Free Response - District Court of Arizona - Arizona

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Cameron A. Morgan, Esq. th

4295 North 75 Street Scottsdale, Arizona 85251 480-990-9507 Telephone 480-990-9509 Facsimile e-mail: [email protected] Arizona State Bar No. 006709
Attorney for Defendant

IN THE UNITED STATES DISTRICT COURT
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FOR THE DISTRICT OF ARIZONA
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UNITED STATES OF AMERICA, Plaintiff, vs. ANDREW TAYLOR, Defendant.

) NO: CR04-0809-PHX-NVW ) ) ) DEFENDANT'S RESPONSE RE: ) GOVERNMENT'S SUPPLEMENTAL ) SENTENCING MEMORANDUM ) ) ) )

Defendant, by and through counsel undersigned, hereby responds to the Supplemental Sentencing Memorandum filed by the government herein. This response is supported by the attached Memorandum of Points and Authorities incorporated by reference herein. RESPECTFULLY SUBMITTED this day of November, 2005.

Cameron A. Morgan Attorney for Andrew Taylor MEMORANDUM OF POINTS AND AUTHORITIES 1. Computation of criminal history. Defendant Taylor initially filed an objection to the inclusion of three criminal

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history points because the record produced by probation failed to show that he was represented at

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all by counsel and his 1981 conviction in Island County Court, case #2964. Subsequent to that objection the probation department was able to obtain an order deferring imposition of sentence and granting probation that shows Defendant was represented at the time that he plead guilty to the 1981 offense. Defendant is unable to collaterally attack that offense and therefore it may be included in the criminal history calculation. However, another problem arises with respect to the timing of the sentences served in Washington for the 1981 convictions set forth in the presentence report. At the outset the Court must keep in mind that the original violation date in this case was May 25, 1999 with subsequent violation dates of January 24, 2000, May 30, 2000 and April 14, 2003, which are the dates of the bankruptcies filed by Mr. Taylor. The conviction in Island County Superior Court, case #2964 originally occurred on February 13, 1981. Probation was subsequently revoked on August 10, 1983 and the Defendant was sentenced to five years prison consecutive to the sentences imposed in the Snohomish County Superior Court cases set forth in paragraphs 37, 38 and 39. Probation in the Snohomish County cases was originally imposed on July 27, 1981 and probation was revoked on June 22, 1983. The Defendant was sentenced to 24 months, 30 months and 36 months respectively on those counts on November 28, 2003. The sentences were served concurrently. Defendant was released June 6, 1987 and served a total of approximately 42 months. Section 4(A)1.2(e) sets forth the applicable time period for prior sentences. Section 1 states: Any prior sentence of imprisonment exceeding one year and one month that was imposed within 15 years of the defendant's commitment of the instant offense is counted. Also count any prior sentence of imprisonment exceeding one year and one month whenever imposed, that resulted in the defendant being incarcerated during any part of such 15 year period. Subsection 3 states: Any prior sentence not within the time periods specified above is not counted.
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The problem in this case is that the 15 year date counting back from the initial offense is May 25, 1984, which runs in the middle of the two consecutive sentences imposed by the Washington County Courts. The Snohomish County cases cannot be counted if those sentences ran prior to May 25, 1984. In addition, they should not be counted against the other offenses in 2000 and 2003 if they are outside of the 15 year period.

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Defendant's counsel has contacted the probation department concerning this
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matter and it appears to be a question of first impression for the assigned probation officer and
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her supervisor. In addition, counsel has contacted the Washington Department of Corrections to see if it can be determined when the sentences began and ended. To date Washington Department of Corrections has not been able to provide an answer. Based on the foregoing, it does not appear that the government can satisfy its burden of proof that the Snohomish County cases can be counted pursuant to Section 4A1.1(e). Defendant respectfully requests that the court subtract 3 points from the criminal history computation. 2. Interest may not be included in the loss amount for purposes of calculating Defendant's offense level. In a supplemental memorandum the government cited several 1990's cases for the proposition that interest could be included in the loss amount for purposes of calculating the Defendant's offense level. However, all of these cases have been overruled by the 2000 amendment to the sentencing guidelines concerning offenses involving property. Amendment 617 to the guidelines effective November 1, 2001 addressed the issue of interest and the conflicting decisions among the circuits. The amendment states:

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The amendment reflects a decision by the commission that interest and similar costs shall be excluded from loss.

