Filed: Aug. 16, 1993
Latest Update: Mar. 02, 2020
Summary: UNITED STATES COURT OF APPEALS For the Fifth Circuit Nos. 92-8108 & 92-8109 UNITED STATES OF AMERICA, Plaintiff-Appellee, VERSUS LOUIS G. REESE, III, Defendant-Appellant. Appeals from the United States District Court for the Western District of Texas (August 13, 1993) Before WISDOM, JOLLY, and DeMOSS, Circuit Judges. DeMOSS, Circuit Judge: I. Lewis G. Reese III (Reese) and his Dallas based companies were major developers of real estate in Texas. During the middle 1980's Reese financed several of
Summary: UNITED STATES COURT OF APPEALS For the Fifth Circuit Nos. 92-8108 & 92-8109 UNITED STATES OF AMERICA, Plaintiff-Appellee, VERSUS LOUIS G. REESE, III, Defendant-Appellant. Appeals from the United States District Court for the Western District of Texas (August 13, 1993) Before WISDOM, JOLLY, and DeMOSS, Circuit Judges. DeMOSS, Circuit Judge: I. Lewis G. Reese III (Reese) and his Dallas based companies were major developers of real estate in Texas. During the middle 1980's Reese financed several of ..
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UNITED STATES COURT OF APPEALS
For the Fifth Circuit
Nos. 92-8108 & 92-8109
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
LOUIS G. REESE, III,
Defendant-Appellant.
Appeals from the United States District Court
for the Western District of Texas
(August 13, 1993)
Before WISDOM, JOLLY, and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
I.
Lewis G. Reese III (Reese) and his Dallas based companies were
major developers of real estate in Texas. During the middle 1980's
Reese financed several of his real estate deals with Lamar Savings
and Loan Association (Lamar) and Western Savings and Loan
Association (Western).
On August 7, 1990, Reese along with four Lamar officials, were
indicted in the Western District of Texas, Austin Division, in
Cause No. A-91-CR-85 for conspiracy to defraud the United States
and its agency, the Federal Home Loan Bank Board, in violation of
18 U.S.C. §371. Count one of the indictment charged Reese as a co-
conspirator involved with conduct to defraud the United States, to
misapply federally insured funds in violation of Title 18 U.S.C. §
657; to cause false entries to be made in the books, reports and
statement of Lamar Savings Association, a federally insured savings
and loan, in violation of Title 18 U.S.C. § 1006; and to make false
and fraudulent statements to the Federal Home Loan Bank Board in
violation of Title 18 U.S.C. § 1001. On June 19, 1991, a one-count
information was filed in the Northern District of Texas in Cause
No. A-91-CR-85, charging Reese with conspiring to defraud the
United States by impeding and impairing the lawful functions of the
Internal Revenue Service, in violation of 18 U.S.C. § 371. The
case was subsequently transferred to the Western District of Texas
and consolidated with Criminal Cause No. A-90-CR-117, the Lamar
case.
Although both cases arose out of Reese's real estate dealings,
each case involved independent events.
A. The Lamar Savings and Loan Association Case
Lamar was a savings and loan institution located in Austin,
Texas. In 1985, The Federal Home Loan Bank Board (FHLBB) notified
Lamar that there were deficiencies in its net worth related to real
estate which Lamar had acquired through foreclosure (REO
Properties); and that Lamar would be required to dispose of these
REO properties in order to correct the deficiencies and to avoid a
supervisory agreement ordered by FHLBB.
2
Lamar decided that it would be difficult to dispose of the REO
properties in the ordinary course of business because the real
estate market was poor at that time. Consequently, it devised a
plan whereby borrowers would be required to purchase an REO
property as a condition of receiving a loan on other property,
thereby making it appear to the regulators that Lamar had sold off
the REO property. Lamar would finance both the legitimate loan and
the REO property sale by lending more money to the borrower than
the original loan request would have required. Lamar executed its
scheme by lending more money to a single borrower than permitted by
the regulators and disguised these excess loans to one borrower by
using nominee borrowers.1 Lamar was therefore able to deceive the
federal regulators as to Lamar's true financial condition.
In order to carry out its plans, Lamar contacted potential
borrowers and let them know that Lamar was prepared to lend money
but only under the above stated conditions.
Reese needed financing to purchase and develop a 225 acre
parcel of land located in DeSoto, Texas (the DeSoto property). On
June 29, 1985 Lamar agreed to lend $37,000,000 to Reese's
corporation, Louis Reese, Inc. with the DeSoto property as
collateral.
As a condition of the loan, Reese agreed to acquire or cause
someone else to acquire two of the REO properties, the "Witte" and
"Ponderosa" properties, which were classified as non-performing
1
The "loan to-one-borrower" limitation rule restricts the amount of money
which a financial institution can lend to any single borrower.
