US v. Bennett
Case Date: 09/20/1994
Court: United States Court of Appeals
Docket No: 93-1732
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November 3, 1994 UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ______________________ No. 93-1732 UNITED STATES, Appellant, v. GEORGE S. BENNETT, JR., Defendant, Appellee. _______________ ERRATA SHEET ERRATA SHEET The opinion of this Court issued on September 20, 1994 is amended as follows: On page 23, delete footnote 14. On page 29, fourth line from the bottom, after ". . . clearly erroneous." Add new footnote (and renumber subsequent footnotes). The text of the new footnote is as follows: Having stressed that post-trial acceptance of responsibility is the exception and must normally be borne out by pre-trial actions, we nevertheless do not intend to establish any blanket rule; the guideline's own application note leaves open the possibility of exceptions. But we do think that unless some obvious basis is apparent from the record, it may be difficult to uphold a reduction in cases where the defendant went to trial, asserted his or her innocence, and has nothing substantial in the way of pre- trial conduct to show earlier acceptance of responsibility -- unless the district court ______ is able to point to some persuasive reason for this determination. Thus, even where there may ordinarily be no special requirement for a statement of reasons in making sentence determinations, cases like this one may present situations in which an explanation by the district court is as a practical matter essential to establish that the guideline's rather stringent standards for post-trial conversions have been satisfied. UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ____________________ No. 93-1732 UNITED STATES, Appellant, v. GEORGE S. BENNETT, JR., Defendant, Appellee. ____________________ APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Edward F. Harrington, U.S. District Judge] ___________________ ____________________ Before Selya, Circuit Judge, _____________ Campbell, Senior Circuit Judge, and ____________________ Lagueux, District Judge.* ______________ ____________________ William P. Stimson, Assistant U.S. Attorney, Economic Crimes ____________________ Division, with whom Donald K. Stern, United States Attorney, was on ________________ brief for appellant. Morris M. Goldings, with whom John F. Aylmer, II and Mahoney, ___________________ ____________________ ________ Hawkes & Goldings were on brief for appellee. _________________ ____________________ September 20, 1994 ____________________ ____________________ *Of the District of Rhode Island, sitting by designation. CAMPBELL, Senior Circuit Judge. George S. Bennett, ____________________ Jr., defendant-appellee, was formerly a general manager, officer, and director of Daniel Webster Mortgage Company, Inc., which originated, underwrote, and sold mortgage loans. Bennett was also an attorney. On December 2, 1991, Bennett was charged, in a nine-count indictment, with violating the bank fraud statute, 18 U.S.C. 1344 (1988).1 The indictment alleged that, from August 1988 until October 1989, Bennett obtained nine loans corresponding to the nine counts totaling $900,000 by, among other things, providing knowingly false and misleading information concerning the identity of the borrower or borrowers and by concealing his and his wife's interest in the loans. On February 16, 1993, a jury trial began in the United States District Court for the District of ____________________ 1. 18 U.S.C. 1344 provides: Whoever knowingly executes, or attempts to execute, a scheme or artifice (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. -4- Massachusetts. Eight days later, the jury found Bennett guilty on all nine counts. Following a sentencing hearing on May 18 and 19, 1993, the district court sentenced Bennett to twenty-four months probation with six months home detention. He was also ordered to pay a special assessment of $450 pursuant to 18 U.S.C. 3013 (1988). Judgment was entered on May 24, 1993. The Government appeals from the sentence.2 We vacate and remand for resentencing. I. BACKGROUND __________ A. The Scheme __________ Daniel Webster Mortgage Company, Inc. ("Daniel Webster"), which maintained a place of business in Marshfield, Massachusetts, originated and underwrote residential mortgage loans for consumers. To finance its mortgage underwriting activities, Daniel Webster borrowed money under lines-of-credit that it maintained with Plymouth Federal Savings Bank ("Plymouth Federal") a federal mutual savings bank with its principal place of business in Plymouth, Massachusetts and New Bedford Institution for Savings (NBIS) a state-chartered bank based in New ____________________ 2. Bennett cross-appealed from the conviction, but the cross-appeal was later voluntarily dismissed pursuant to Fed. R. App. P. 42(b). -5- Bedford, Massachusetts.3 To obtain line-of-credit advances, Daniel