Filed: Jan. 04, 2011
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Summary: [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT FILED _ U.S. COURT OF APPEALS ELEVENTH CIRCUIT JANUARY 4, 2011 No. 09-15151 JOHN LEY Non-Argument Calendar CLERK _ D. C. Docket No. 08-00049-CR-4-RH-WCS UNITED STATES OF AMERICA, Plaintiff-Appellee, versus DON WARNER REINHARD, Defendant-Appellant. _ Appeal from the United States District Court for the Northern District of Florida _ (January 4, 2011) Before EDMONDSON, MARTIN and KRAVITCH, Circuit Judges. PER CURIAM:
Summary: [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT FILED _ U.S. COURT OF APPEALS ELEVENTH CIRCUIT JANUARY 4, 2011 No. 09-15151 JOHN LEY Non-Argument Calendar CLERK _ D. C. Docket No. 08-00049-CR-4-RH-WCS UNITED STATES OF AMERICA, Plaintiff-Appellee, versus DON WARNER REINHARD, Defendant-Appellant. _ Appeal from the United States District Court for the Northern District of Florida _ (January 4, 2011) Before EDMONDSON, MARTIN and KRAVITCH, Circuit Judges. PER CURIAM: ..
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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JANUARY 4, 2011
No. 09-15151
JOHN LEY
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 08-00049-CR-4-RH-WCS
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DON WARNER REINHARD,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Florida
_________________________
(January 4, 2011)
Before EDMONDSON, MARTIN and KRAVITCH, Circuit Judges.
PER CURIAM:
Don Reinhard was an apparently successful businessman who made
millions of dollars investing other people’s money. But Reinhard’s investment
business fell on hard times in the early 2000s, and amid allegations of
mismanagement, he filed for bankruptcy in 2006. Two years later, after a lengthy
investigation by the Internal Revenue Service, a federal grand jury returned a 23-
count indictment charging Reinhard with bank fraud under 18 U.S.C. § 1014 and
failing to disclose assets to the bankruptcy trustee, in violation of 18 U.S.C.
§ 152(3).1 Reinhard pleaded guilty to both charges.2
The district court, after considering the U.S. Sentencing Guideline
concerning victim losses, U.S.S.G. § 2B1.1(b)(1), increased Reinhard’s offense
level by 12, sentenced him at the top of the applicable guidelines range to 51
months in prison, and issued a restitution order.3 In this appeal, Reinhard
challenges the district court’s application of § 2B1.1(b)(1) and presents two
questions for our consideration.
1
The indictment also charged violations of 18 U.S.C. §§ 2, 152(7), 1001(a), 1344,
1956(a)(1)(B)(i), and 2314, along with tax-related crimes under 26 U.S.C. § 7206(1)–(2).
2
In exchange for the guilty plea on these counts and several others, the Government had
the remaining charges in the indictment dismissed.
3
The court also imposed a five-year term of supervised release, which Reinhard has not
challenged on appeal.
2
First, after filing for bankruptcy in 2006, Reinhard failed to disclose that he
owned three valuable glass sculptures. The works were appraised at $40,000 each
in 2004, but one of them sold at auction for only $24,000 in 2007. Did the district
court err by using the works’ 2004 appraisal value to measure the bankruptcy
estate’s loss?
Second, Reinhard defaulted on a loan that his bank had modified in reliance
on false documentation he submitted. Reinhard contends that the bank was going
to lose money anyway before the loan was modified. Did the district court err by
attributing the bank’s loss to Reinhard’s fraud? If so, was the corresponding order
of restitution improper?
I
We begin our analysis with the loss attributable to Reinhard’s bankruptcy
fraud. The district court determined that the bankruptcy estate’s loss on the
undisclosed sculptures was $120,000: three times the $40,000 appraisal figure for
each work.4 The court’s determination is a factual finding that we review for clear
error. United States v. Cabrera, 172 F.3d 1287, 1292 (11th Cir. 1999).
4
The specific appraisal figures were $38,000, $39,000, and $43,000.
3
Reinhard concedes that the estate’s loss should be measured by the value of
the undisclosed artworks,5 but he argues that the district court clearly erred by
relying on outdated appraisals in a sinking economy. He contends that the
$24,000 auction price was a more appropriate measure of each work’s value.
There is something to be said for Reinhard’s argument, but we see no clear
error in the district court’s finding that the appraisals were a better measure of
value. For one thing, just as the 2004 appraisals may have overstated the
sculptures’ 2006 value, the 2007 sale price may have understated the works’ 2006
value. And although auction prices are often good indicators of market value,
Reinhard sold the work at issue here online, through eBay. Unlike a gallery sale
or live auction—in which buyers would have been able to see the sculpture in
person—the online auction reduced the work to a flat, digital representation. The
Government presented a reasonable estimate of the bankruptcy estate’s loss,6 and
5
Reinhard halfheartedly argues that he should only be held responsible for loss associated
with the one work he sold, but “loss” under U.S.S.G. § 2B1.1(b)(1) means “the greater of actual
or intended loss.” U.S.S.G. § 2B1.1, comment. (n.3(A)). On these facts, the district court
reasonably found that by refusing to disclose his ownership of the works, Reinhard intended to
deprive the bankruptcy estate of the value of all three.