3
assets on Lamar's books. The down payment for these properties was
funded by Lamar lending excess money with respect to the DeSoto
property and the borrower, Louis Reese, Inc., would pass the funds
on to the nominee purchaser. The DeSoto property was thus used to
generate money which would be used to purchase the Witte and
Ponderosa properties from Lamar. Proceeds from the DeSoto loan
were $14,634,663 in excess of the purchase price needed to purchase
the DeSoto property. Approximately $11,000,000 of the excess funds
were used to facilitate the purchase of the Witte and the Ponderosa
properties. These sham transactions created false entries and
artificially inflated Lamar's net worth, resulting in deception of
the FHLBB.
Because the aggregate of the $37,000,000 loan and the loans
for the balance of the sales price of the REO properties would have
exceeded Lamar's legal lending limits to any one borrower, Reese
gave a business acquaintance, Robert Brown, all of the stock of
Berkshire Realty, Inc. (Berkshire), a shelf corporation2 owned by
Reese and arranged for Berkshire, to purchase the Witte and
Ponderosa properties as a nominee for Reese. Brown and Berkshire
were thereby used in the loan transaction to circumvent the "loan-
to-one-borrower" limitation.
The entire transaction proved to be unsuccessful, and Lamar
eventually foreclosed on the Witte and Ponderosa properties and
took back the DeSoto property in settlement of the loan. Reese
2
A shelf corporation is a corporation formed for future purposes and left
on the shelf until that purpose come to pass or another purpose is selected.
4
agreed to forego any litigation against Lamar for its alleged
breaches of promises to Reese.
Lamar was able to later sell the two REO properties for a
profit of $1,626,857. However, the DeSoto property which was
deeded back to Lamar in August 1986 was appraised in October, 1986
for $13,000,000. Lamar was subsequently taken over by the Federal
Deposit Insurance Corporation (FDIC).
B. The IRS Case
In 1984, two individuals, identified as "A" and "B" approached
Reese and proposed a real estate transaction.
Individual "A" had advanced $2,300,000 toward the purchase of
a horse farm in Kentucky and wanted to use Reese's equity in a
parcel of land, LBJ/Central property, located in Dallas, Texas, to
fund the remainder of the purchase price. Reese, Individual "A"
and a third party, Individual "B" agreed to form Slew Farms, Inc.,
a Cayman Island partnership, to control the property. Individual
"A" also formed Haft, Inc. in Nevada. Haft, Inc. was wholly owned
by Slew Farms.
On October 19, 1984, Reese conveyed the LBJ/Central property
to Haft, Inc. for $15,900,000. On the same day, Haft, Inc. sold
the same property to a corporation owned by "B" for $28,186,565.
Western Savings Association financed the sale with a $29,000,000
loan to "B"'s corporation. Haft, Inc. thus realized a $12,000,000
profit on the sale. "A" then wire transferred the $12,000,000
proceeds from the sale, plus the proceeds from a $2,000,000 loan,
through an Allied Bank account in Dallas, Texas, to a Guiness Mahon
5
Cayman Trust Ltd. account in New York City, to an account in the
name of Warrenton Farms, Inc. in Fayette Commerce Bank in
Lexington, Kentucky. Warrenton Farms, Inc., was wholly owned by
Slew Farms, Inc. Individual "A" used the $14,000,000 to buy the
Kentucky horse farm. Haft, Inc. never filed a corporate income tax
return and did not pay any corporate income taxes.
These transactions were planned in such a manner that the true
nature of the deal was not disclosed in the loan documents to
Western and the loan documents did not disclose the relationship
between the parties to the sale of the LBJ/Central property.
Western suffered a $12,100,000 loss as a result of the scheme.
On July 9, 1991, pursuant to a plea agreement, Reese entered
a plea of guilty to Count one of the indictment in the Lamar case,
Cause No. A-90-CR-117, and to the one-count information in the IRS
case, Cause No. A-91-CR-85.
C. The Sentences
The federal probation department concluded in a court-ordered
presentence investigative report (PSR) that there was a $9,265,829
loss with respect to the Lamar transaction and that Western lost
$12,100,000 as a result of its loan to B's corporation.
On February 19 1992, the trial court held a hearing on
restitution. Federal Bureau of Investigation Agent Matt Gravelle,
a Certified Public Accountant, testified for the government about
the loss created by the DeSoto loan in the Lamar transaction.
