chorney was president and owner of Cumberland Investment

Corporation ("Cumberland"), a coin-trading company that

specialized in U.S. silver dollars. During the 1980s,

Cumberland obtained a series of loans from the Eastland Bank

in Woonsocket, Rhode Island. To secure such loans, Eastland

Bank required pledged assets worth twice as much as the loans

themselves. Most of Cumberland's collateral comprised silver

dollars. The gravaman of the charge against Chorney was that

he engineered a false appraisal.

The pledged silver dollars were appraised by William

Tebbetts of the Mayflower Coin and Stamp Company. Chorney

submitted the Tebbetts appraisal to Eastland Bank, which

relied upon the appraisal in deciding how much to loan to

Chorney. The value of an uncirculated silver dollar turns on

its condition, which is rated on a "mint state" ("MS") scale.

A silver dollar in MS-65 condition is considered a "gem" and

is worth substantially more than a coin of MS-64 or lesser

quality.

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Tebbetts testified that in March 1985 he purchased a

coin business, renamed Mayflower, with money given to him by

Chorney. Tebbetts assigned all his rights in the business to

Cumberland, and Cumberland employed him at a weekly salary.

In June 1985, Tebbetts examined hundreds of the pledged

silver dollars being held by Eastland Bank and graded them

all between MS-62 and MS-64. According to Ann Fiumefreddo,

Chorney's secretary, Chorney directed her to type a letter to

Eastland Bank on Mayflower letterhead stating that all of the

silver dollars that Tebbetts had examined were of MS-65

quality. Tebbetts stated that he signed the letter because

he wanted to "keep [his] job."

In August 1985, Tebbetts signed an appraisal on

Mayflower letterhead appraising Cumberland's silver dollar

collection, including the coins pledged to Eastland Bank.

Tebbetts graded all the coins as being MS-65, because Chorney

told him to do so even though Tebbetts knew that this was

untrue. The letter identified Tebbetts as the chief coin

appraiser for Mayflower but did not disclose that Chorney

owned Mayflower and employed Tebbetts. Fiumefreddo, who

typed the appraisal for Tebbetts, asked Chorney whether he

could have a company that he owned appraise another company

that he owned. Chorney replied, "You're better off not

knowing or don't ask questions; something to that effect."

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In mid-1985, Cumberland already had an outstanding loan

balance from Eastland Bank of over half a million dollars.

But after the false appraisal just recounted, Eastland Bank

made additional extensions and renewals of the loans in late

1985 and again in each of the next four years. As the bank

increased and renewed its loans, it took additional coins

from Cumberland. By May 1989, the balance stood at $2.5

million. Bank officials testified that, starting in the fall

of 1985, the bank relied on the Tebbetts appraisal in making

the loan extensions and renewals.

Ultimately, in 1989, Sotheby's auction house appraised

the silver dollars--now numbering 7,820--that Chorney had

pledged to Eastland over the years as collateral to secure

the loans. The Sotheby's appraisal determined that of the

7,820 coins, only one percent were in MS-65 condition and

that the overwhelming majority of the coins were MS-63 or

lower. In the wake of that information, Cumberland went

bankrupt, defaulted on the loans, and criminal proceedings

against Chorney followed.

On May 27, 1993, the jury found Chorney guilty of seven

counts of making a false report and statement to a federally

insured bank. 18 U.S.C. 1014. Chorney was acquitted on a

related conspiracy count, 18 U.S.C. 371, and on ten counts

of mail fraud, 18 U.S.C. 1341. On May 9, 1994, the

district court sentenced Chorney to 27 months' imprisonment,

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followed by three years' supervised release, and ordered him

to pay $569,469 in restitution to the Federal Deposit

Insurance Corporation (Eastland Bank's successor in

interest), and $28,000 to cover the cost of his court-

appointed attorney.

