United States v. Mueffelman

United States Court of Appeals
For the First Circuit

No. 05-2616

UNITED STATES OF AMERICA,

Appellee,

v.

STEVEN D. MUEFFELMAN,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nancy Gertner, U.S. District Judge]

Before

Boudin, Chief Judge,

Campbell, Senior Circuit Judge,

and Lipez, Circuit Judge.

Martin G. Weinberg with whom Kimberly Homan was on brief for
appellant.
Peter A. Mullin, Assistant United States Attorney, with whom
Michael J. Sullivan, United States Attorney, was on brief for
appellee.

November 28, 2006
 BOUDIN, Chief Judge. By a superceding indictment, Steven

Mueffelman was charged by a federal grand jury with 15 counts of

mail fraud, 18 U.S.C. § 1341 (2000), and 3 counts of wire fraud.

Id. § 1343. A co-defendant, John Lombardi, pled guilty, but

Mueffelman went to trial in a proceeding lasting almost a month.

Reserving details and disputed issues for the discussion below, the

evidence showed the following.

In the summer of 1996, Mueffelman, Lombardi and an

attorney formed a business venture, using an inactive corporation

whose name they changed to Commonwealth Capital Funding Corporation

("CCFC"). CCFC offered to assist persons who were poor or had low

credit ratings in acquiring homes. A primary means was to be an

arrangement in which CCFC purchased property selected by the client

(within a designated price range) at up to 94 percent of its value

and, in a paired transaction, immediately resold the property to

the client for 100 percent of the value with full financing

provided by a mortgage lender found by CCFC.

CCFC charged each client who enrolled in the program a

$100 fee (doubled for couples and later upped to $125) for a credit

check, plus one month's gross income from the client. In exchange

CCFC seemingly promised 100 percent (later expressed as "up to 100

percent") financing. Only 17 of Mueffelman's approximately 300

clients ever purchased homes; those who did purchase homes paid

more for the homes than the sellers were willing to sell them for

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and qualified for a mortgage on the basis of their credit, without

assistance from CCFC. Thus, most of CCFC's income was from the

initial fees rather than the 6 percent differential.

CCFC also claimed to offer a lease-to-purchase program

which (as it was represented) would use a nonprofit entity to

purchase a home with favorable financing and lease it to the client

while the client cleaned up his or her credit record. If the

client did so, the client would then assume the mortgage. A

federal program was in place that provided insured financing under

favorable terms where a nonprofit organization secured the

financing and received the necessary government approvals.

CCFC attracted customers through advertising coupled with

the use of so-called independent sales representatives who called

upon and dealt directly with clients--receiving for themselves 30

percent of the initial client payment of one month's gross income.

Mueffelman, as president of CCFC, hired the sales force, approved

the sales literature, made decisions on purchase offers and sought

to arrange for financing. In the course of its operations in

Massachusetts, lasting from September 1996 to August 1997, CCFC had

or sought relationships with various mortgage brokers and at least

one nonprofit organization.

Investigations by the Massachusetts banking authorities

led in August 1997 to an injunction against Mueffelman, Lombardi

and CCFC. In the months preceding the injunction, Mueffelman set

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about organizing a new but similar venture in Florida under a

different corporate name, which proceeded to enroll clients and

collect fees. Through August 1997, CCFC took in about $1.2 million

in fees from its over 300 clients; the sales force was paid over

$400,000; and Mueffelman himself received over $167,000, apart from

payments from the new Florida venture.

In its indictment, the government identified a number of

specific falsehoods, which it said that Mueffelman had used or

approved to secure money from clients. Each of the counts of mail

or wire fraud that followed in the indictment identified a

particular mail or wire communication by CCFC to a particular

customer on a specified date as a means by which the scheme was

executed. The indictment alleged not only that CCFC was a sham but

also described particular false or misleading statements.

Specifically, the indictment charged that CCFC

advertised "100% financing" and "Home ownership guaranteed!!" and

otherwise appeared to guarantee financing without a down payment

for those with poor credit (e.g., "Bankruptcy OK!"); that CCFC

claimed to have established relationships with lenders and

government-supported loan programs when in fact it had no such

track record; and that CCFC claimed it was an "investor" when in

fact it did no more than seek lenders.

At trial the government offered evidence from which the

jury could have found that CCFC had no record and little prospect

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of finding lenders for clients with poor credit records and no

money for down payments; that the advertising would naturally lead

clients to think that they were getting guaranteed financing for

their month's gross income;1 and that Mueffelman continued to

expand the business despite warnings from others including Lombardi

as to difficulties in securing financing.