6
Agent Gravelle offered two calculations to determine the loss.3 In
the second computation, the one eventually adopted by the court,
the loss was determined by tracing monies expended at the closing
of the DeSoto loan that Gravelle considered not related to the
acquisition or development of the DeSoto property. According to
Gravelle, out of the $28,717,000 funded at the DeSoto loan closing,
$12,274,000 were funds not related to the DeSoto loan. From that
amount, Reese was credited with the $3,700,000 certificate of
deposit that Reese ultimately returned to Lamar Savings.4 This
produced a figure of $8,574,000 to which loan brokerage fees of
3
The first theory Gravelle testified about was as follows:
Total disbursed
$28,717,000
DeSoto appraised value
after return - October 17, 1986
13,000,000
15,717,000
CD return
3,700,000
Loss
$12,017,000
The second theory calculated the loss as follows:
Outside normal scope of DeSoto closing
$12,274,000
CD Return
3,700,000
8,574,000
+Brokers' payments - Ponderosa
146,000
8,720,000
+Brokers' payments - Witte
544,000
$ 9,264,000
4
The $3,700,000 certificate of deposit was purchased by Louis G. Reese,
Inc., a Texas corporation, out of the original DeSoto loan funds. Louis G.
Reese, Inc., at the time it deeded the DeSoto property back to Lamar Savings
through a deed in lieu of foreclosure, surrendered this certificate of deposit to
obtain release of both Louis G. Reese, Inc. and Reese who had guaranteed the debt
from personal liability on the original $37,000,000 note.
7
$129,000 from the Ponderosa loan and $544,000 from the Witte loan
were added. The result, the $9,264,000 number, was very similar to
the restitution sum submitted by the FDIC and the PSR; and the
court adopted that amount.
The district court sentenced Reese in the Lamar case, to three
years in prison, $50 special assessment fee and ordered him to pay
restitution of $9,265,829 pursuant to 18 U.S.C. § 3579.5 The court
also sentenced Reese in the IRS case to a consecutive two-year term
of imprisonment and $50 special assessment fee. No restitution was
ordered in the IRS case.
On appeal Reese raises four grounds of relief as follows:
1. Whether the district court erred in requiring Reese to pay
restitution for the loss incurred on the Desoto property.
2. Whether the district court erred when it imposed the
restitution without considering Reese's inability to pay and the
impact of a restitution order upon Reese's dependents.
3. Whether the district court correctly computed the amount of
restitution.
4. Whether the district court erred in considering a loss to
Western at sentencing when Reese was not charged with the loss.
We AFFIRM in part and VACATE and REMAND in part.
II.
WHETHER THE DISTRICT COURT ERRED IN REQUIRING REESE TO PAY
RESTITUTION FOR THE LOSS INCURRED BY THE FORECLOSURE OF THE DESOTO
PROPERTY
5
Title 18 U.S.C. § 3579 (1985) under which Reese's restitution was ordered
was renumbered as 18 U.S.C. § 3663 (Supp. 1990). This opinion will refer to the
restitution provisions under their current designation.
8
Reese's first claim is that the district court erred in
imposing restitution for Reese's role in the DeSoto loan
transaction because the DeSoto component of the loan was not a
criminal transaction.
Reese claims that the Lamar loan transaction consisted of
distinct components: the Witte and Ponderosa components which he
concedes were illegal and the other component which he claims was
not illegal because it simply involved a regular loan secured by
real property located in DeSoto, Texas. He contends that because
the DeSoto property loan transaction was legal, the restitution
imposed applied to the non-criminal component of the conspiracy
and, therefore, any loss incurred with respect to it should not be
attributed to Reese. 18 U.S.C. § 3663. See, e.g., Hughey v.
United States, 110 S. Ct. 1979 (1990); United States v. Paredo,
884
F.2d 1029 (7th Cir. 1989). Reese points out that Lamar actually
realized a gain of $1,626,857 with respect to the two distressed
properties. Therefore, no restitution is due there either. Reese
concludes that Lamar's remedy for its loss is of a civil nature,
not a criminal one.
The legality of a restitution order is reviewed de novo, and,
if the sentence is legal, the award is reviewed for abuse of
discretion. United States v. Chaney, 964 F.2d 437, 451-52 (5th
Cir. 1992).
Reese admits that over funded monies in the Lamar loan for the
purchase of the DeSoto properties were used to purchase distressed
properties owned by Lamar; that this transaction caused false
9
entries in the books and records of Lamar and caused the "net
worth" of Lamar to be falsely inflated; that he participated in the
criminal conduct associated with the DeSoto loan transaction when
he provided a "nominee borrower," Berkshire Realty, Inc. and Robert
Brown, to the transaction in an effort to circumvent the "loans-to-
one-borrower rule"; that he was aware that Lamar wanted to improve
their balance sheet by removing the two pieces of property from
their books and avoid a regulatory order and that he knew that the
loan on the DeSoto property would not have been made unless he
agreed to buy the other property.