Webster needed only to contact the banks by telephone and provide a borrower's name and an amount to be disbursed. After making a mortgage loan, Daniel Webster would assign the promissory note and the accompanying mortgage from its customer to whichever bank advanced the funds. Daniel Webster would also record the mortgage and the assignment at the appropriate registry of deeds. When the mortgage loan was sold on the secondary market, Daniel Webster would use the proceeds to repay the principal borrowed from the lending bank, plus accrued interest. George S. Bennett, Jr. was general manager of Daniel Webster from August 1985 until May 3, 1990, when he was asked to resign. He was also an officer of the company from May 1986 and a director from April 1987. On May 20, 1988, Bennett obtained two mortgage loans from Daniel Webster, each for $159,000. Bennett used the proceeds to purchase two parcels of real property in Hingham, Massachusetts. Title to these parcels was taken in the names of two nominee realty trusts, Prospect Woods Realty Trust and Prospect Forest Realty Trust. Bennett and his wife, Patricia A. Bennett, were the sole beneficiaries of each trust, and Mrs. Bennett was appointed trustee. Bennett's plan was to ____________________ 3. We will refer to Plymouth Federal and NBIS collectively as "the banks." -6- develop two homes on the parcels, occupy one, and sell the other. In or about September 1988, Bennett applied directly to Robert E. Dawley, then-president of Plymouth Federal, for financing to construct the two residences on the Hingham property. He sought loans of $410,000 and $425,000. Dawley thought that Plymouth Federal should not lend Bennett this money. Accordingly, after consulting with Plymouth Federal's loan committee, Dawley rejected Bennett's applications. Thereafter, Bennett used his position with Daniel Webster to cause the banks to lend him money under their lines-of-credit.4 On more than ten separate occasions, Bennett obtained advances under the lines-of-credit by misrepresenting to the banks that he was financing mortgage loans underwritten by Daniel Webster in its regular course of business. To conceal his personal interest in the loans, Bennett, on many occasions, gave the banks fictitious borrower names such as "Woods," "Forest," "Foster," "Floras," "Powers," and "Kallan." Although Bennett and/or his wife executed promissory notes and mortgages for each new loan, ____________________ 4. Eight of the loans described in the indictment were originally funded using advances from the Plymouth Federal line-of-credit, and one such loan was funded using an advance from the NBIS line-of-credit. By May 1990, however, Plymouth Federal had purchased all the loans at issue that had been charged to the NBIS line-of-credit. -7- Bennett failed to record any of the mortgages or assign them to the banks. Consequently, the line-of-credit advances were effectively unsecured, and Bennett avoided creating a public record of his borrowing activity. Bennett also created a lender loan file for each new loan that contained "filler" documents such as settlement statements, credit applications, title insurance policies, and real estate appraisals that, upon close inspection, bore no relationship to the particular loan. Rather, many of these documents were photocopies of the materials prepared in connection with the two $159,000 loans obtained by Bennett in May 1988. To avoid detection, Bennett kept the promissory notes, mortgages, and loan files in his personal possession. In or about March and April 1990, the Federal Deposit Insurance Corporation (FDIC) examined Plymouth Federal, including the Daniel Webster line-of-credit. One examiner demanded the supporting documentation for a $125,000 advance under the name "Bennett" Count 7 of the indictment. In response, Bennett provided, among other things, a promissory note, a mortgage, and an assignment of the mortgage to Plymouth Federal. The mortgage and the assignment had recording stamps, bearing instrument numbers 36241 and 36242, indicating that they had been received by the Plymouth County Registry of Deeds on May 12, 1989, at -8- 12:12 p.m. On further inspection, however, the mortgage and the assignment were found to be unrecorded, and the recording stamps to have been forged. A search at the Plymouth County Registry of Deeds revealed that the instrument numbers belonged to documents filed in an unrelated transaction. The full extent of Bennett's borrowing was revealed on or about May 3, 1990. Plymouth Federal thereupon terminated its line-of-credit, putting Daniel Webster out of business. Bennett was asked to resign from Daniel Webster. On May 22, 1990, Plymouth Federal and Daniel Webster sued Bennett, claiming, inter alia, that he had ___________ committed fraud. Bennett denied liability. On February 1, 1991, the parties entered into a settlement agreement. Bennett agreed to turn over to Plymouth Federal certain