Free Reply to Response - District Court of Arizona - Arizona

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PAUL K. CHARLTON United States Attorney District of Arizona John R. Lopez IV Assistant U.S. Attorney Arizona State Bar No. 019182 Two Renaissance Square 40 North Central, Suite 1200 Phoenix, Arizona 85004-4408 Telephone: (602) 514-7500 [email protected]

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

United States of America, Plaintiff, v. Andrew Taylor, Defendant.

CR-04-0809-PHX-NVW U NI T E D S T AT E S ' R EPL Y T O DEFENDANT'S RESPONSE RE: S U P PL E M E N T AL SE NT ENCI N G MEMORANDUM

The United States of America, through undersigned counsel, hereby files its Reply to Defendant's Response Re: Supplemental Sentencing Memorandum. For the reasons set forth in the attached Memorandum of Points and Authorities, the government respectfully requests that this Court adopt the sentencing calculation set forth in the Presentence Investigation Report and impose a sentence at least at the high-end of the Guideline range. Respectfully submitted this _____ day of December, 2005. PAUL K. CHARLTON United States Attorney District of Arizona /S/ JOHN R. LOPEZ IV Assistant U.S. Attorney

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MEMORANDUM OF POINTS AND AUTHORITIES For this Court's ease of reference, the government cross-references its replies to defendant's arguments according to the title and item number in defendant's Response .

COMPUTATION OF CRIMINAL HISTORY (Defendant's Issue 1). Defendant argues that his prior conviction described in paragraph 37 of the PSR, for which

he was assessed three criminal history points, may not be counted toward his criminal history because it has allegedly "aged-out" pursuant to Guidelines section 4(A)1.2(e). Defendant is incorrect as a matter of fact and law. Section 4(A)1.2(e) provides, in part, that any prior sentence of imprisonment exceeding one year and one month, whenever imposed, that resulted in the defendant being incarcerated during any time within 15 years of the defendant's commitment of the instant offense is counted. In other words, if a defendant was sentenced to more than 13 months imprisonment and was incarcerated at any time within 15 years of the commitment of the instant offense, such defendant shall be assessed criminal history points for the conviction. In this case, Defendant concedes that the original violation date for the instant bankruptcy fraud is May 25, 1999. As such, Defendant must be assessed criminal history points for any qualifying conviction for which he was incarcerated between May 25, 1999, and May 25, 1984. As described in paragraph 37 of the PSR, Defendant was sentenced to 24 months imprisonment after his probation was revoked on November 28, 1984 ­ well within the applicable 15 year window. In fact, Defendant was not released until January 6, 1987. Consequently, Defendant was properly assessed three criminal history points for the offense.

II. CONTRACTUAL INTEREST THAT HAD ACCRUED AT THE TIME OF THE OFFENSE MAY BE INCLUDED IN THE LOSS AMOUNT, OR, ALTERNATIVELY, AN UPWARD DEPARTURE IS WARRANTED IF SUCH INTEREST IS EXCLUDED FROM THE LOSS AMOUNT (Defendant's Issue 2). Defendant properly notes that Amendment 617 to the Guidelines, effective November 1, 2001, excludes interest and similar costs from the loss amount for purposes of calculating a 2

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sentence. However, the government submits that the entire Catholic Credit Union debt should be included in the loss amount because it should not be parsed into components of principal, interest and penalties. Defendant became indebted to Catholic Credit Union for the listed amount and he intended to avoid the entire debt through abuse of the bankruptcy process. The

government is not seeking to increase the loss amount by calculating interest on funds Defendant defrauded a creditor, but rather, requests that the Court include in the loss amount the sum that Defendant was indebted to Catholic Credit Union but failed to pay. Should the Court conclude that the Amendment 617 exclusion of interest and similar costs from the loss amount for purposes of calculating a sentence includes the interest component of the Catholic Credit Union debt, Defendant may still be held accountable for such interest. In resolving a conflict between the circuit courts on this issue, the Sentencing Commission ("the Commission") recognized that exclusion of "bargained for" interest may under-punish the offender. Specifically, the Commission stated: The amendment reflects a decision by the Commission that interest and similar costs shall be excluded from loss. However, the amendment provides that a departure may be warranted in the rare case in which exclusion of interest will under-punish the offender. Thus, the rule resolves the circuit split regarding whether "bargained for" interest may be included in loss. Amendment 617 to the Guidelines, effective November 1, 2001. In this case, contractual interest accrued pursuant to the Catholic Credit Union contract at the time of the commission of Defendant's bankruptcy fraud should be factored into Defendant's sentencing as an upward departure because exclusion of the interest will under-punish Defendant. As a result of Defendant's bankruptcy fraud, Catholic Credit Union was deprived of this reasonable and expected contractual interest. Defendant should be held accountable for this loss amount because Catholic Credit Union had a reasonable expectation of receiving interest from the vehicle loan. / / / /