The illegal transaction to which Reese pled guilty involved
all of the loans relating to three pieces of property. The entire
DeSoto loan transaction was criminal. Reese cannot separate one
portion of a criminal transaction from the whole transaction. As
long as there is any illegal taint to a transaction, the entire
transaction is considered illegal. Chaney, 964 F.2d 437.
III.
WHETHER THE DISTRICT COURT ERRED WHEN IT IMPOSED THE RESTITUTION
WITHOUT CONSIDERING REESE'S INABILITY TO PAY AND THE IMPACT OF A
RESTITUTION ORDER UPON REESE'S DEPENDENTS
Reese next argues that the court erred when it disregarded
certain information in the PSR and in its own findings and ordered
Reese to pay the $9,265,829 in restitution.
Reese claims that the PSR indicated that he had millions of
dollars of civil claims against him and that his only asset of
substance was the family homestead, an exempt asset under Texas
law. The financial information available to the Court made it
10
clear, moreover, that the impact of any restitution order would
affect Reese's family and dependents. Finally, he says that at
sentencing the district judge acknowledged that Reese did not have
the financial resources to pay the restitution, but that the court
ignored that determination and awarded the restitution anyway. He
claims that this procedure is directly contrary to the statutory
requirements which require a Court to consider a defendant's
ability to pay and the impact of the restitution order upon a
defendant's dependents and that it was unreasonable and excessive.
18 U.S.C. § 3664 (a). See, e.g., United States v. Peden, 872 F.2d
1303 (7th Cir. 1989); United States v. Bruchey,
810 F.2d 456 (4th
Cir. 1987). United States v. Mahoney,
859 F.2d 47 (7th Cir. 1988).
United States v. Pollack,
844 F.2d 145 (3rd Cir. 1988). He says
that the Court retains discretion under the Victim and Witness
Protection Act to refuse restitution in an appropriate case. 18
U.S.C. § 3664, See, e.g., United States v. Owens,
901 F.2d 1457,
1458-9 (8th Cir. 1990).
An order of restitution will be reversed on appeal only when
the defendant shows that it is probable that the court failed to
consider a mandatory factor and the failure to consider the
mandatory factor influenced the court. United States v. Gomer, 764
F.2d 1221, 1223 (7th Cir. 1985). The Court's failure to follow the
statutory requirements is reviewed for abuse of discretion. United
States v. Barndt,
913 F.2d 201 (5th Cir. 1991).
Reese's claim that the district court made a specific finding
of Reese's inability to pay restitution is based on the court's
11
remarks at the completion of the sentencing in which it responded
to the government's request that Reese be required to pay
restitution in some method other than installment payments. The
Court stated:
I didn't say anything about that. As far as I am
concerned, he can pay the $9,000,000 today, if he wants
to or has the ability to pay. I'm sure he's not going to
do that or doesn't have the ability. But that's part of
this judgment.
Reese interprets this comment to be a finding by the court
that Reese was unable to pay the restitution at all. We do not
understand the judge's comment as such, but rather interpret it as
merely a refusal by the judge to venture a guess as to whether or
not Reese could pay the full restitution amount on the day of
sentencing. The judge made it clear by his statement that he had
ordered no set method of payment of the restitution to be made by
Reese, but that the payment should be paid within the statutory
time limits.
Title 18 U.S.C. § 3664(a) mandates that the district court
consider "[t]he amount of the loss sustained by any victim as a
result of the offense, the financial resources of the defendant,
the financial needs and earning ability of the defendant and the
defendant's dependents, and such other factors as the court deems
appropriate." But 18 U.S.C. § 3664 (d) imposes on the defendant
the burden of demonstrating he lacks the financial resources to
comply with a restitution order. See United States v. Rochester,
898 F.2d 971, 981-82 (5th Cir. 1990).
12
Reese never raised the issue of inability to pay in any of his
objections to the PSR nor did he demonstrate to the court his
financial inability to comply with a restitution order. No
specific finding was requested of the court by Reese as to his
inability to pay. Even after the court imposed the restitution
order on Reese, Reese did not object to the order based on Reese's
inability to pay. Reese has failed to carry his burden of proving
an inability to pay restitution. We are satisfied that the
district court did not fail to take into consideration the
necessary elements in assessing restitution.
IV.
ASSUMING RESTITUTION IS PROPER, WHETHER THE DISTRICT COURT
CORRECTLY COMPUTED THE AMOUNT OF RESTITUTION
Reese next argues that the district court erred because it
did not correctly compute the amount of that restitution.
At the restitution hearing, Reese submitted the testimony of
his own expert witness, an appraiser named Harry Schroeder who
appraised the undeveloped value of the DeSoto property in May of
1985 at $37,000,000 and the "as developed" value at $45,000,000.