The jury convicted Mueffelman of 13 counts of mail fraud.

(The government dismissed the remaining counts.) On November 1,

2004, the district court sentenced Mueffelman to 27 months in

prison. Mueffelman now appeals, contesting both the jury verdict

and his sentence. The standard of review varies with the issue

raised, and we start with the attacks upon the judgment of

conviction and then turn to the sentence.

Mueffelman does not deny in his brief that false

statements to customers were made nor that he was responsible for

them. His core arguments are that his conviction should be

overturned because he optimistically believed that his programs

would succeed; that--contrary to the indictment--his business was

not a sham enterprise; and that the government's reliance at trial

on the false statements was a constructive amendment of the

indictment. We begin with Mueffelman's good-faith argument.

1
A jury could reasonably draw this inference from the
advertising even though CCFC's contract said that CCFC would refund
the fees paid if CCFC made eight suitable offers on houses selected
by the client, all of which were rejected, or, in other materials,
if CCFC was unable to "perform their agreed upon services."

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 The mail fraud statute, so far as pertinent to this case,

requires (1) a scheme to defraud or to obtain money or property by

false or fraudulent pretenses; (2) the use of the mails in

executing the scheme or attempting to do so; and (3) specific

intent, inferred from statutory language and common law background,

which excludes false statements honestly believed to be true and

promises or predictions made in good faith. United States v.

Cacho-Bonilla, 404 F.3d 84, 90 (1st Cir.), cert. denied, 126 S. Ct.

471 (2005); United States v. Dockray, 943 F.2d 152, 155 (1st Cir.

1991); 2 Sand et al., Modern Federal Jury Instructions ¶ 44.01

(Instruction 44-3) (2005).

This is a far cry from saying that Mueffelman was free

knowingly to make false statements to secure money from clients

because he believed that his enterprise would succeed. One can be

optimistic, even with good reason, about the prospects of a

business, but one still cannot, for example, sell stock by lying

about the business' past earnings or the presence of booked orders

that do not exist. A prediction made in good faith may be

sheltered; a statement of fact known to be false is not.2

2
United States v. Dunn, 961 F.2d 648, 651 (7th Cir. 1992)
("[The defendant's] good faith belief that [his company] would be
successful in the long-term was not relevant to the element of
specific intent because that belief did not negate the falsity of
the misrepresentations . . . ."); United States v. Beecroft, 608
F.2d 753, 757 (9th Cir. 1979) ("While good faith is a defense to
mail fraud, an honest belief in the ultimate success of an
enterprise is not, in itself, a defense."); United States v.
Diamond, 430 F.2d 688, 691 (5th Cir. 1970) ("The trial court was

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 In Dockray, we held that a good faith instruction is not

required. 943 F.2d at 155. If references to good faith are made

in fraud instructions, this must be done with great care. Here,

the trial court's good faith instruction, taken as a whole, could

easily have led the jury to think that lies were protected if

Mueffelman believed in his enterprise. The pertinent language from

the instructions is reprinted in an addendum to this opinion. The

instruction was thus overly favorable to Mueffelman, but the jury

convicted anyway.

Mueffelman attempts on appeal to use the overbroad

instruction as the yardstick by which to measure the sufficiency of

the evidence against him, claiming that the instruction is "the law

of the case." It may be unhelpful to use the phrase "law of the

case" in the present context, as if this court were bound by a

district court's ruling; but, in any event, the overbroad

instruction, properly objected to by the government and likely to

be misread in Mueffelman's favor, does not prevent us from

determining the proper legal tests for scienter.3

correct in stating that an honest belief in the ultimate success of
the project is not in itself a defense.").
3
The law of the case usually is invoked to require a court to
follow its own rulings in a case or to follow the directions of a
higher court. United States v. Conley, 323 F.3d 7, 12 (1st Cir.
2003) (en banc). Although we have sometimes used the phrase to
hold the parties on appeal to instructions that were neither
objected to nor patently incorrect, e.g., United States v. Gomes,
969 F.2d 1290, 1294 (1st Cir. 1992), the present case falls outside
this category.

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 Using the correct legal yardstick, Mueffelman is

unquestionably liable for statements of fact that he had to know

were untrue. Importantly, his advertising said or implied that

Mueffelman's business had been ongoing for several years, that it

was in a position to secure 100 percent financing, and that it had

a network of lenders willing to provide loans. Whether Mueffelman

was generally optimistic about his venture does not excuse his

lies.

