
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 95-1658                                    UNITED STATES,                                      Appellee,                                          v.                                  EDWARD C. KELLEY,                                Defendant, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                    [Hon. Ronald R. Lagueux, U.S. District Judge]                                             ___________________                                 ____________________                                        Before                               Torruella, Chief Judge,                                          ___________                                 Cyr, Circuit Judge,                                      _____________                         and Skinner,* Senior District Judge.                                       _____________________                                _____________________               Edward C. Roy, by Appointment of the Court, with whom  Roy &               _____________                                          _____          Cook, was on brief for appellant.          ____               Margaret E. Curran, Assistant  United States Attorney,  with               __________________          whom Sheldon  Whitehouse, United States Attorney,  and Charles A.               ___________________                               __________          Tamuleviz, were on brief for appellee.          _________                                 ____________________                                  February 20, 1996                                 ____________________                                        ____________________          *  Of the District of Massachusetts, sitting by designation.                    SKINNER,  Senior  District Judge.   Defendant-appellant                    SKINNER,  Senior  District Judge.                              ______________________          Edward Kelley was charged in a six count indictment of mail fraud          in violation of 18 U.S.C.   1341 and making false statements to a          federal  agency in violation of 18 U.S.C.    1001.  Pursuant to a          guilty  plea on the three mail fraud counts, Kelley was sentenced          to 21  months incarceration,  followed by three  years supervised          release.  On appeal of  his sentence, Kelley argues (1)  that the          district  court erred in determining  the amount of  the loss for          sentencing purposes, and  (2) that the district  court abused his          discretion  in denying  a two point  offense level  reduction for          acceptance of responsibility.  We affirm.                                   I.   BACKGROUND                                   I.   BACKGROUND                                        __________                    A.Facts                    A.Facts                    This prosecution  arose out of Edward  Kelley's efforts          to  enlist the  assistance of  the Small  Business Administration          ("S.B.A.") in refinancing his commercial lobster boat, the "Alter          Ego II."   Kelley purchased the  boat in June 1992  for $5,000 in          cash  and a  $22,000  promissory note,  and  quickly sold  a  45%          interest  to his brother Robert Fletcher for $20,000.  The vessel          sustained substantial  damage during  a severe storm  in December          1992.                      Kelley applied for disaster  relief from the S.B.A., in          the  course of  which he  submitted a Personal  Finance Statement          stating that the vessel  purchase price was $60,000,  rather than                                         -2-          $27,000, and that he had paid cash in full without incurring  any          debt.  Both of these averments were false.                    Based on  this application,  the S.B.A. agreed  to loan          Kelley $55,100, secured by  a mortgage on the vessel  and a third          mortgage  on Kelley's house.   After  an initial  disbursement of          $10,000 in April 1993,  Kelley submitted a Progress Certification          Report indicating that he had purchased lobster traps from Robert          Fletcher's R.A.F.  Lobster Company  for $32,000.   This statement          was also false.   After the  S.B.A. disbursed the balance  of the          loan, Kelley  used approximately $15,000 of the  S.B.A. funds for          personal  expenses.   After a  total of  $864 in  repayments over          three  months,   the  loan  went   into  default.     Kelley  was          subsequently  indicted  on  the  basis of  the  false  statements          contained  in his  Personal  Finance Statement  and his  Progress          Certification  Report, and  pled guilty  to three counts  of mail          fraud.                    B.The Sentencing Proceeding                    B.The Sentencing Proceeding                    At  the  sentencing proceeding,  the  government argued          that Kelley's total offense level should be fifteen, representing          eleven  points  for  fraud  involving  more  than  $40,000  under          U.S.S.G.   2F1.1(b)(1)(F), increased by two points for "more than          minimal planning" under U.S.S.G.    2F1.1(b)(2)(A), and augmented          by an  additional two  points for  obstruction  of justice  under          U.S.S.G.    3C1.1.   In  support of  the obstruction  points, the          government cited  two attestations Kelley made  in completing his                                         -3-          presentence report submission to the probation office, namely (1)          that  he had  nothing  to  do  with  the  theft  of  navigational          equipment from the Alter Ego, and (2) that  he used all disbursed          funds to try to keep the Alter Ego afloat.                    At  the  sentencing  proceeding,  Kelley  contested the          government's  calculated  offense   level,  contending  that  the          government overvalued the loss  in light of the  S.B.A.'s failure          to pursue civil remedies.  