1. On this appeal, Chorney's opening set of challenges

is to his conviction. The first of these--that the district

court erred in denying his motion to appear as co-counsel--

need not detain us long. We have held that "hybrid

representation," by counsel and the defendant, "is to be

employed sparingly and, as a rule, is available only in the

district court's discretion." United States v. Nivica, 887

F.2d 1110, 1121 (1st Cir. 1989), cert. denied, 494 U.S. 1005

(1990).

Here, Chorney's request was based primarily on his

desire to present certain constitutional issues in the pre-

trial phase, although there was also some reference to

Chorney's desire to cross-examine witnesses. The district

court gave defense counsel additional time to present the

constitutional issues, none of which are pressed on this

appeal. We see neither an abuse of discretion nor any

indication of prejudice in the district court's decision not

to allow Chorney to act as his own counsel in presenting

those issues.

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Chorney's next claim of trial error, based on Brady v.

Maryland, 373 U.S. 83 (1963), concerns the government's

failure to provide him with videotapes, photographs and a

transcript; all were made in connection with the bankruptcy

trustee's seizure of assets, including 8,641 silver dollars,

from Cumberland's offices on August 17, 1990. Chorney says

that the government gave him one inadequate videotape but

that he did not learn of the additional materials until after

he filed this appeal.

The additional materials are not part of the record on

appeal, having never been filed in the district court. See

Fed. R. App. P. 10(a). The proper means for Chorney to raise

his contention was by a motion for a new trial under Fed. R.

Crim. P. 33. See United States v. Lau, 647 F. Supp. 33, 34

(D. P.R. 1986), aff'd, 828 F.2d 871 (1st Cir. 1987), cert.

denied, 486 U.S. 1005 (1988). Rule 33 permits such a motion

to be made at any time within two years after judgment, and

that time has not yet expired.

The requirement of a motion in the district court is not

some esoteric formality. In present case, the government

argues that the materials in dispute were not covered by the

Brady doctrine, and several of the arguments (e.g., lack of

materiality) involve issues of fact or fact-based judgments.

This court is not in a good position to resolve those issues

in the first instance, and there is every reason why they

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normally should be winnowed by the trial judge. Accordingly,

we decline to address the Brady issue at this time. See

generally UnitedStates v.Slade, 980F.2d 27,30 (1stCir. 1992).

In his last claim of trial error, Chorney says that the

district court erred when it excused a juror during final

jury deliberations and permitted an 11-member jury to return

a verdict. Fed. R. Crim. P. 23(b) permits this course, in

the trial court's discretion, "if the court finds it

necessary to excuse a juror for just cause" after the case is

submitted to the full jury. Chorney objects that the court

abused its discretion and, in addition, failed to make a

formal finding of just cause.

The case was submitted to the jury on the afternoon of

Monday, May 24, 1993. Deliberations continued the next day.

On the morning of Wednesday, May 26, juror Giguere did not

appear because his eldest son had been killed while working

on a construction job. After Chorney declined to consent to

an 11-member jury, the trial judge said that he was inclined

to adjourn for six days (Monday, May 30, being a holiday) to

see whether Giguere would be able to rejoin the

deliberations, but the judge expressed some concerns about

this delay.

The court then summoned the jury, explained the

situation, indicated its tentative solution, but also said

that the delay "may be just enough to break the momentum, to

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break your chain of thought . . . ." Without objection by

either side, the court asked the jury to reflect and provide

its own assessment. The jury retired and returned to express

a preference for continuing its deliberations. After

reflecting, the district court allowed the jury to resume

deliberations on Thursday, May 27, and the verdict was

rendered later that day.

In managing juries, trial judges are constantly faced

with practical problems, ranging from jurors' dentist

appointments to personal disputes among jury members to rare

family tragedies like this one. Quite often some costs or

risks attend every alternative open to the court. Where the

trial judge takes the time to hear counsel and thoughtfully

weighs the options, we will not second guess the decision

unless the balance struck is manifestly unreasonable. Accord

United States v. Doherty, 867 F.2d 47, 71 (1st Cir.), cert.

denied, 492 U.S. 918 (1989).