Mueffelman's next argument is that the government charged

in the indictment that his business was from the outset a sham and

failed to prove it. The indictment did so charge: paragraph 22

stated, "In short, the entire business enterprise conducted by

Mueffelman and Lombardi was a sham designed solely to generate

advance fees." But the indictment also described in detail the

effort to procure monies from clients by specific falsehoods which

the government did prove--which, with the mailings, made out a

violation of the mail fraud statute.

Whether the government failed to prove that the whole

enterprise was a sham from start to finish is a different matter.4

The district judge said in connection with sentencing that CCFC was

not a sham, relying on long hours spent by Mueffelman at the office

4
The government says that the word "sham" in the indictment
did not imply that CCFC made no efforts to secure financing, but it
brushes off its own use of the word "solely" following "sham" in
paragraph 22 of the indictment.

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and endless efforts to find mortgage lenders. We need not decide

if the jury could rationally take a different view of the evidence,

because the sham allegation did not have to be proved to permit and

sustain the conviction.

The indictment adequately charged and gave notice of a

series of false statements, and conviction on this basis did not

constitute a "constructive amendment" of the indictment. A

constructive amendment (fatal without regard to prejudice) occurs

when "the charging terms of the indictment are altered, either

literally or in effect, by prosecution or court after the grand

jury has last passed on them," but a variance, which is permissible

unless prejudice is shown by the defendant, occurs "when the

charging terms remain unchanged but when the facts proved at trial

are different from those alleged in the indictment."5

The concepts of constructive amendment and variance are

closer to a continuum than exclusive categories. See Haines v.

Risley, 412 F.3d 285, 291 (1st Cir.), cert. denied, 126 S. Ct. 831

(2005). Similarly, the line between "the crime charged" and "the

facts charged" is inherently fuzzy. And the distinction between

the concepts is complicated by their use to achieve multiple ends:

5
United States v. Fisher, 3 F.3d 456, 462-63 (1st Cir. 1993);
see also United States v. Fornia-Castillo, 408 F.3d 52, 66 (1st
Cir. 2005); United States v. Dunn, 758 F.2d 30, 35 (1st Cir. 1985);
35 Geo. L.J. Rev. Crim. Proc. 280-83 (2006) (citing dozens of
cases).

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to uphold the grand jury as a safeguard, to identify the crime for

double jeopardy purposes, and to give fair notice to the defense.

Here, the titular crime was not altered: Mueffelman was

charged with mail fraud and convicted of mail fraud. What

Mueffelman argues is that the scheme with which he was charged was

to perpetrate a "sham" business and instead he was convicted only

of false representations. But, of course, he was by the express

terms of the indictment charged with doing both as part of the

overall scheme. This is not a case where the indictment contained

allegations of a sham but not false representations.

There was no constructive amendment of the indictment but

only (if no sham was proved) a scheme similar to but somewhat

narrower in breadth and malignity than that charged in the

indictment. Stirone v. United States, 361 U.S. 212 (1960), relied

on by Mueffelman, applies where the indictment was "broadened by

amendment." Id. at 215-16. By contrast, where the government

proves less than alleged, the result is--at the very worst6-- a

variance:

"A jury need not believe that the defendant did
everything that the indictment charges; it may convict if
it believes he did some of the things the indictment
charges and if those things, by themselves, amount to a

6
By strict definition, one might say that proving fewer than
all of the facts in an indictment--but adding nothing new--is not
a variance at all; but omissions could so seriously distort the
picture presented by the indictment as to raise questions of unfair
prejudice, making the variance precedent pertinent. See, e.g.,
United States v. Self, 2 F.3d 1071, 1084 (10th Cir. 1993).

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 violation of the statute[,]" provided that the indictment
"enable[s] the accused to know the nature and cause of
the accusation against him."

United States v. Callipari, 368 F.3d 22, 34 (1st Cir. 2004),

vacated on other grounds, 543 U.S. 1098 (2005) (quoting United

States v. Doherty, 867 F.2d 47, 55 (1st Cir. 1989)).

As Callipari demonstrates, a variance is fatal only if

the defendant shows prejudice. Mueffelman says that, to refute the

sham allegation, he chose in his cross-examination of Lombardi to

bring out and adopt Lombardi's assertions showing that the

participants had not sought to perpetrate a sham. If no sham had

been charged, says defense counsel, there would have been no need

to rely on Lombardi and the defense would have concentrated more on

refuting the charges of false representations.

The argument does not wash. Most important, the

government was perfectly entitled to charge in one indictment both

that the business was a sham and that it involved false

representations. Only if the latter were omitted or were masked by

an undue emphasis on the former charge would there be any hope of

showing lack of notice. But the false statements were explicitly

and extensively charged, and at trial defense counsel did seek to

refute them where he could do so.