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The amendment goes on to discuss the conflicting decisions and states: This rule is consistent with the general purpose of the loss determination to serve as a rough measurement of the seriousness of the offense and culpability of the offender and avoids unnecessary litigation regarding the amount of interest to be included. Based on Amendment 617 to the Guidelines that provides the background for the exclusions of loss found in 2B1.1 application note 3(D) for interest, the Catholic Credit Union must be excluded from the loss calculations. See United States v. Morgan, 376 F.3d 1002 (9th Circuit 2004). (Trial court improperly included contractual interest in calculating the victim's loss for sentence enhancement purposes.) 3. Attorney's fees. Attorney's fees are generally considered to be consequential damages and thus

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would not be includable as an actual loss under Section 2B1.1. See U.S. v. Scott, 405 F.3d 615
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(7th Cir. 2005) Attorney's fees are in the same category as finance charges, late fees, penalties or
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other similar costs. There do not appear to be any cases where attorney's fees are considered to be an actual loss under this section. Thus, the court should not consider attorney's fees of any party in determining the actual loss calculation for purposes of sentencing enhancement. 4. Actual loss versus intended loss. The government has raised the issue whether the court should consider intended loss as opposed to actual loss for purposes of sentence enhancement. The guidelines provide that the court should consider the greater of the two in determining whether to impose an enhancement. Actual loss is defined as a reasonably foreseeable pecuniary harm that resulted from the offense. Intended loss means the pecuniary harm that was intended to result from the

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offense.
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In U.S. v. Feldman, 338 F.3d 212 (3rd Cir. 2003) the court discussed the actual versus intended loss issue in a Chapter 7 bankruptcy case. In that case the defendant concealed assets of approximately $1,000,000.00 from his creditors in order to obtain a discharge of debts in the amount of approximately $200,000.00. The government argued that by committing bankruptcy fraud the defendant committed the crime with the intent that it would lead to the

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discharge of the entire amount of the debt owed. The court rejected the government's argument
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and held:
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The essential flaw in the government's argument is in its failure to recognize that Feldman must have intended that a loss be caused by the commission of a crime. It is not enough that Feldman intended to be discharged from debt in general; indeed that is the whole point of filing a petition in bankruptcy. Instead, we must look at what Feldman sought to gain from committing the crime. If Feldman honestly thought that the only thing he would gain from the concealment of assets was a more speedy discharge in bankruptcy, then he arguably did not intend any monetary loss to his creditors. In the case at bar, as it Kopp, the District Court had to carefully examine what Feldman intended to happen when he concealed assets. The Feldman court went on to affirm the District Court's finding on intended loss because the District Court asserted that it did not believe the defendant's stated reason for concealing assets, which was to speed along the bankruptcy process. Nonetheless, the court found that the subjective intent of the defendant is the controlling factor. With regard to the subjective intent of a debtor in a Chapter 13 matter the intended loss is not an easily answered question. First, as noted in Feldman, supra, the defendant is entitled to file bankruptcy and the bankruptcy proceedings themselves may cause some loss to a creditor that was neither intended nor contemplated by the debtor himself but is, in fact, imposed by the court or the trustee. Second, a Chapter 13 requires that the debtor submit a

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repayment plan. In this situation the court must be able to determine what the debtor intended to
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repay under his plan in order to determine what amount of debt would be discharged. Third,

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where the defendant does not intend to follow through with the Chapter 13 and either dismisses the action or allows it to be dismissed there can be no intended loss by virtue of discharge of the debt since the liability remains and the creditor still maintains all rights to collect. U.S. v. Bussell, 414 F.3d 1048 (9th Cir. 2005). In this case, the Defendant never sought to discharge any debt. Each of the

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Chapter 13 cases upon which his convictions rest were dismissed either by the court for failure to
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submit necessary paperwork or by the Defendant himself. This is not a case where a Chapter 13
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would operate to extinguish the creditors' claim but actually provided a forum for the creditors to request repayment. That was the intent with which the Defendant filed the Chapter 13 petitions. As such, there is no intended loss that the government can prove by a preponderance of the evidence. With respect to calculating an actual loss for purposes of sentence enhancement, Feldman, supra, is also instructive. The Feldman court held that actual loss for restitution purposes is the difference between what the creditors actually received and what the creditors would have received had the bankruptcy debtor acted lawfully in disclosing his assets and liabilities. See also U.S. v. Bussell, supra. (adopting the Feldman test).