The facts already described make it evident that this

was a classic close call. It is true, as Chorney says, that

the district court did not seek to contact Giguere

immediately to see whether he thought he could resume on

Tuesday; but whatever the answer, the substantial delay and

the disruption of ongoing deliberations would have occurred.

As for the lack of a formal "just cause" finding, the

standard is not especially informative and we think that the

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finding is implicit in the trial court's careful

consideration of the matter.

2. At sentencing, the district court began with the

base offense level of six for bank fraud, U.S.S.G. 2F1.1,

and added two levels for more than minimal planning, U.S.S.G.

2F1.1(b)(2).1 The court found that the amount of

financial loss involved was $569,469, and added an additional

eight levels for that loss, U.S.S.G. 2F1.1(b)(1)(I), for a

total offense level of 16. Chorney challenges the district

court's calculation of loss.

Application Note 7(b) to 2F1.1 provides:

In fraudulent loan application cases and
contract procurement cases, the loss is
the actual loss to the victim (or if the
loss has not yet come about, the expected
loss). For example, if a defendant
fraudulently obtains a loan by
misrepresenting the value of his assets,
the loss is the amount of the loan not
repaid at the time the offense is
discovered, reduced by the amount the
lending institution has recovered (or can
expect to recover) from any assets
pledged to secure the loan.

U.S.S.G. 2F1.1, comment (n.7(b)) (1992). Because

Application Note 7(b), as quoted, went into effect on

November 1, 1992, it was not in the guidelines edition used

1Because of ex post facto concerns, the district court

used the 1987 edition of the Sentencing Guidelines in effect
during the period in which the offenses were committed rather
than the version applicable at the time of sentencing. See

United States v. Harotunian, 920 F.2d 1040, 1041-42 (1st Cir.

1990). Citations are to the 1987 edition unless otherwise
indicated.

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by the district court. Nevertheless, Note 7(b) can be

considered because it generally represents a clarification,

not a substantive change. United States v. Bennett, 37 F.3d

687, 694-95 n.11 (1st Cir. 1994).

When the offense was discovered in May 1989, the balance

of unpaid loans was about $2.5 million. To arrive at the

loss figure of $569,469, the court first reduced the $2.5

million by the value of the silver dollars and other assets

that Chorney had pledged to secure the loan. Next, the court

subtracted from the balance an additional $336,951, the value

of the 8,641 unpledged silver dollars that had been seized

from Cumberland. Chorney claims the $336,951 figure should

have been higher.

The $336,951 figure represents the value of the 8,641

coins, as stipulated to by the parties, when they were seized

on August 17, 1990. Chorney says that the district court

should have valued those coins as of May 5, 1989, when they

were worth $590,602.30, again by stipulation. Had the court

used the May 5, 1989, date, Chorney's total offense level

would have been 15 instead of 16, and would have resulted in

a sentencing range of 18 to 24 months, instead of the range

of 21 to 27 months actually employed.

The declining value of the coins resulted from

fluctuations in the market for silver dollars. During the

sentencing hearing, the government argued that the unpledged

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coins should be valued as of February 4, 1994, the day of

sentencing, when their stipulated value had declined further

to $284,401. By contrast, Chorney pressed for the court to

use the May 5, 1989 date, the date the fraud was discovered.

The district court observed that prior to the August 1990

seizure of the coins, the unpledged silver dollars were in

Chorney's possession; by contrast, once the coins were seized

by the bankruptcy trustee, they were removed from Chorney's

control and more likely to be available to satisfy Eastland

Bank's claims.

Obviously, in a case like this one, the selection of any

specific date has an element of arbitrariness; the property

in question declined in value because of market conditions

and no actual sale price was available to fix the loss

definitively. On the other hand, the defendant's misconduct

in the first instance deprived the bank of pledged assets

that, if they had been as falsely represented, would have

given the bank a 100 percent margin of protection against

declines. As for the unpledged assets, they could hardly

have been used to offset the bank's losses until they came

into the possession of the trustee.