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III. THE CORRECT AMOUNT OF LOSS FOR SENTENCING PURPOSES INCLUDES DEFENDANT'S ENTIRE DEBT TO IRS, MR. LAL, CATHOLIC CREDIT UNION AND ARIZONA DEPARTMENT OF REVENUE AT THE TIME HE ENGAGED IN HIS FRAUD (Defendant's Issue 4). Defendant argues there was no intended loss for sentencing purposes in this matter because he never intended to have any of his debts discharged in bankruptcy. The government agrees that defendant's scheme to defraud did not contemplate discharging his debts in bankruptcy, and thus did not intend losses to creditors based on discharge. Indeed, the evidence clearly showed that he never in good faith entered bankruptcy with an intent to successfully complete it. Defendant's scheme to defraud was different. As the government proved and argued at trial, defendant intended that by repeatedly obtaining bankruptcy stays, regardless of their validity, he would defeat creditors by frustrating their continued efforts to collect on defendant's debts through delay, not discharge. Defendant intended that the repeated invalid stays would result in creditors either giving up­as IRS apparently did­or inadvertently failing to maintain their debt interests, as ultimately happened to Mr. Lal. Thus the intended loss was the entire unsatisfied amount of defendant's debts owing to all creditors. Moreover, the intended loss in this matter is the same as actual loss, in that, since 1999, defendant has by the above scheme avoided paying victims the amounts they are owed. Defendant claims that the victims have security and assurances of future payment through the equity he purports to have in his house. That claim is hollow and wholly unsatisfactory, in light of the fact that defendant has no plans or time frame to liquidate the home and pay the debts, and in light of defendant's history of fraud, deceit, debt avoidance and failure to keep commitments. Defendant's position, effectively, is that his creditors may rightfully be held hostage until he decides to pay them, if ever. He argues that this Court and the creditors are adequately assured of future payment where he is trusted to hold of their money in the form of his home equity­which he currently is shielding from foreclosure by a pending bankruptcy, in a process he has now been convicted of fraudulently abusing. Adoption of defendant's view will mean the

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victims may never be paid, and defendant may never have to disgorge the money he rightfully owes them, even though he has equivalent or greater assets. IV. IRS AND ADR LIEN AMOUNTS SHOULD NOT BE DEDUCTED FROM DEFENDANT'S LOSS AMOUNT (Defendant's Issue 5). Defendant, citing only U.S. v. Staples, 410 F.3d 484 (8 th Cir. 2005), asserts that the Court should offset any loss by the purported equity in his house. In so arguing, defendant asks this

6 Court to treat the IRS and ADR liens placed on his property well after discovery of his fraud as 7 collateral. Those liens are neither collateral in the legal sense of the word nor in the spirit 8 intended by the Sentencing Guidelines. 9 First, as set forth in the government's November 30 Memorandum to this Court, collateral 10 is property affirmatively "pledged by a borrower as security against a debt." Black's Handbook 11 of Business Law Terms (1999 ed.) At 118. In this matter, defendant affirmatively pledged no 12 property to secure any of his debts to IRS or ADR. The liens exist only because the IRS and 13 ADR took affirmative steps to preserve their claims against defendant­claims he has sought to 14 avoid for as long as ten years. The lien interests in Defendant's property do not represent pledged 15 collateral, but rather judicially-created interests that the victims were forced to obtain without 16 Defendant's cooperation or acquiescence. See United States v. Johnson, 941 F.2d 1102, 1114 17 18 diminish Defendant's culpability and responsibility for the fraudulent scheme he masterminded. 19 The district court permissibly decided to base Defendant's sentence on the value of all the 20 property taken . . . ."). 21 Second, the law's consideration of collateral in the sentencing context rests on the settled 22 legal premise that "a defendant in a fraud case should not be able to reduce the amount of loss 23 for sentencing purposes by offering to make restitution after being caught." United States v. 24 25 Cir. 1996) ("Subsequently making voluntary restitution is simply not the equivalent of posting 26 collateral."). Defendant's own case says as much. Staples, 410 F.3d at 491 (holding that "courts 27 28 5 Mummert, 34 F.3d 201, 204 (3 rd Cir. 1994); see also United States v. Scott, 74 F.3d 107, 112 (6 th (10 th Cir. 1991) ("The fact that the government was able to reacquire the properties does not