Kelley also argued that his submission          to the probation department did not obstruct justice.                    After  hearing  testimony  from  eight  witnesses,  the          sentencing court rejected  the S.B.A.'s valuation of  its loss at          $54,236.    Specifically,  the  sentencing  court  rejected   the          testimony of an  S.B.A. witness  who appraised the  value of  the          vessel  at $5,000.  The court implicitly adopted the testimony of          Kelley's expert  marine surveyor, Steven Mainella,  who testified          that  the  vessel was  worth between  $18,000  and $25,000.   The          defendant  did not, however, attempt to rebut the testimony of an          S.B.A. loan  officer as to  the potential recovery  from Kelley's          house.   Consequently,  the only  evidence before  the sentencing          court on the value of the house was that a foreclosure proceeding          would fetch an estimated $104,000, which after satisfying $95,000          in  superior  mortgages  and  auction expenses  would  produce  a          negligible recovery.                    The court concluded that  the S.B.A.'s loss was between          $20,000  and  $40,000,  resulting in  an  offense  level of  ten.          Finding  that the S.B.A. had failed to pursue pledged collateral,                                         -4-          the  sentencing court  denied restitution.   The court  added two          points  for  more  than  minimal   planning,  and  two  more  for          obstruction of  justice; it  concluded that his  criminal history          category was one.  Accordingly, Kelley was sentenced to 21 months          imprisonment, followed  by three years  supervised release, which          was within the guideline range.                                    II.  ANALYSIS                                    II.  ANALYSIS                                         ________                    A.Calculation of the S.B.A.'s Loss                    A.Calculation of the S.B.A.'s Loss                    Kelley argues that the district court's conclusion that          the S.B.A.'s loss ranged between  $20,000 and $40,000 was clearly          erroneous  in  light of  evidence adduced  at  trial.   Under the          Sentencing  Guidelines,  crimes  involving  fraud  are  uniformly          assessed a base offense level  of six.  See U.S.S.G.    2F1.1(a).                                                  ___          This  base offense  level  is  increased  in  proportion  to  the          magnitude of the loss  if the victim's loss exceeded  $2,000. See                                                                        ___          U.S.S.G.    2F1.1(b)(1).    The  commentary   to  the  Guidelines          provides a  set of formulae to apply in determining the amount of          the  loss   in  particular  circumstances.     For  example,  the          commentary instructs that  to calculate the loss  in a fraudulent          loan  application, the  sentencing  court starts  by taking  "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."  See U.S.S.G   2F1.1,  comment. (n.7(b)).  This                             ___          formula  is  binding  in   cases  involving  the  procurement  of                                         -5-          fraudulent   loans  and   is  clearly   applicable  to   Kelley's          misconduct.  See United  States v. Bennett, 37 F.3d 687, 695 (1st                       ___ ______________    _______          Cir. 1994); see also Stinson  v. United States, 113 S. Ct.  1913,                      ________ _______     _____________          1915   (1993)  ("[C]ommentary  in   the  Guidelines  Manual  that          interprets  or explains  a guideline  is authoritative  unless it          violates   the  Constitution   or  a   federal  statute,   or  is          inconsistent  with,  or  a  plainly erroneous  reading  of,  that          guideline.").                    Kelley challenges the court's  findings as to the value          of the mortgage and  the vessel.  A sentencing  court's valuation          of loss is subject to the "clearly erroneous" standard of review.          See, e.g., United States v. Brandon, 17 F.3d 409, 457 (1st Cir.),          ___  ____  _____________    _______          cert.  denied, 115  S. Ct.  80 (1994).   Although  the Guidelines          _____________          suggest  that a rather specific formula should be applied in this          case,  the Sentencing  Commission has  recognized that it  may be          difficult  to  calculate  a  specific  loss with  any  degree  of          precision.  Precise loss may be hard to determine where the value          of  collateral is in dispute,  either because the  victim has not          exercised rights against  the collateral, or  it is alleged  that          such efforts did not bring a fair market price. Cf. United States                                                          ___ _____________          v. Chorney, 63 F.3d 78, 82 (1st Cir. 1995) (rejecting defendant's             _______          argument  that  he  had  been denied  sufficient  opportunity  to          establish  fair market value of  unpledged assets).   In light of          potential difficulties in  calculating the  loss, the  sentencing          court  "need only make a  reasonable estimate of  the loss, given          the available information."  See U.S.S.G.   2F1.1, comment (n.8).                                       ___                                         -6-                    With  respect  to the  Alter  Ego,  the district  judge          rejected the government witness' testimony  that the vessel had a          value of $5,000, implicitly adopting  Steven Mainella's appraisal          of $18,000 to $25,000.  Neither party contests use of this figure          on appeal.                    