6
Cf. Cabrera, 172 F.3d at 1292 (“The guidelines do not require the government to make
a fraud loss determination with precision; the figure need only be a reasonable estimate given the
information available to the government.”).
4
the court did not err by finding that formal appraisals were a better indication of
value here than an online auction price.
II
With respect to Reinhard’s bank fraud, the following facts were established
before sentencing. Reinhard financed the purchase of a 2000 Sea Ray pleasure
boat with a loan from SouthTrust Bank.7 In 2003, Reinhard decided to reduce his
debt-servicing burden by selling the Sea Ray and using the proceeds to buy a
smaller 2004 Contender boat. To secure financing for the deal, Reinhard provided
SouthTrust with what purported to be a copy of his 2001 federal tax return.
Relying on that document, SouthTrust agreed to modify the terms of the original
loan by accepting a $95,000 payment on the outstanding principal and substituting
the Contender for the Sea Ray as collateral.
But the document Reinhard gave to the bank had never been filed with the
IRS. Moreover, where the return he gave the bank showed $944,000 in adjusted
gross income, the return he had actually filed reported only $389,000. According
to an IRS investigator’s conversation with the bank’s president, had the bank been
given Reinhard’s real tax return, it never would have approved the loan
7
When Reinhard was sentenced, SouthTrust had become part of Wachovia.
5
modification. And when Reinhard defaulted on the modified loan, SouthTrust was
left with a deficiency of over $147,000.8
A. Sentencing
Reinhard contends that the bank was going to lose money regardless of
whether it modified the loan, and he argues that the district court erred by
attributing a loss that the bank would have incurred anyway (when he defaulted on
the original loan) to his fraud. The Government, on the other hand, insists that
Reinhard should be held responsible for any loss that the bank incurred on the loan
as modified. In other words, the Government prefers a simpler loss calculation:
“While it may be true that the bank was ultimately in a better position in relation
to its loan to the defendant after the Contender transaction, the evidence
established that the bank ultimately lost $147,240.76.” Appellee’s Br. 21.
We are skeptical of the Government’s argument,9 but we need not decide the
issue here. In calculating the advisory range of sentences under the Guidelines,
the district court increased Reinhard’s offense level by 12 points because the total
8
The outstanding balance on the loan was $213,158.84, and the Contender sold for
$82,739.54, creating a true deficiency of $130,419.30. But SouthTrust had to spend another
$16,821.46 to retrieve the boat for sale, and for the sake of simplicity, we have combined these
figures in our discussion of the $147,240.76 “deficiency.”
9
The only loss relevant to Reinhard’s offense level under the Guidelines is “pecuniary
harm that resulted from the offense.” U.S.S.G. § 2B1.1, comment. (n.3(A)(i)) (emphasis added).
6
loss attributable to his bank and bankruptcy frauds was $357,817, or between
$200,000 and $400,000. See U.S.S.G. § 2B1.1(b)(1). In addition to the bank’s
$147,000 deficiency, that figure included the $120,000 bankruptcy loss associated
with the undisclosed artworks and other, undisputed losses of over $90,000. Even
if we concluded that the district court had erred by holding Reinhard responsible
for the deficiency, the total loss would still exceed $210,000—which would
warrant the same 12-point offense-level adjustment that the district court applied.
Because a mistake on this point would not have affected Reinhard’s sentence, any
error was harmless. See, e.g., United States v. Raad, 406 F.3d 1322, 1323 n.1
(11th Cir. 2005).
B. Restitution
The district court also ordered Reinhard to pay the bank over $171,000 in
restitution, which included the $147,000 deficiency along with interest and
attorney’s fees. The Mandatory Victims Restitution Act requires a sentencing
court to order the defendant to compensate his victims for any financial losses
“resulting” from his crimes. 18 U.S.C. § 3663A. The question here is whether the
district court clearly erred in its finding that the bank’s exposure to the deficiency
resulted from Reinhard’s fraud. See United States v. Hasson, 333 F.3d 1264, 1270
7
(11th Cir. 2003) (“We review factual findings underlying a restitution order for
clear error.”).10
In defense of the award, the Government adopts the same argument it made
concerning loss under U.S.S.G. § 2B1.1(b)(1): Reinhard should pay for the bank’s
losses regardless of whether it “was ultimately in a better position in relation to its
loan” after the modification. Appellee’s Br. 21. But that simplistic approach
would run afoul of express language in the Mandatory Victims Restitution Act,
which authorizes restitution only for losses “resulting” from the “offense.” 18
U.S.C. § 3663A(b)(1); cf. United States v. Dickerson, 370 F.3d 1330, 1335 (11th
Cir. 2004) (“A federal district court has ‘no inherent authority to order restitution,
and may do so only as explicitly empowered by statute.’” (quoting United States v.