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In this case, none of the creditors suffered an actual loss as a result of the crimes
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for which the Defendant was convicted. None of the creditor claims was discharged and all of
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the creditors maintained their right to pursue any legal remedies after each of the Chapter 13 petitions was dismissed. When a creditor fails to pursue its legal remedies no actual loss occurs that is caused by the acts of the Defendant. The obvious bears repeating in this case; the Defendant has not been convicted of failing to pay his debts; that in and of itself is not illegal. His crimes are failing to report prior bankruptcies and assets acquired while in bankruptcy.

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Mr. Lal's loss in this case is not a reasonably foreseeable pecuniary harm that resulted from the offenses. Mr. Lal's loss stems from the failure to pay rent, not the filing of bankruptcy. His judgment did not lapse because of any Chapter 13 petition but because he failed to take any action to collect or renew his judgment. It was not foreseeable that Mr. Lal would do nothing to protect his own rights.

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The IRS is in a similar position. It has not suffered an actual loss but has not yet
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received payment on its claim. It has a valid claim and lien that will not be discharged in
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bankruptcy. Nothing that the defendant did impaired its claim. The Catholic Credit Union's claim cannot be considered an actual loss even aside from the repayment of the principal debt. Again, it was the failure to make payments, not the Chapter 13 pleadings, that caused the alleged loss. If there was any claim that existed after it repossessed and sold its collateral it merely had to file a claim with the bankruptcy court. It was certainly free to pursue that claim in state court after the Defendant dismissed the 2000 Chapter 13. It simply chose not to pursue its available legal remedies. This is not an actual loss caused by the crimes prosecuted by the government. 5. The Defendant's house is collateral. Contrary to the government's position, section 2B1.1 application note 3 requires

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that the court offset any loss by collateral supplied by the Defendant. This applies to both
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intended and actual losses. The very case cited by the government, U.S. v. Staples, 410 F.3d 484 (8th Cir. 2005) states: We hold that courts should consider collateral when determining the intended loss amounts attendant to transactions like the one involved in this case. (Using a fraudulent check to purchase a house).

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The court found that a house cannot be hidden, a reasonable person would have thought that a house would have value and would know that the house could be used to reduce any loss resulting from the fraud. With respect to the issue of whether the IRS is adequately secured the guidelines make no distinction between first or second position. The only issue is whether the equity is

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sufficient to cover the IRS's $36,000.00 lien. Probation notes that the real estate is valued at
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$430,000.00 and the mortgage is $310,000.00 leaving an equity of $120,000.00. Unless the
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government can prove by a preponderance of the evidence that the $120,000.00 in equity will not cover the $36,000.00 debt, a seemingly impossible task in the current real estate market, the court must exclude the IRS tax liens and the loss determination. 6. Restitution. The court must order restitution based on the actual losses incurred by any victim. U.S. v. Morgan, 376 F.3d 1002 (9th Cir. 2004). Morgan holds that a court can include contractual interest in a restitution order even though it may not be included in the loss determination for sentence enhancement. With respect to attorney's fees, they may be included in a restitution order if they directly flow from the Defendant's wrongful conduct. United States

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v. Cummings, 281 F.3d 1046 (9th Cir. 2002). (Mother's attorney's fees incurred in attempt to
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regain custody of children kidnapped by the father were properly awarded). However, the
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attorney's fees must be directly related to the offense and there must sufficient proof that the fees were caused by the conduct underlying the offense. U.S. v. Tabaja, 273 F.Supp.2d 916 (Ed. Mich. 2003); U.S. v. Gordon, 393 F.3d 1044 (9th Cir. 2004). Again though, it is necessary to determine whether the claimed losses were caused by the Defendant's criminal conduct. As previously stated, the test used to determine

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actual losses for restitution is to compare what actually happened with what would have happened had the Defendant acted lawfully. U.S. v. Bussell, supra. With respect to Mr. Lal and the 1998 Chapter 13, he entered into an agreement with the Defendant and allowed him to remain in the house. In 1999 he again entered into an agreement but took no action to enforce it. In 2000 there is no evidence that he filed any Notice of Claim in the two Chapter 13 proceedings