Counsel may be arguing that the charge of sham required

the defense to accredit Lombardi and downplay its hostility to his

adverse testimony. In fact, the sham charge opened up an

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opportunity to focus the defense on an issue where Mueffelman had

some hope of prevailing and to downplay the false representations

issue where the defense was considerably weaker. In any event, the

fact that a witness might help as to one issue and hurt on another

is just a "can't help" of the litigation process.

Separately, Mueffelman attacks his sentence, which

occurred in the period after Blakely v. Washington, 542 U.S. 296

(2004), but before United States v. Booker, 543 U.S. 220 (2005).

The district judge correctly anticipated that Blakely would

undermine the then-existing mandatory guideline regime. She chose

therefore to treat the guidelines as advisory although instructive,

United States v. Mueffelman, 327 F. Supp. 2d 79, 96 (D. Mass. 2004)

("Mueffelman I"),7 and turned out to be right.

Under the pertinent guidelines, the base offense level

for the fraud was 6, U.S.S.G. § 2F1.1(a) (1995), adjusted upward

for multiple and vulnerable victims, U.S.S.G. §§ 2F1.1(b)(2),

3A1.1(b). Mueffelman II, 400 F. Supp. 2d at 372. The most

important adjustment was for the loss inflicted. The government

argued for 11 additional levels based on an intended loss to

7
Mueffelman I was a consolidated decision of all pending
criminal cases in which Judge Gertner held that Blakely rendered
the guidelines advisory. United States v. Mueffelman, 400 F. Supp.
2d 368 (D. Mass. 2005) ("Mueffelman II"), was the sentencing
memorandum that explained Mueffelman's sentence and restitution
order.

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victims of at least $1.1 million, the figure calculated by the

probation report.

The resulting range, based on an offense level of 21, was

37 to 46 months. The district court, believing that the scheme had

not been a sham at the outset, ruled that the loss overstated

Mueffelman's culpability and reduced the offense level to 18,

yielding a range of 27 to 33 months. Mueffelman II, 400 F. Supp.

2d at 379. The district court then sentenced Mueffelman to 27

months in prison and later entered a restitution order.

Mueffelman says that the judge's framework for sentencing

differed from the post-Booker framework as developed in United

States v. Jiménez-Beltre, 440 F.3d 514, 518-19 (1st Cir. 2006) (en

banc). To the extent it did, it was not to Mueffelman's

disadvantage.8 The district court judge treated the guidelines as

advisory although entitled to weight, discounted the loss figure,

listened to arguments made by Mueffelman for a still lower

sentence, and took account of section 3553 factors to the extent

argued by Mueffelman. See United States v. Dixon, 449 F.3d 194,

205 (1st Cir. 2006).

8
Mueffelman relies on United States v. Wallace, 461 F.3d 15,
32 (1st Cir. 2006), but it is clearly distinguishable. In Wallace
we found error in the district court's calculation of upward
departures under the guidelines. We did not remand for
resentencing simply for a failure to anticipate perfectly Jiménez-
Beltre.

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 Only two of those specific arguments made to the district

court are renewed on appeal, and the district court's treatment of

both is easily sustained. First, Mueffelman urged at sentencing

that anything beyond a probationary sentence would impair his

ability to provide restitution for victims. He proposed several

arrangements, by which he would be placed on probation and earn

$120,000-175,000 per year to pay toward restitution, with a friend

promising to make up any short fall.

After hearing objections from the government, the

district judge rejected the proposal. She said that she shared the

prosecutor's skepticism about whether the promised restitution

would be forthcoming and, in addition, she deemed the case among

"the most serious" she had seen in the white-collar crime category.

She noted that the fraud was visited not upon a business but upon

individuals whom the defendant knew personally.

Any notion that the district judge acted unreasonably

would be hopeless. Restitution is desirable but so is the

deterrence of white-collar crime (of central concern to Congress),

the minimization of discrepancies between white- and blue-collar

offenses, and limits on the ability of those with money or earning

potential to buy their way out of jail. See United States v.

Thurston, 456 F.3d 211, 218 (1st Cir. 2006).9 We need not describe

9
In United States v. Menyweather, 447 F.3d 625, 634-35 (9th
Cir. 2006), cited to us by Mueffelman, the Ninth Circuit simply
recognized that restitution is more readily made by an employed,

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the moving testimony of victims in this case as to the effect of

the fraud on their lives.

The other argument for a lower sentence that Mueffelman

urged in the district court and now renews is the disparity between

his sentence and the lesser sentence of his co-defendant.