With respect to the  house, the parties agree that  the          property was appraised  at $130,000 and  subject to two  superior          mortgages  totalling $95,000.    At the  sentencing hearing,  the          S.B.A. loan  officer testified that  it was standard  practice in          the  banking industry  to  value  property  to be  liquidated  at          auction  at 80%  of  appraisal value,  or  $104,000 for  Kelley's          house.   The  S.B.A.  loan officer  further  testified that  this          liquidation value would be further offset by the $95,000 in prior          mortgages, and  by  the estimated  $5,000  to $8,000  in  auction          expenses.  Foreclosure on  Kelley's house would thus yield  a net          return of  $1,000 to $4,000.   Kelley did not offer  testimony at          the  sentencing hearing to  dispute this accounting,  nor does he          attempt to factually undermine its premises on appeal.                    Kelley  does  make  the  suggestion  that  the S.B.A.'s          accounting method is  wrong as  a matter of  law.   Specifically,          Kelley  argues that the sentencing court must accept the value of          the  collateral to the defendant,  rather than the victim lending          institution,  and that he should be credited for the full $35,000          in equity he could have obtained if he sold the house on the open          market.    But the  commentary to  the Guidelines  specifies that          valuation of  collateral is the amount  the "lending institution"                                         -7-          could expect to  receive from pursuing  a security interest.  See                                                                        ___          U.S.S.G.    2F1.1, comment. (n.7(b)).   The express  reference in          the  Guidelines  to  the  mortgagee  rather  than  the  mortgagor          precludes  Kelley's argument.   The  value of the  loss is  to be          offset  by the  amount the  lender could  expect to  recover from          pursuit  of  pledged collateral.    Consequently,  the $1,000  to          $4,000  expected recovery is the  proper measure of  the value of          the house.                    To summarize, the evidence  before the sentencing court          demonstrated  that  if  the  S.B.A. had  pursued  civil  remedies          against  the house and the  boat, it could  have recouped between          $19,000  and $29,000.    Deducting this  amount from  the $54,236          outstanding loan balance, the S.B.A.'s loss was somewhere between          $24,000 and $35,000.  This range is well within the range of loss          found by the court.                    Kelley makes a final  argument that it was inconsistent          for the sentencing  court to deny restitution, while  valuing the          S.B.A.'s loss as greater than  $20,000.  Although Kelley properly          points out that the  authority of a sentencing court  "to decline          to  order   restitution  is  limited,"  the   commentary  to  the          Sentencing Guidelines suggests there  are several factors a court          may consider in  declining to order  restitution. See U.S.S.G.                                                               ___          5E1.1, comment. (backg'd).  Prominent among these factors are the          lack of victim's need,  uncertainty in calculating the amount  of          restitution, and fairness  to the  victim. See also  18 U.S.C.                                                        ________          3664(a).   The  judge went  on at some  length in  explaining his                                         -8-          reasons   for  denying  restitution,  specifically  finding  that          because the S.B.A. failed  to avail itself of civil  remedies, it          was both difficult to ascertain the proper amount  of restitution          and fair  to deny  all restitution.1   Kelley erroneously  argues          that an  absolute denial  of restitution necessarily  implies the          conclusion that  the S.B.A. had  no loss.   There  is no  logical          reason to make such a leap.                    B.Obstruction of Justice                    B.Obstruction of Justice                    Kelley also challenges  his two  point enhancement  for          obstruction  of justice.   Under  the Sentencing  Guidelines, the          provision of a materially false statement to a  probation officer          during  the  preparation  of  a  presentence  report  constitutes          obstruction of  justice. See U.S.S.G.    3C1.1, comment (n.3(h)).                                   ___          The sentencing court found that the following two passages of the          signed  statement which  the defendant  filed with  the probation          department were materially false:                      In addition, I hoped to upgrade  the boat                      with the proceeds of the loan.  Some time                      after the  gear was  lost at sea,  all of                      the electronic equipment  on the boat was                      stolen by  my son.   As a result  of this                      theft,  which I had absolutely nothing to                      do with,  the boat  was inoperable.   The                      boat could not generate any income.                      At the time of  the application, I was in                      a very difficult financial  situation and                      I  was  desperate to  get  the boat  back                      working.   I used all of the funds that I                                        ____________________          1  The government has not filed a cross-appeal to challenge these          findings.                                         -9-                      received   to   pay   for  boat   related                      expenses.          