Hensley,
91 F.3d 274, 276 (1st Cir. 1996))). Defaulting on a loan is not a crime,
and holding Reinhard responsible for what the bank “ultimately” lost—even if the
modification may have saved it money—would be to hold him responsible for loss
resulting not from the offense itself, but from a preexisting and lawful business
relationship.
10
The Government argues that we should review the restitution award only for plain error
because Reinhard did not specifically object to the award when it was imposed. We disagree.
The district court derived the loss figure for the restitution award from the loss calculation under
U.S.S.G. § 2B1.1(b)(1). Having failed to persuade the court on the latter issue, Reinhard was not
required to raise the same objection again when the court ordered restitution.
8
Reinhard’s offense was making false statements during his application for a
loan modification.11 And the only loss that could fairly be said to have resulted
from that offense is loss proximately caused by the modification itself, as opposed
to the original loan. As the district court said, “if there was a loss that was already
going to be incurred anyway, then that’s not attributable to the later fraud.”
Sentencing Tr. 6; see also United States v. Liss, 265 F.3d 1220, 1231 (11th Cir.
2001) (“An award of restitution must be based on the amount of loss actually
caused by the defendant’s conduct.”).
When the defendant challenges the amount of a victim’s loss for the
purposes of a restitution award, the Government bears the burden of proving that
loss by a preponderance of the evidence. 18 U.S.C. § 3664(e). Here, therefore,
the Government had to prove that the bank’s losses on the modified loan exceeded
those the bank would have incurred when Reinhard defaulted on the original loan.
The only evidence the Government produced on this point was testimony that the
11
Specifically, Reinhard pleaded guilty to
knowingly mak[ing] any false statement or report . . . for the purpose of
influencing in any way the action of . . . any institution the accounts of which are
insured by the Federal Deposit Insurance Corporation . . . upon any . . . loan, or
any change or extension of the same, by . . . substitution of security therefor.
18 U.S.C. § 1014.
9
bank never would have modified the loan if it had known that Reinhard submitted
a false tax return with his application.
On the other side of the scale was conflicting testimony from the same
witness that the bank agreed to the modification “because it was actually reducing
the bank’s risk with respect to the [original] loan.” Sentencing Tr. 49. And
although the financial particulars of the modification are hazy, rough figures in the
record support Reinhard’s contention that the bank benefitted from the transaction.
We know from the modification agreement, for instance, that the outstanding
balance on the original loan was around $327,000. And testimony at the
sentencing hearing revealed that Reinhard gave the bank $95,000 to facilitate the
modification, under the terms of which the bank financed the purchase of a
$265,000 boat with a $233,000 loan. This development not only reduced the
bank’s overall exposure; it also left the bank with a fully secured loan.
Although the deficiency when Reinhard defaulted means that the modified
loan eventually became undersecured, the record does not support a finding that
the modification left the bank undersecured at the outset. Accordingly, unless the
loan was at least as oversecured before the modification as it was afterward, none
of the bank’s loss on the deficiency can be attributed to Reinhard’s fraud. And by
10
failing to show that the modified loan was any riskier than the original,12 the
Government failed to present enough evidence to support the district court’s
finding that the bank’s loss was properly charged to Reinhard’s crime.
Notwithstanding the Government’s failure to discharge its burden of proof
on this issue, the district court concluded that all of the bank’s loss on the
deficiency resulted from the fraud. This finding not only discounted the
possibility “that the bank was going to take a loss anyway,” Sentencing Tr. 63, it
also assumed, without any evidence, that the bank would have taken no loss if
Reinhard had defaulted on the loan under its original terms. The record, at least in
its current state, thus leaves us “with the definite and firm conviction that a
mistake has been committed.” Anderson v. Bessemer City, 470 U.S. 564, 573
(1985), quoted in United States v. Robertson,
493 F.3d 1322, 1330 (11th Cir.
2007). This was clear error.
III
Because the district court committed, at most, only harmless error with
respect to the victim-loss calculations under the Guidelines, we affirm Reinhard’s
sentence. But in light of our conclusion that the court clearly erred in its finding
12
In response to questioning by the district court, the Government’s primary witness
admitted that she “[didn’t] know anything about the transaction of the big boat” that secured the
original loan. Sentencing Tr. 58.
11
that Reinhard’s bank fraud “result[ed] in damage or loss” to SouthTrust, 18 U.S.C.
§ 3663A(b)(1), we vacate the restitution award in favor of the bank and remand
for further proceedings consistent with this opinion.13
AFFIRMED in part, VACATED in part, and REMANDED.
13
The restitution award in favor of the IRS has not been challenged on appeal, and we
leave it undisturbed.
12