cash and other property, including the part of the Hingham property that had not earlier been sold. The district court found the value of the cash and property transferred in the settlement to be "at least" $660,000. B. The Flow of Funds _________________ During the civil law suit, Bennett, in answers to interrogatories, listed the loans that he had obtained from May 20, 1988, through March 1, 1990. The Government provides the following chart, which includes the nine transactions, designated A through I, charged in the indictment: Whether "Borrower Date Princ. Charged/ Name" on Princ. Balance -9- Date Design. Amount Bank Docs. Repaid (5-3-90) ____ _______ ______ __________ ______ ________ 5-20-88 no $159,000 Bennett - $159,000 5-20-88 no 159,000 Bennett - 159,000 7-5-88 no 180,000 Bennett 9-30-88 8-11-88 yes (A) 40,000 Woods 9-22-88 9-22-88 no 185,000 Bennett 10-13-88 9-22-88 yes (B) 90,000 Forest 7-7-89 10-4-88 no 100,000 Bennett - 100,000 10-4-88 yes (C) 141,700 Woods 7-7-89 10-4-88 yes (D) 145,300 Foster 7-7-89 3-31-89 yes (E) 75,000 Woods - 75,0005 3-31-89 yes (F) 105,000 Floras 7-7-89 5-12-89 yes (G) 125,000 Bennett - 125,000 8-2-89 yes (H) 67,000 Powers 9-30-89 10-2-89 yes (I) 111,000 Kallan - 111,000 3-1-90 no 108,000 Sou - 108,000 ________ ________ $1,791,000 $837,000 As the Government's chart indicates, several of the loans were repaid before May 3, 1990, the date when Bennett's offense was discovered. According to Bennett, the remaining loans were repaid when he entered into the settlement agreement with Daniel Webster and Plymouth Federal on February 1, 1991. C. Sentencing __________ At sentencing, the Government maintained that, because Bennett's scheme to defraud continued after the November 1, 1989, amendment to the loss table in U.S.S.G. ____________________ 5. The Government's appellate brief indicates that this loan was actually repaid on September 30, 1989. Bennett states in his brief, however, that he did not repay the $75,000 loan until February 1, 1991. This later date is consistent with representations made by the Government to the district court. Accordingly, we will assume that the $75,000 loan was still outstanding as of May 3, 1990. If our assumption is incorrect, the district court should make the necessary correction on remand. -10- 2F1.1(b)(1), there was no ex post facto problem created by __ ____ _____ using as is ordinarily done the version of the Guidelines Manual that was in effect (i.e, November 1, 1992) ___ when Bennett was sentenced. The Government also argued that (1) in addition to the $900,000 in charged loans, the district court should consider $1,016,000 in other loans as relevant conduct, for a total loss of $1,916,000;6 (2) the $1,916,000 loss figure should not be reduced to reflect any repayments made by Bennett because this was not a "fraudulent loan application" case within the meaning of U.S.S.G. 2F1.1, comment. (n.7(b)); (3) Bennett did nothing to manifest any appreciation of the criminality of his conduct; and (4) the district court should apply upward adjustments to the offense level under U.S.S.G. 2F1.1(b)(2) and 3B1.3. Accordingly, the Government urged the district court to determine Bennett's Total Offense Level as follows: 2F1.1(a) (base offense level) 6 2F1.1(b)(1)(M) (loss of $1,916,000) 12 2F1.1(b)(2) (more than minimal planning) 2 3B1.3 (abuse of position of trust) 2 __ TOTAL OFFENSE LEVEL 22 ____________________ 6. On appeal, the Government maintains that the total amount of charged and uncharged transactions amounts to $1,791,000 as opposed to $1,916,000. See chart, supra. The Government ___ _____ explains that, at sentencing, the $1,916,000 figure included a $236,000 loss on the "Kallan" loan (Loan I). On further reflection, however, the Government concedes that only $111,000 of this loan can be shown to have been funded with bank money. -11- This offense level, says the Government, would have resulted in a sentencing range of 41 to 51 months incarceration and a fine range of $7,500 to $75,000. The district court refused to accept the Government's position. Finding that the last date of the offense of conviction was October 2, 1989, it decided to use the November 1, 1988, Guidelines Manual which contained the loss table in effect prior to the November 1, 1989, amendment to avoid violating the Ex Post Facto Clause of the United States Constitution. Moreover, for purposes of calculating the loss to the banks, the district court, after a two-day sentencing hearing during which it considered the issue, included only those loans, totaling $900,000, that had been charged in the indictment. From this gross loss figure, the district court subtracted (1) the amount of the charged loans that Bennett had repaid prior to the May 1990 discovery of his crime (i.e., $589,000), and (2) the value of the ____ February 1991 settlement with Plymouth Federal and Daniel Webster.7 Accordingly, the district court concluded that the