Schroeder concluded that, based upon comparable land sales in
August 1986 (but subject to the fact that he had not done a
complete appraisal), that a conservative value of the 225 acre
piece of property would be in excess of $2 per square foot
(approximately $19,600,000).
Schroeder testified that the government appraisal was
incorrectly based upon "fair value", a fictitious figure which
discounted the value of the property based upon the assumption that
13
the property would not be resold for three to four years as opposed
to "fair market value," an estimate of the price that a buyer would
pay in an arm's length transaction in August of 1986. Schroeder
also suggested that the government's appraisal included comparables
that were 1985 sales of much smaller tracts and thus would
potentially affect the validity of the appraisal made.
Schroeder noted that Lamar made a profit on the Witte and
Ponderosa properties of almost $2,000,000, and that Lamar suffered
no loss on the DeSoto transaction because when Lamar foreclosed
upon the DeSoto property it was worth at least the amount that
Lamar had lent.
The Court nevertheless rejected Schroeder's opinion and
Reese's testimony, found Agent Gravelle's estimate of the
restitution amount of $9,265,829 to be credible testimony, and
adopted the government's computation of loss.
Reese submits three reasons as to how the court incorrectly
computed the restitution amount:
1. The District Court valued the DeSoto property based upon
an appraisal dated several months after the date the property was
surrendered to the financial institution;
2. The government's appraisal used "fair value"; and
3. The District Court excluded the $6,500,000 payment that
was made to Lamar at closing for the down payment on the REO
properties.
There is no error in connection with the first two reasons
submitted by Reese. However, we find the failure of the judge to
14
give credit for the amount of the down payment on the REO property
to be clearly erroneous.
The standard of review on appeal for a court's restitution
order is whether the district court abused its discretion in
directing the restitution. United States v. Paden, 908 F.2d 1229,
1237 (5th Cir. 1990). District Courts are accorded broad
discretion in ordering restitution.
Id. at 1237. The burden of
proof for establishing restitution is upon the government by a
preponderance of the evidence. 18 U.S.C. § 3664(d). The court, in
determining the appropriate amount of restitution, may consider
affidavits and letters by the injured party. See, United States
v. Rochester,
898 F.2d 971 at 982; United States v. Hairston,
888
F.2d 1349, 1354 (11th Cir. 1989); and may consider other hearsay
evidence that bears minimal indicia of reliability so long as the
defendant is given an opportunity to refute that evidence. United
States v. Rodriquez,
765 F.2d 1546, 1555 (11th Cir. 1985). If the
restitution was computed in violation of statute, it is illegal,
and the correct standard of review is de novo. Otherwise an order
of restitution will be reversed on appeal only when the defendant
shows that it is probable that the court failed to consider one of
the mandatory factor and the failure to consider the factor
influenced the court. United States V. Gomer,
764 F.2d 1221, 1223
(7th Cir. 1986); United States v. St. Gelais,
952 F.2d 90 (5th Cir.
1992).
Restitution in property crime cases is governed by 18 U.S.C.
§ 3663(b) which provides:
15
The order may require that such defendant--
(1) in the case of an offense resulting in damage to or
loss or destruction of property of a victim of the
offense--
(A) return the property to the owner of the property or
someone designated by the owner; or
(B) if return of the property under subparagraph (A) is
impossible, impractical, or inadequate, pay an amount
equal to the greater of--
(i) the value of the property on the date of the damage,
loss, or destruction, or
(ii) the value of the property on the date of
sentencing,
less the value (as of the date the property is returned)
of any part of the property that is returned; . . . .
The cases have made clear that the measure defined in this
statute is exclusive. See United States v. Keith, 754 F.2d 1388
(9th Cir. 1985); United States v. Husky,
924 F.2d 223 (11th Cir.
1991); United States v. Mitchell,
876 F.2d 1178 (5th Cir. 1989).
Under subparagraph (A) of this statute, a return of the property to
the owner is the first measure of restitution. Looking first at
the Witte and Ponderosa aspects of the transactions, we assume the
"property" is land and improvements so labelled which were
transferred by Lamar to the fictional purchasers as a result of the
fraudulent scheme devised by the defendants. While the record is
not clear, it appears that these properties were ultimately
returned to Lamar, probably as a result of foreclosure. The trial
court in its statement of findings about restitution indicated that
it would consider "gain" realized on the Witte and Ponderosa
properties by Lamar after return of the properties. We see nothing
16
in the statutory provision which would give a defendant credit for
the gain on resale realized by the victim after return of the
property to the victim. Of course the trial judge didn't really
award the $10,390,000 that he found to be the amount of restitution
owed, but rather simply adopted the claim of $9,265,829 which was
described in the letter from the FDIC and in the PSR.