We are dealing here with an issue part way between a raw

question of law and one of concrete fact; the issue is the

application of generally phrased guideline language to

specific, but undisputed facts. It is sufficient that the

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district court reached a reasonable outcome. See generally

Reich v. Newspapers of New England, Inc., 44 F.3d 1060, 1069-

70 (1st Cir. 1995). As there was no cross-appeal, we have no

occasion to consider various arguments of the government that

suggest that the district court was unduly generous to

Chorney both in its valuation date and in giving him any

credit at all for the seized but unpledged coins.

As to the loss computations, Chorney also complains that

the district court refused to allow him to call witnesses who

would have testified that Cumberland assets had been sold by

the trustee in an unreasonable manner for less than their

fair value. The only specific assets to which Chorney points

are coins that were pledged to another bank. Chorney's

position is that, if those coins had been sold for their

proper value, there would have been money left over to reduce

the losses of Eastland Bank.

Under Application Note 7 adopted in 1992 (and quoted in

text above), the assets pledged to another bank would be

excluded automatically because they were not pledged to

Eastland Bank. Without mechanically reading this limitation

back into the 1987 edition of the guidelines, we think that

the 1987 guidelines also should be read to disallow general

excursions designed to explore a defendant's other assets not

pledged to the lender. Our reason for this view goes beyond

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the government's legitimate concern with protracted

proceedings to something more basic.

The governing guideline's emphasis on loss, as the main

variable in fixing the offense level, is primarily as a proxy

for the seriousness of the fraud aimed at by the defendant.

Indeed, from the outset, the guidelines have directed that

"intended" loss be used if greater than actual loss. E.g.,

U.S.S.G. 2F1.1, comment (n.7) (1988). A wealthy defendant

who commits a large fraud is not entitled to a minimum

sentence simply because the victim can recoup from the

defendant's other assets. Some might think the crime even

more serious on account of a defendant's wealth; few would

think it less so.

Where a bank loan is fraudulently procured, the original

loan or the outstanding balance is a presumptive proxy for

the actual or threatened loss. Reducing that amount by the

value of assets pledged to the lender reflects the fact that

the real sum at risk for the lender is the difference between

the amount loaned and the collateral. But to give the

defendant credit for other, unpledged assets is simply a free

ride for the wealthy defendant and wholly at odds with the

underlying purpose of the guideline.

This is, of course, a generalization. Perhaps there

might be occasions, at least for cases not governed by the

1992 application note, where a narrow argument might be made

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for taking account of unpledged assets, although none occurs

to us offhand. Still, in the ordinary case it is the illegal

transaction that is to be appraised--not the defendant's

overall wealth--and no reason is provided for making any

exception here.

Finally, Chorney challenges the district court's order

that he pay, as a condition of his supervised release,

$28,000 to cover the costs of his court-appointed attorney.

The statute provides that "[w]henever the . . . court finds

that funds are available for payment from or on behalf of a

person furnished representation," it may authorize or direct

payment to the appropriate parties. 18 U.S.C. 3006A(c)

and (f). "Payment, however, may not be directed without a

finding that the funds are available." United States v.

Santarpio, 560 F.2d 448, 455 (1st Cir.), cert. denied, 434

U.S. 984 (1977). Chorney says that the district court failed

to make this required finding.

As Chorney did not object to the order below, our review

is for plain error. Although the district court apparently

did not formally find that Chorney had funds available to pay

the cost of his attorney, the court did make the $28,000

payment subject to periodic reviews of Chorney's financial

condition. Although this extra safeguard does not quite

comport with Santarpio, it does lessen the impact of the

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district court's failure to determine that funds were

available.

In all events, the issue of available funds could have

been resolved if Chorney had raised the issue with the

district court. We conclude that Chorney has not met his

burden under the plain error standard to demonstrate that the

order "involve[ed] either a miscarriage of justice or

deviations that seriously impair the fundamental fairness and

basic integrity of the trial proceedings." E.g., United

States v. Bullard, 37 F.3d 765, 767 (1st Cir. 1994), cert.

denied, 115 S. Ct. 1809 (1995).

Affirmed.

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