A  sentencing  court's  finding  of material  falseness  will  be          overturned only where clearly erroneous. See, e.g., United States                                                   ___  ____  _____________          v. Tracy, 36  F.3d 199, 202 (1st Cir.), cert.  denied, 115 S. Ct.             _____                                _____________          609 (1994).                    Although Kelley argues that the  sentencing court erred          in failing to evaluate all testimony used to support a finding of          falseness  "in a  light most  favorable to  the  defendant," this          interpretative  principle  only applies  to  the construction  of          allegedly  perjurious  language,  not  to  the  determination  of          credibility of fact  witnesses.  See  U.S.S.G.   3C1.1,  comment.                                           ___          (n.1).  Furthermore, lenitive  interpretations only apply "to the          extent that an innocent reading may be plausible."  See Tracy, 36                                                              ___ _____          F.3d at 204.                    Although Kelley  argues that neither  of his statements          was  false, there was ample evidence  before the sentencing court          to support its  findings.  Kelley's claim that  he had nothing to          do  with theft  of electronic  equipment from  the Alter  Ego was          discredited by the testimony  of his son.  Mark  Kelley testified          that his father  asked him to  temporarily remove equipment  from          the Ego  in  order  to  support  a  fraudulent  insurance  claim.          Similarly,  Kelley's  claim  that  S.B.A.  funds  were  uniformly          dedicated to  boat expenses was contradicted by  bank records and          cancelled checks indicating almost $15,600 of the S.B.A. loan was          used  for  mortgage  payments,   parochial  school  tuition,  and          miscellaneous household expenses.   In view of this evidence, the                                         -10-          defendant's  statements  were  not  susceptible  to  an  innocent          interpretation.   The sentencing  court was warranted  in finding          that both statements were false.                    Kelley  also suggests that  neither of these statements          was material.  The materiality requirement for an allegedly false          statement "is  not a  stringent one."  United  States v.  Ovalle-                                                 ______________     _______          M rquez, 36 F.3d 212, 226  (1st Cir. 1994), cert. denied,  115 S.          _______                                     ____________          Ct. 1322 (1995).  Under the Sentencing Guidelines, a statement is          material which, "if  believed, would tend to  influence or affect          the issue  under determination."  See U.S.S.G.    3C1.1, comment.                                            ___          (n.5).  Materiality  does not  require a factual  nexus with  the          underlying  criminal conduct.    Rather, for  the  purposes of  a          sentencing determination, materiality  involves some  attestation          that could influence the court's sentencing discretion, including          (but not  limited to) determination of a period of incarceration,          conditions  of  supervised  release, or  whether  restitution  is          awarded.    For example,  this court  has  held that  lying about          citizenship  in  a submission  to  the  probation department  was          material  because  of a  particular  district  judge's policy  to          suspend supervised release in order to facilitate the deportation          of illegal aliens. See United States  v. Biyaga, 9 F.3d 204,  205                             ___ _____________     ______          (1st Cir. 1993).  A false statement may be material  even "if the          falsehood  is designed  to  mitigate  significantly the  wrongful          conduct  and so  affect  the court's  exercise  of discretion  in          choosing  a sentence  within the  range."   See United  States v.                                                      ___ ______________          Agoro, 995 F.2d 1288, 1292 (1st Cir. 1993).          _____                                         -11-                      The  making  of  false statements  in  the  probation          submission is  similar enough  to the underlying  charged conduct          (making false statements to a governmental entity) to establish a          close  nexus.  Furthermore, both  of the statements (if believed)          could  have  impacted  the  decisions of  the  sentencing  court.          Kelley's denial  of knowledge about  the theft and  its insurance          implications could have swayed  the determination that Kelley had          exhibited  "more   than  minimal   planning"  under   U.S.S.G.             2F1.1(b)(2) or that  Kelley had  a role as  an "organizer"  under          U.S.S.G.     3B1.1.   Similarly,  Kelley's  statements about  the          expenditure  of  the  proceeds  of the  S.B.A.  loan  could  have          affected  the  sentencing  court's  decision  on  restitution  or          minimal planning.   Moreover, the suggestion that the default was          the result  of Kelley's  "desperation" constituted an  attempt to          evoke  sympathetic mitigation  from  the sentencing  court.   See                                                                        ___          Agoro, 996  F.2d at  1292.   As each  of these  potential impacts          _____          would  independently  satisfy  the  materiality  requirement, the          findings of the sentencing court were free of error.                                  III.   CONCLUSION                                  III.   CONCLUSION                                         __________                    For the foregoing reasons, the sentence is affirmed.                                                               ________                                         -12-