Subparagraph (B) of the cited statutory provision indicates
that "if return of the property under subparagraph (A) is
impossible, impractical, or inadequate" the court may require the
defendant to pay as restitution, a dollar amount defined therein.
The application of subpart (B) is conditioned upon a finding that
return of the property under subparagraph (A) is "impossible,
impractical, or inadequate"; and there is no such finding in the
record.
As to the Desoto property loan side of the transaction, it
would appear that the "property" as to which Lamar might have
suffered "damage to or loss or destruction of" could only be loan
proceeds funded in cash at the original closing of this loan.
Lamar's interest in the Desoto property, (i.e. the land and
contemplated improvements) was never anything except a lien holder;
and we doubt that such a security interest would qualify as
"property of the victim." The trial court found that the money
funded at closing was $28,717, 448 which Lamar advanced against a
promissory note of $37,000,000. If the "property" is the cash
funds advanced at closing, then to determine whether there has been
"damage to or loss or destruction of" such property, you would have
17
to first determine what cash, if any, came back to Lamar as part of
the closing itself. Typically, lenders require a borrower to pay
them points for making the loan, various fees and charges in the
nature of expenses incurred by the lender and, in some cases,
prepaid interest, all of which would normally be deducted out of
initial loan proceeds as reflected on the closing statement
regarding the loan transaction. Likewise, in this case, it appears
from the evidence that the funds advanced at closing on the Desoto
loan included funds which Louis Reese, Inc., the borrower, passed
on to the nominal purchaser Berkshire/Brown under the fictional
purchase transaction, and those funds were used in the closing of
the separate purchase transaction to pay the cash down payment due
to Lamar for the sale of the Witte and Ponderosa properties.
Apparently, these closings were all done simultaneously at the same
title company, and there was no way that the cash proceeds advanced
to Reese, so it could advance them to Berkshire/Brown, could have
ever been used by Reese for any other purpose. Therefore, at the
end of the closings, the cash down payment, due to Lamar as seller,
less any closing expenses which Lamar would normally incur as
seller (i.e. owner's title insurance, prorated taxes, surveys,
etc.), would have come back to Lamar as a net reduction in the
total amount of cash advanced on the Desoto loan. Obviously, these
funds would not have come back to Lamar as a payment against the
amount which Reese, Inc. owed on its promissory note; but for
purposes of restitution, it seems only fair that the "cash" which
Lamar advanced as part of this illegal loan transaction, should be
18
reduced by those sums which came back to Lamar in "cash" as part of
the closing of the illegal loan. Neither the government's expert
witness nor the court ultimately recognized these reductions in the
amount of "cash" which was actually put at risk by the illegal loan
transaction.
The trial judge says there was no obligation to give a credit
for the cash down payment on Witte and Ponderosa because to do so
would simply change the gain of $1,600,000 on the Witte and
Ponderosa property to a loss of $4,400,000. But, neither the
amount claimed by the FDIC in its letter nor the amount stated in
the PSR gave any recognition to the $1,600,000 gain on Witte and
Ponderosa; and since, in spite of the trial court's own finding,
the trial court ultimately adopted the $9,265,000 figure as the
amount of restitution, the reason cited for not considering the
cash down payment is moot as far as the actual figure ultimately
awarded by the trial judge. In any event, as we said earlier, the
Witte and Ponderosa properties were returned "in kind" to Lamar;
and there is no evidence in the record that these properties were
damaged while owned by the fictitious buyer, nor is there any
testimony that these properties were less valuable when returned to
Lamar than they were when conveyed out by Lamar at the original
closing.
Now, analysis of the testimony of the government's expert
about the $9,265,000 amount, indicates that it starts with a figure
of $12,274,000 which was labelled "payments outside the normal
scope of the Desoto closing." On cross examination, he itemized
19
the various amounts which went in to this $12,000,000 dollar
figure. There is no testimony which explains what criteria this
"expert" used in determining what constituted "payments outside the
normal scope of the DeSoto closing." Furthermore, there is nothing
in the statute that would call for a determination of what was
"outside the normal scope of the Desoto closing." If that loan is
illegal because in effect it was made in violation of the "loans to
one borrower" limit, then it seems to us that the whole of the loan
proceeds which may be lost as a result of the offense, would be at
risk and not just some portion categorized by the expert as being
"outside the normal scope of a closing."