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do not subtract from the intended loss repayments made by a defendant to his victim after the detection of the offense, as such payments, given their timing, likely do not indicate anything about the defendant's culpability."). Thus, the law allows losses to be offset only by collateral pledged before the discovery of a fraud, because the affirmative pledge of such assets usually shows that the defendant did not intend the loss to the victim be absolute­in other words, the defendant foresaw or intended that the victim would at least have access to the collateral to offset the loss. Where circumstances show no intention of the defendant, at the time of the fraud, that assets would mitigate the loss, no offset is appropriate for sentencing purposes, as defendant's own case recognizes. Staples, 410 F.3d at 491 ("[C]ollateral is more like pre-detection repayment than post-detection repayment because it bears on the defendant's culpability: the existence of collateral could indicate that the defendant intended to cause a smaller loss than would have occurred absent the collateral."). In this case, the purported equity in Defendant's real estate holdings should not offset the loss amount used to calculate his sentence. That equity was not pledged as collateral ever, either before or after the fraud's discovery. Defendant's present representation that his home would at some future date of his choosing could satisfy the IRS and ADR tax liens represents, at best, a subsequent offer at restitution rather than the equivalent of posting collateral prior to discovery of the offense. See Scott, 74 F.3d at 112. Accordingly, the IRS and ADR tax lien amounts should be included in the loss amount for purposes of calculating Defendant's sentence.

V. THE RESTITUTION FIGURE IN THIS MATTER IS THE SAME AS THE LOSS FIGURE. (Defendant's Issue 6). Defendant argues, as he did above, that he is liable for no restitution in this matter because none of his bankruptcies resulted in discharge of debt. Again, defendant's scheme to defraud did not intend loss due to discharges; it intended losses due to the repeated delay of the victims' collection of lawful debts, to the point that the victims gave up pursuing the debts or made mistakes barring them from keeping their claims viable. Both of those results occurred,

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yielding actual (and identical intended) loss. Defendant is liable in restitution for the full amounts owing Mr. Lal, IRS, Catholic Credit Union and Arizona Department of Revenue. Defendant also claims that there was no actual loss in this case because had he truthfully reported all of his prior bankruptcy filings on subsequent petitions, and had he not concealed over $400,000 in assets from the bankruptcy court, the trustee and his creditors, the result would have been exactly the same. Defendant's argument is directly refuted by the evidence at trial. Rick Cuellar, counsel for the United States Bankruptcy Trustee, testified that the number of prior bankruptcies filed would be material in the court's decision to deny bankruptcy protection based on suspected fraud or other improper purpose. Moreover, he testified that a debtor's concealment of assets worth several times the amount of all outstanding claims would have an absolute effect on the approval or even consideration of any proposed workout plan. Defendant's claim­that his lies to the bankruptcy court, to his creditors and to the trustee had no effect on his ability to avoid his debts for these many years­is incredible.

VI.

CONCLUSION For the reasons set forth above, the government respectfully requests that the Court impose

a sentence at least at the high-end of the applicable Guideline range. Respectfully submitted this ___st day of December, 2005.

PAUL K. CHARLTON United States Attorney District of Arizona /S/ JOHN R. LOPEZ IV Assistant U.S. Attorney

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CERTIFICATE OF SERVICE

I hereby certify that on December __, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM /ECF system for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Cameron Morgan 4295 North 75 th Street Scottsdale, AZ 85251

/ S/ JOHN R. LOPEZ IV

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