net loss to the banks was $0. It said, "[I]t's obvious that what was charged in this case as criminal conduct was $900,000, and that all of it, every cent, was paid off prior ____________________ 7. The exact value of the settlement agreement is not entirely clear. The presentence report pegged the value at $694,707.15. The district court said the value was "at least $660,000." -12- to the initiation of any criminal proceeding." Moreover, the district court determined that Bennett had accepted responsibility for his conduct. In light of these findings, the district court calculated Bennett's Total Offense Level to be 8. According to the Government, the district court's computations were as follows: 2F1.1 (base offense level) 6 2F1.1(b)(1) (zero loss) 0 2F1.1(b)(2) (minimal planning) 2 3B1.3 (abuse of position of trust) 2 3E1.1 (acceptance of responsibility) -2 __ TOTAL OFFENSE LEVEL 8 Based on this Total Offense Level and Bennett's Criminal History Category (I), the district court concluded that the sentencing range was 2 to 8 months imprisonment, with 24 to 36 months supervised release, and that the fine range was $5,000 to $50,000. Nevertheless, the district court sentenced Bennett to 24 months probation with 6 months home detention. He was also directed to pay $450 in special assessments. No fines were imposed. II. The Government argues that the following three errors were committed during sentencing: the district court improperly (1) calculated loss under U.S.S.G. 2F1.1(b)(1), (2) granted Bennett a downward adjustment in his offense level for accepting responsibility pursuant to U.S.S.G. -13- 3E1.1, and (3) used the November 1, 1988, Guidelines Manual. We turn to each of these arguments. A. The District Court's Loss Calculation _____________________________________ 1. Relevant Conduct ________________ The Government argues that the district court erred in calculating the banks' losses by refusing to consider any loans except the ones for which Bennett was charged. According to the Government, U.S.S.G. 1B1.3 requires sentencing courts to consider relevant conduct, even if such conduct does not fall within any count of conviction. The district court should, it says, have included in the loss calculation the other loans for which Bennett was not indicted. Bennett replies that the district court determined that evidence of the uncharged loans was too meager to amount to relevant conduct under U.S.S.G. 1B1.3. To resolve these arguments, we need to decide whether the district court determined, as a matter of law, ___________________ that, in calculating the loss, it would disregard loans that were not alleged in the indictment, or whether it determined, as a matter of fact, that the Government had failed to ______________________ establish, by a preponderance of the evidence, the existence of relevant non-indicted loans.8 With regard to the former, ____________________ 8. In United States v. Williams, 10 F.3d 910 (1st Cir. _____________ ________ 1993), we said, "Only after the government has met its burden of establishing, by a preponderance of the evidence, `a sufficient nexus between the [extraneous] conduct and the _________________ offense of conviction,' may the sentencing court, in its -14- "[t]he legal determination as to the proper interplay among related guidelines is subject to plenary review." United ______ States v. Schultz, 970 F.2d 960, 962 (1st ______ _______ Cir. 1992), cert. denied, U.S. , ____________ 113 S. Ct. 1020, 122 L. Ed. 2d 167 (1993). Therefore, we review de novo the district court's application of the relevant conduct guideline, U.S.S.G. 1B1.3, to the [fraud or deceit] guideline, U.S.S.G. [2F1.1]. United States v. Carrozza, 4 F.3d 70, 74 (1st Cir. 1993), _____________ ________ cert. denied, U.S. , 114 S. Ct. 1644, 128 L. Ed. 2d 365 ____________ (1994). Regarding the latter, "[a]bsent a mistake of law, we review `relevant conduct' findings for clear error." United ______ States v. Williams, 10 F.3d 910, 913 (1st Cir. 1993) (citing ______ ________ United States v. Wood, 924 F.2d 399, 403 (1st Cir. 1991)). _____________ ____ The transcript of Bennett's two-day sentencing hearing strongly indicates that the district court determined, as a matter of law, that it would not consider, in establishing the loss to the banks, loans that were not alleged in the indictment. At the very beginning of the sentencing hearing, the district court asked: And how much money was obtained, according to the counts? Because my understanding is that the determination of how much time the guidelines call for, is it determined on the amount charged in the counts? ____________________ sound discretion, make a `relevant conduct' adjustment." Id. ___ at 913 (quoting United States v. Sklar, 920 F.2d 107, 110 _____________ _____ (1st Cir. 1990)) (emphasis added in Williams). ________ -15- A short time later, the district court engaged in the following colloquy with the Government: MR. STIMSON: You have to live with the guidelines, your Honor. THE COURT: I understand you have to look at the guidelines, but I'll tell you, when you start getting into relevant conduct that is not charged, that goes against my sense of justice. I don't mind sentencing somebody on something that he's been charged with. When you're trying to get [$]800,000 more on something he's not charged with, there is something that is unjust about it. . . . MR. STIMSON: Your Honor, the government's position is based upon the total amount of each loan. Now, we can put[] aside for a moment the issue of whether we're talking just about the loans that were described in the indictment or about the other loans. THE COURT: I want to go with those charged in the indictment. MR. STIMSON: Okay. THE COURT: Because if you're asking for any more time than that, it's going to be tried. I'm not sentencing anybody on time [sic] that he's not been tried on. I'm not going to. So stick with the [$]900,000 as charged or anything else that you say is charged within the nine counts. Towards the end of the first day of the sentencing hearing, the district court stated the manner in which it was inclined to calculate the net loss to the banks: I'll tell you [w]hat, have we all got the issue, and I want it on the record. [T]he issue is this: The $900,000 charged less money paid back to -16- the victim bank in whatever form prior to the initiation of criminal action . . . iswhat I amgoing to determineas the law.9 The district court further said that it was "willing to disregard the relevant conduct." During the second day of the sentencing hearing, the district court once again visited the issue of relevant conduct. In this regard, it made the following observations and findings: I can see that maybe a significant portion, if not all of the charged loans, ha[s] been paid. However, we have this concept of related conduct. It's obvious that, although he's paid off over $900,000 and maybe close to [$1,200,000], he hasn't paid off all the related loans. So if I do not take those into consideration, then you may have a short- lived victory, because the upper [c]ourt, ____________________ 9. The parties dispute whether the last word of this statement was "law" or "loss." On June 3, 1994, counsel for Bennett filed an affidavit of Patricia A. Casey-Price, the official court reporter at Bennett's sentencing hearing. Attached to the affidavit were revised pages of the sentencing hearing transcript, indicating that the court had said "loss" not "law." Subsequent to oral argument, however, the Government submitted a supplemental affidavit of Patricia A. Casey-Price, dated June 9, 1994. In it she said, "Based upon a careful review of my stenographic notes, . . . I have concluded that . . . I in fact recorded the word `law,' not the word `loss.'" The parties did not follow the correct procedure for correcting the record. See Fed. R. App. P. 10(e) (describing ___ the correct procedure for correcting or modifying the record). But the difference between "law" and "loss" is of little consequence. In either event, the district court was setting forth the legal framework in which it was inclined to calculate the net loss. -17- I am absolutely confident, [is] going to require them to be taken into consideration. *** On the other hand, there is some relevant conduct resulting in debts in excess of $900,000, which under the current interpretation of the guidelines has to be considered. When the so-called relevant conduct is considered, that is matters not charged, there is a debt owing. It's very difficult to determine what that precise amount is, but it's my judgment, based on all the evidence in the case, that it's somewhere between [$100,000] and $200,000. So I'm in a position, were I to sentence strictly with respect to charged conduct, the loss I would find is nothing. If I am to sentence him on the basis of charged conduct and related activity, the loss is between [$100,000] and $200,000. Notwithstanding its conclusion that there was relevant conduct and that the net loss to the banks, if the relevant conduct were considered, was between $100,000 and $200,000, the district court sentenced Bennett only on the basis of the loans for which he was charged, finding a net loss to the banks of $0. It explained: Here is what I'm going to have to do, have it set up for a new trial. In some types of cases relevant conduct is appropriate. Loss under the cases is not just mathematical, it's intended loss. My judgment, based on hearing this case, and the amount of money that's been paid back by this defendant, [is] that it was always his intention to [re]pay the money. That ____ being so, there is no evidence in this _________________________________________ -18- record, in the trial or in anything _________________________________________ that's happened subsequent thereto, _________________________________________ that's going to