Looking now at the credits given by the government's expert in
determination of restitution amounts for the $3,700,000 involved in
the letter of credit and the $13,000,000 which was the appraised
value of the Desoto property after it was returned to Lamar by deed
in lieu of foreclosure, we have little doubt that the surrender of
a letter of credit to the issuer is close enough in legal
contemplation to the payment of cash to Lamar that it should
constitute at least a partial "return" of the "cash proceeds
advanced at loan closing." We are puzzled why under one theory the
government expert gave credit for the $13,000,000 appraised value
of the Desoto property, but did not under his other theory, which
is the one closest to the amount actually adopted by the trial
court. Conceptually, it would seem to us that when a lender
accepts conveyance of the secured property in lieu of foreclosure,
the value of such property should constitute a partial return of
20
the "cash loan proceeds." We have no problem with the trial court
accepting the appraised value of the DeSoto property, as indicated
by the appraisal done two months after the deed in lieu of
foreclosure, rather than the appraisal testimony offered by the
defendants at the restitution hearing. That is a credibility call,
and the trial judge is in the best position to make that decision.
As to the amount of restitution ordered by the trial judge, we
conclude:
a. The theory for calculation of restitution in the amount of
$9,265,000, testified to by the government expert, and as claimed
by the FDIC and reported in the PSR, finds no support in the
statutory definition;
b. The first theory used by the government expert, and the
findings described by the trial judge, started out on the right
track (i.e. the property is the "cash proceeds advanced at
closing,") but fail to take into consideration payments which
returned to Lamar as a result of the closing, and, therefore,
reduced the quantum of the cash proceeds which were actually at
risk. Those reduction items would include points paid back to the
lender, reimbursement of various lender expenses, prepaid interest,
and the net cash returned to Lamar from the sale of the Witte and
Ponderosa properties after reduction of normal expenses that Lamar
incurred as seller in those sales transactions. Likewise, the
appraised value of the DeSoto property when deeded to Lamar
constitutes a partial return of the property as does the letter of
credit which was surrendered.
21
c. The testimony and evidence in the restitution hearing is
inadequate to permit the appellate court to arrive at a correct
determination of these amounts; and
d. We VACATE the portion of the sentence related to
restitution, and REMAND the issue of restitution for a further
hearing in accordance with the provisions hereof.
V.
WHETHER THE DISTRICT COURT ERRED IN CONSIDERING A LOSS TO WESTERN
AT SENTENCING WHEN REESE WAS NOT CHARGED WITH A LOSS
In addition to the illegal transaction above, Reese pleaded
guilty to a conspiracy to defraud the IRS when he participated in
a real estate transaction that was structured in a complicated
fashion to conceal the gain from that transaction from the IRS. At
sentencing, the trial court imposed no restitution penalties for
the financial loss to the financial institution involved in the
conspiracy and no loss was due on the IRS charge because no
determination was ever made as to the amount of the tax loss by the
IRS. Reese's PSR nevertheless contained a statement that Western
lost $12,100,000 when Western financed some portion of the real
estate transaction that enabled Reese and his co-conspirators to
defraud the IRS.
At his sentencing hearing, Reese objected to the inclusion in
his PSR of the loss to Western because he says that he pleaded
guilty to a scheme to defraud the IRS, but did not plead guilty to
fraud with respect to a financial institution. Therefore, he
complains his PSR should not have stated that Western lost
$12,100,000 on the loan. Reese states that he objected to the
22
foregoing statement on the ground that the loss suffered by Western
had nothing to do with the crime; that the government did not
explain how the $12,100,000 loss was computed; and that the
government did not demonstrate that the loss resulted from criminal
conduct.
Reese wants the loss suffered by Western removed from the PSR
because he claims that the figure is incorrect and prejudicial in
that it would potentially affect his sentence and jeopardize his
treatment by the United States Bureau of Prisons and the United
States Parole Commission.
Reese argues that his objections to alleged factual
inaccuracies in the PSR triggered Rule 32(c)(3)(D), but that the
court failed to comply with the Rule by not making a finding as to
these inaccuracies. United States v. Aubrey, 878 F.2d 825 (5th
Cir. 1989).
6
Rule 32(c)(3)(D) provides as follows:
If the comments of the defendant and the defendant's
counsel or testimony or other information introduced by
them allege any factual inaccuracy in the presentence
investigation report or the summary of the report or part
thereof, the court shall, as to each matter controverted,
make (i) a finding as to the allegation, or (ii) a
determination that no such finding is necessary because
the matter controverted will not be taken into account in
sentencing. A written record of such findings and
determinations shall be appended to and accompany any
copy of the presentence investigation report thereafter
made available to the Bureau of Prisons or the Parole
Commission.
6
This Rule is applicable to offenses, like Reese's, committed prior to
November 1, 1987.