Lombardi, it will be remembered, pled guilty and assisted the

government, which moved for a downward departure on that account.

U.S.S.G. § 5K1.1 (1995). Although the government had sought some

jail time in its motion for downward departure, the district court

itself placed Lombardi on probation.

Our central concern with disparities is between what the

defendant was given and what is done nationally with defendants in

the same circumstances. Thurston, 456 F.3d at 216; United States

v. Navedo-Concepción, 450 F.3d 54, 60 (1st Cir. 2006); United

States v. Smith, 445 F.3d 1, 5 (1st Cir. 2006). In the ordinary

course, a sentence within the guidelines is likely to reflect the

national standard; and Mueffelman was sentenced within the

guideline range (or below it, depending on how one construes the

district court's loss reduction).

A concern could exist as to both rationality and

appearance if two identically situated defendants received

discrepant sentences from the same judge, United States v. Saez,

non-incarcerated defendant. The appeals court added that it would
be "unlikely to have selected this particular sentence [only
weekend jail time] if [it] were doing the sentencing." Id. at 636.

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444 F.3d 15, 19 (1st Cir. 2006), cert. denied, 2006 WL 1970133

(Oct. 2, 2006), but this is hardly the present situation. That

Lombardi assisted the government is a routine basis for a lower

sentence, a policy endorsed in statute, guidelines and precedent.

18 U.S.C. § 3553(e) (2000) (allowing a sentence even below

mandatory minimum); U.S.S.G. § 5K1.1; e.g., United States v. Duhon,

440 F.3d 711, 720-21 (5th Cir. 2006).

Mueffelman's brief implies that the exact extent of the

disparity needed to be explained. It did not: where the

defendant's own sentence has been justified and the basis for a co-

defendant's lesser sentence is set forth or is apparent, no more

precise calibration of the difference between them is customarily

feasible, let alone required. Cf. United States v. Scherrer, 444

F.3d 91, 94-95 (1st Cir. 2006) (en banc); Navedo-Concepción, 450

F.3d at 58.

Affirmed.

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 ADDENDUM

The third element concerns whether the defendant's
participation in the scheme was knowing and willful. To act
knowingly means to act while being conscious and aware of his or
her actions, realizing what he or she was doing or what was
happening around him or her, and not acting because of ignorance,
mistake, accident, or negligence.

To act willfully means to act voluntarily and
intelligently and with the specific intent to do something that the
law forbids. That is to say, with a bad purpose either to disobey
or disregard the law.

To act with specific intent to defraud means to act
willfully and with the specific intent to deceive or cheat for the
purposes of obtaining money or other property or bringing about
financial gain.

Intent or knowledge may not ordinarily be proven
directly, because there is obviously no way to directly scrutinize
the human mind. You may consider, in determining what the
defendant knew or intended at any given time, you may consider any
statements made or acts done or omitted by the defendant and any
and all facts or circumstances received in evidence that may assist
you. Again, circumstantial evidence.

You may infer, but you're certainly not required to
infer, that a person intends the natural and probable consequences
of acts knowingly done or knowingly omitted. It is entirely up to
you, however, to decide what facts are proven by the evidence that
has been received in this trial.

Excuse me. I thought I could make it through without a
coughing jag, but I didn't.

Okay. Now, I'm going to talk for a moment about good
faith. Since an essential element of the crime charged is intent
to defraud, it follows that good faith on the part of the defendant
is a complete defense for the charge of mail fraud. However,
although I described this as a complete defense, the defendant,
again, has no burden to establish this defense.

As in all matters, it is the government who must
establish beyond a reasonable doubt that the defendant acted with
specific intent to defraud as charged in the indictment.

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 Even if you find that there were false statements or
misrepresentations or omissions of material facts, they do not
amount to fraud unless you also find that they were done with
fraudulent intent.

A defendant acts in good faith when he actually believed,
one, that the plan would succeed; two, that promises made be kept;
and, three, that representations made would be fulfilled.

An honest belief in the truth of the representations made
by a defendant at the time they were made, however inaccurate they
may turn out to be, is consistent--is not consistent, rather, with
an intent to defraud. Likewise, a fraudulent intent is not
necessarily to be inferred from the fact that the venture was
unprofitable, nor is fraudulent intent established by evidence that
the person made a mistake of judgment or an error in management or
was careless.

In order to establish fraudulent intent, it must be
established that the person knowingly or intentionally attempted to
deceive another. One who knowingly and intentionally deceives
another is chargeable with fraudulent intent notwithstanding the
manner and the form in which the deception occurred.

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