allow me, in determining _________________________________________ the [e]lusive concept of cause,10 to _________________________________________ take into consideration loans which were _________________________________________ not subject to any criminal charge[;] nor _________________________________________ has anyone said that they were false in _________________________________________ any way. _______ So the first decision I'm making is that I'm concerned with loss resulting from criminal conduct, because that's all that's really relevant to the sentencing of this individual. That being so, it's obvious that what was charged in this case as criminal conduct was $900,000, and that all of it, every cent, was paid off prior to the initiation of any criminal proceeding. (emphasis and footnote added). In light of the court's comments, we see little merit in Bennett's insistence that the district court found, as a matter of fact, that the Government did not establish by a preponderance of the evidence that the uncharged loans amounted to relevant conduct. Rather the court's message was ____________________ 10. The parties dispute whether Judge Harrington said "cause" or "loss." On June 3, 1994, counsel for the defendant submitted the affidavit of Patricia A. Casey-Price, the court stenographer, in which she indicated that Judge Harrington had said "loss." However, in a June 9, 1994, supplemental affidavit, filed by the Government, Ms. Casey- Price said, "[After] listening to the magnetic audiotape of the May 19, 1993[,] proceedings, I have confirmed that, on May 19, 1993, Judge Harrington in fact used the word `cause,' not the word `loss.'" As we described, see supra note 9, the parties have not ___ _____ followed the proper procedure for correcting the transcript. See Fed. R. App. P. 10(e). In any event, we see nothing to ___ be gained by asking the district court to clarify the record. Our decision is not influenced by whether Judge Harrington said "cause" or "loss." -19- that, no matter what the evidence, it was not going to "take into consideration loans which were not subject to any criminal charge[s]." Any possible doubt as to this interpretation is removed by the court's finding that there was relevant conduct, which, if considered, would result in a net loss to the banks of between $100,000 and $200,000. Because the court thought it unfair to consider relevant conduct here, it sentenced Bennett only on the basis of the loans for which he was charged and convicted, concluding that the net loss to the banks from these was $0, and disregarding the losses on other loans. A sentencing court may not, however, simply disregard relevant conduct. E.g., United States v. Restrepo, ____ _____________ ________ 946 F.2d 654, 655 (9th Cir. 1991) (accepting defendant's argument that the Sentencing Guidelines severely reduce the district court's sentencing discretion and require the court to consider the sentencing effect of uncharged crimes), cert. _____ denied, U.S. , 112 S. Ct. 1564, 118 L. Ed. 2d 211 ______ (1992); Lauren Greenwald, Relevant Conduct and the Impact of ___________________________________ the Preponderance Standard of Proof Under the Federal _____________________________________________________________ Sentencing Guidelines: A Denial of Due Process, 18 Vt. L. _________________________________________________ Rev. 529, 530 (1994) ("The guidelines altered the effect that these aggravating factors had on sentencing by changing the judge's consideration of relevant conduct from discretionary to mandatory."); see United States v. Schaper, 903 F.2d 891, ___ _____________ _______ -20- 897-98 (2d Cir. 1990) (finding error in the district court's refusal to consider amounts of narcotics that were not charged in the indictment because "[t]he Sentencing Guidelines clearly provide . . . that a sentencing court must consider a defendant's involvement with quantities of narcotics not charged in the count(s) of conviction when such conduct was undertaken in the same course of conduct as the offense of conviction"). Accordingly, we vacate the sentence and remand for resentencing. On remand, the district court shall include in the loss calculation the dollar amount of any and all uncharged loans that constitute relevant conduct. 2. Deductions from the Loss ________________________ In calculating the loss to the banks, the district court credited Bennett with, inter alia, the estimated value __________ of his February 1, 1991, settlement of the civil suit brought against him by Plymouth Federal and Daniel Webster. The Government assigns error, citing, U.S.S.G. 2F1.1, comment. (n.7(b)) (Nov. 1, 1993):11 In fraudulent loan application cases and contract procurement cases, the loss is ____________________ 11. Application Note 7(b), in its present form, took effect on November 1, 1992. Hence, it was not in the Guidelines Manual used by the district court. Nevertheless, it is appropriate to consider Note 7(b) because it represents a clarification, not a substantive change, of the Sentencing Guidelines. See U.S.S.G. App. C, amend. 