23
Where a challenge is raised by the defendant regarding the
factual accuracy of the PSR, the judge must either make a finding
as to each objection or state that a finding is unnecessary because
he is disregarding the controverted information in making the
sentencing decision. United States v. Piazza, 959 F.2d 33, 36 (5th
Cir. 1992); United States v. Lawal,
810 F.2d 491, 492 (5th Cir.
1987). However, the finding need not be in any particular form, as
long as this Court is able to determine from the record whether the
district court found the challenged fact in favor of or against the
defendant and whether the fact affected the sentence. United
States v. Puma,
937 F.2d 151, 155-56 (5th Cir. 1991), cert. denied,
U.S. ,
112 S. Ct. 1165 (1992); United States v. Perrera,
842
F.2d 73, 75-76 (4th Cir.), cert. denied,
488 U.S. 837 (1988).
The government argues that Reese's arguments fail for several
reasons. Upon review we agree.
Reese argues that the facts found in the PSR do not establish
that any loss to Western was relevant to the conspiracy charge or
that the loss was the result of criminal conduct. In objecting to
the Western loss statement in the PSR, Reese claims that he was not
personally involved in obtaining the loan which resulted in the
loss. But the PSR does not allege that Reese was personally
involved in obtaining the loan. It simply alleges the transaction
as part of the conspiracy.
The record reflect that the loan obtained from Western was an
integral part of the conspiracy. The loss to Western was the
24
result of criminal conduct by which income was obtained and
concealed.
"[O]nly historical, objectively verifiable information
reported in the PSI, antedating the report and existing independent
of it, can properly be contested as a `fact' under Rule 32."
United States v. Jones, 856 F/2d 146, 150 (11th Cir. 1988).
Reese fails to allege any such "factual inaccuracies" in his
PSR which would trigger Rule 32(c)(3)(D). But rather his
objections go "merely to tone, form, or style of the report." He
attacks only the district court's application of the report's legal
conclusion, based on the facts therein. He does not deny that the
information was accurate, only that it was not properly admissible.
Reese therefore failed to make the requisite showing that the
information in the PSI report was "materially untrue." United
States v. Flores, 875 F.2d 1110, 1113 (5th Cir. 1989), Piazza, at
37. United States v. Aleman,
832 F.2d 142, 145 (11th Cir. 1987;
United States v. Cox,
934 F.2d 1114, 1126 (10th Cir. 1991). United
States v. Hand,
913 F.2d 854, 857 (10th Cir. 1990); United States
v. Pellerito,
918 F.2d 999, 1002-003 (1st Cir. 1990).
Moreover, there is evidence that the court did comply with its
duty to make a finding as to the alleged factual inaccuracies and
with Rule 32(c)(3)(D). When Reese objected that the loss to
Western should not have been included in the PSR because Reese was
not responsible for that loss, the court requested a response
thereto from the government. The probation officer explained that
Reese was responsible because he was a member of the conspiracy and
25
that the amount of the loss, $12,100,000, had been confirmed by the
United States Attorney's office in Dallas. The trial court
overruled Reese's objection. It thereby resolved the disputed
facts against him and accepted the findings of the PSR that the
conspiracy resulted in a $12,100,000 loss to Western. See, United
States v. Puma, 937 F.2d at 155-56. The court attached a written
record of its findings, an addendum entitled "Controverted
Presentence Matters" to the PSR which indicates that Reese's
objections "re: 12,100,000" were overruled by the trial court.
Puma, at 155-56.
The District Court's decision to overrule Reese's objection
was correct. Reese admitted that he was a member of the conspiracy
and that it was the intent of the co-conspirators to impede the IRS
from determining the correct taxable income of the real estate
transaction and that the transactions were intentionally structured
to conceal their true nature from Western. Because the loan from
Western was an integral part of the conspiracy, Reese was
responsible for the actions of his co-conspirators. Pinkerton v.
United States, 328 U.S. 640 (1946); Chaney,
964 F.2d 437; United
States v. Acosta,
763 F.2d 671, 681 (5th Cir.), cert. denied,
474
U.S. 863 (1985).
Finally, we do not believe that Reese was deprived of any
information as to the number and the accuracy of the loss to
Western. The record reflects that the court did consider the
accuracy of the $12,100,00 figure set forth in the PSR as the loss
to Western when the Probation Officer informed the trial court that
c:br:opin:92-8108p.jm 26
this figure was verified by the United States Attorney's office.
The basis of the $12,100,000 figure is evident from the face of the
PSR.
VI.
CONCLUSION
We AFFIRM the district court's judgment as to all allegations
of error asserted by Reese except the determination of the amount
of restitution; and find that the trial court did not correctly
compute the amount of restitution. We, therefore, VACATE the
portion of the district court's judgment as to the amount of
restitution and REMAND that portion to the district court for
redetermination.
c:br:opin:92-8108p.jm 27