470; U.S.S.G. ___ 1B1.11(b)(2) ("[I]f a court applies an earlier edition of the Guidelines Manual, the court shall consider subsequent amendments, to the extent that such amendments are clarifying rather than substantive changes."). -21- the actual loss to the victim (or if the __________________________ loss has not yet come about, the expected loss). For example, if a defendant _______________________________ fraudulently obtains a loan by _________________________________________ misrepresenting the value of his assets, _________________________________________ the loss is the amount of the loan not _________________________________________ repaid at the time the offense is _________________________________________ discovered, reduced by the amount the _________________________________________ lending institution has recovered (or can _________________________________________ expect to recover) from any assets _________________________________________ pledged to secure the loan. However, _____________________________ where the intended loss is greater than the actual loss, the intended loss is to be used. (emphasis added). The Government contends that, in light of Note 7(b), the district court, in calculating the actual loss to the banks, could not credit Bennett with amounts repaid after May 3, 1990, the date his offense was discovered. Bennett counters that the district court properly considered the amount of his settlement which came ten months before he was indicted in calculating the banks' actual loss. Bennett cites United States v. Gallegos, 975 F.2d 712 (10th ______________ ________ Cir. 1992), in which the Tenth Circuit said that a settlement agreement entered into between the defendant and the victim bank after the offense was discovered could "be viewed as an offset." Id. at 712-13. ___ Notwithstanding the Tenth Circuit's decision, Application Note 7(b) is binding on the federal courts.12 Stinson v. United States, U.S. , 113 S. Ct. 1913, 1915, _______ _____________ 123 L. Ed. 2d 598 (1993) ("[C]ommentary in the Guidelines ____________________ 12. The Tenth Circuit cited Application Note 7(b), but did not discuss it. -22- 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."). The parties agree that Application Note 7(b) applies to "fraudulent loan application cases and contract procurement cases . . . ." Note 7(b) instructs how to calculate the actual loss in cases where "a defendant fraudulently obtains a loan by misrepresenting the value of his assets." Here, Bennett fraudulently obtained line-of-credit advances by, among other things, misrepresenting the existence and, a fortiori, the _ ________ value of residential mortgages. Accordingly, as Note 7(b) goes on to describe, "[T]he loss is the amount of the loan not repaid at the time the offense is discovered, reduced by the amount the lending institution has recovered (or can expect to recover) from any assets pledged to secure the loan." Because the parties agree that the full extent of Bennett's borrowing activity (i.e., his offenses) was ____ discovered on May 3, 1990, the district court erred in giving Bennett credit for payments made after that date. It should have calculated the "actual loss" to the victim banks as follows: 1. The amount of the illegal loans (i.e., those for which Bennett was ____ convicted), plus -23- 2. the amount of the loans constituting relevant conduct, less 3. the amount of the loans in 1 and 2 that Bennett had repaid as of May 3, 1990, less 4. the amount the victim banks have recovered (or can expect to recover) from any assets pledged to secure the loans in 1 and 2. This is the framework adopted by other courts of appeals that have construed Application Note 7(b). E.g., United States v. ____ _____________ Jindra, 7 F.3d 113, 114 (8th Cir. 1993) (holding that, in ______ light of Application Note 7(b), the loss was the amount of the loans outstanding when the offense was discovered because the defendant did not pledge assets to secure the loans), cert. denied, U.S. , 114 S. Ct. 888, 127 L. Ed. 2d 82 ____________ (1994); United States v. Menichino, 989 F.2d 438, 441 (11th _____________ _________ Cir. 1993) ("[I]n a loan application case involving misrepresentation of assets, the loss is the amount of the loan not repaid at the time the offense is discovered, reduced by the amount the lender could recover from collateral."). B. Downward Adjustment for Acceptance of Responsibility ____________________________________________________ The Government contends that the district court erred in granting Bennett a two-level downward adjustment in his offense level pursuant to U.S.S.G. 3E1.1 because there -24- is nothing in the record to support its conclusion that Bennett accepted responsibility for his criminal conduct.13 It insists that, from the time Bennett's crime was discovered and through his sentencing hearing, Bennett never conceded that he had engaged in bank fraud or expressed any remorse or contrition for his conduct. Furthermore, the Government submits that Bennett's settlement with Plymouth Federal and Daniel Webster was not a "voluntary payment of restitution," _________ U.S.S.G. 3E1.1, comment. (n.1(c)) (Nov. 1, 1993) (emphasis added), that would entitle Bennett to a downward adjustment in his offense level. Bennett responds that the district court's decision was justified by his settlement offer and ____________________ 13. Apparently, the district court adopted the presentence report's recommendation when it awarded Bennett a two-point reduction for acceptance of responsibility. That report, as amended on November 1, 1992, said, inter alia: __________ On 2/1/91, prior to Bennett's indictment on the instant offense, he entered into a settlement agreement with the Plymouth Federal Savings Bank in which a portion of restitution was paid by the defendant. The payment of restitution suggests that the defendant has accepted responsibility for his actions. Per [U.S.S.G. 3E1.1, comment. (n.1(c)) (Nov. 1, 1993)], in determining whether a defendant qualifies for the acceptance of responsibility reduction, appropriate considerations include voluntary payment of restitution prior to adjudication of guilt. Considering the fact that restitution was paid prior to the guilty verdict in the instant matter, Bennett will be granted a two-level reduction for acceptance of responsibility. -25- eventual settlement with Plymouth Federal and Daniel Webster prior to conviction, and by his demonstration of contrition and remorse at the sentencing hearing. We cannot agree. Although a district court's conclusion that a defendant has accepted responsibility "is entitled to great deference on review[,]" U.S.S.G. 3E1.1, comment. (n.5) (Nov. 1, 1993); e.g., United States v. Royer, 895 F.2d 28, 29 ____ _____________ _____ (1st Cir. 1990) (describing "clearly erroneous" standard of review), there must be some articulable basis or foundation for it, e.g., United States v. Amos, 952 F.2d 992, 995 (8th ____ ______________ ____ Cir. 1991), cert. denied, U.S. , 112 S. Ct. 1774, 118 L. ____________ Ed. 2d 432 (1992). We find no such basis for the district court's decision. To begin with, U.S.S.G. 3E1.1 "is not intended to apply to a defendant who puts the government to its burden of proof at trial by denying the essential factual elements of guilt, is convicted, and only then admits guilt and expresses remorse."14 U.S.S.G. 3E1.1, comment. (n.2) (Nov. 1, ____________________ 14. This version of Application Note 2 became effective on November 1, 1990. Hence, it was not included in the November 1, 1988, Guidelines Manual used by the district court. Application Note 2 in that manual read: Conviction by trial does not preclude a defendant from consideration under this section. A defendant may manifest sincere contrition even if he exercises his constitutional right to a trial. This may occur, for example, where a defendant goes to trial to assert and preserve issues that do not relate to -26- 1993) (footnote not in original). Bennett pleaded not guilty to all nine counts and denied "the essential factual elements of [his] guilt." During his opening statement, Bennett's counsel asserted and suggested, among other things, that (1) there was nothing "out of the ordinary" about Bennett's loans, (2) the lending banks were adequately secured, (3) the slumping real estate market, not Bennett's conduct, caused Plymouth Federal's losses, and (4) Bennett never had any intent to defraud the banks. Bennett's counsel reiterated this last point at the very end of his closing argument when he said, "And I suggest no intent to defraud has been shown beyond a reasonable doubt on this evidence." After he was convicted, Bennett apologized to his family and said that he accepted the verdict, but steadfastly maintained that he had never intended to defraud the banks. At the close of the sentencing hearing, Bennett told the district court: I just want to say . . . how sorry I am to have been the force behind the series of events that led to this trial in February, to the sentencing hearing ____________________ factual guilt (e.g., to make a ____ constitutional challenge to a statute or a challenge to the applicability of a statute to his conduct). See U.S.S.G. App. C, amend. 351. As we described, see supra ___ ___ _____ note 11, it is appropriate to consider the current Application Note 2 because it constitutes a clarifying, rather than a substantive, change. See U.S.S.G. ___ 1B1.11(b)(2). -27- here in a criminal case. That I've put a terrible burden on my wife and my children and my mother and sisters and the rest of my family who has supported me through it. I never intended to . . . _________________________ defraud anybody. I never intended to |