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and would not have participated in any repayment plan. After that he simply let his judgment
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expire.
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The IRS filed its Notice of Claim in each case but took no further action either in or out of the bankruptcy other than to file its tax liens. It is in the same position regardless of the actions of the Defendant. The Catholic Credit Union filed its Notice of Claim in the 2000 petition, obtained its collateral and sold it. It took no further action in the matter. It obtained the same result that it would have under any circumstance. The Arizona Department of Revenue is in the same position as the IRS. Had the Defendant set forth his prior bankruptcies in the 1999, 2000 and 2003 cases nothing set forth above would have changed. Had the Defendant disclosed his wife's bank

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account in 2000, nothing would have changed.
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The disclosure of the assets obtained during the 2000 Chapter 13 also would not
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have changed the outcome. Mr. Lal had no claim in the case and the Catholic Credit Union abandoned its claim after it sold the collateral. Only the IRS might have benefited but only if the Defendant remained in bankruptcy and did not dismiss the case, as he did. As it happened the IRS remains today in the same position with a valid claim. 18 U.S.C. 3663 defines victim as:

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A person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered. Had the debts here been extinguished or discharged as a direct result of the Defendant's conduct they may be determined to be victims. However, this is not the case herein. Defendant objects to any restitution award in this case. 7. Issues regarding ownership of the house. Defendant's interest in his home is held in joint tenancy. The home is currently part of the bankruptcy estate and under the jurisdiction of the bankruptcy court. With respect to the issue of bankruptcy court jurisdiction over restitution awards ordered by this court, it appears that restitution orders are not dischargeable in Chapter 13. See 11 U.S.C. §1328(A). However, the bankruptcy court would retain jurisdiction to approve any

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plan that called for full payment of the restitution amounts. It does not appear that this court can
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order the Bankruptcy Court to divest itself over the debtor's property in order to force payment
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of any restitution amount within the 3 to 6 months indicated by the court at the last sentencing hearing. Such an order would have the effect of amending the Defendant's Chapter 13 proceedings to a Chapter 7 liquidation proceeding. On the other hand, the court can order that the restitution be paid as it sees necessary. The issue then becomes what power does the court have to enforce the order. The property is under the jurisdiction of the Bankruptcy Court and the defendant cannot be held in willful contempt if he cannot get that court to sell the property to satisfy the restitution order. This is the sort of Catch 22 that will occur if the defendant is required to pay restitution from the sale of his assetts.

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With respect to the parties jointly owned home the Maricopa County Superior
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Court has the jurisdiction to compel partition pursuant to A.R.S. § 12-1211. The Bankruptcy

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Court would also have jurisdiction to achieve this result in a Chapter 7 proceeding. So long as the Defendant is making the required payments under any approved Chapter 13 plan the debtor retains the right to possession of the property. CONCLUSION:

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A.
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Sentencing enhancements based on loss.

The court should apply the greater of the intended loss and the actual loss of any victims. Defendant submits that the intended loss in a bankruptcy case is the amount of debt that
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the Defendant seeks to discharge. In this case, the Defendant did not seek to discharge any debt and therefore there is no intended loss. Defendant submits that there is no actual loss that directly results from his offenses. All debts were incurred prior to the bankruptcies and the filings which served as a basis for the convictions had no effect on the validity or the enforceability of the creditors claims. The de minimis effect of delaying possible collection is the natural consequence of any bankruptcy filing and would have occurred regardless of whether the Defendant filed all of the proper documents or not. Based on the foregoing, the Defendant submits that there should be no sentencing enhancement for any alleged loss. The total offense level for these matters is a base level 6 with

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a specific offense characteristic of 2 because the conduct involved a bankruptcy proceeding for a
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total offense level of 8.
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B.

Criminal history Points.

Defendant submits that the court can include the Island County Superior Court, Washington case #2964 for 3 points and the U.S. District Court conviction for using a false social security number for 1 point as set forth in the presentence report. Defendant submits that the court cannot include the Snohomish County 1981 convictions because it is not shown that the

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Defendant served any of the sentence on these matters within 15 years of the dates of offense in this case. Defendant's criminal history category is III. C. Restitution.

Defendant submits that restitution must be based on actual loss. Actual loss may include contractual interest if the court finds that the actual loss was a direct result of the

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Defendant's criminal conduct. The court may also assess attorney's fees but only if they were
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also a direct result of the alleged criminal conduct. Defendant asserts that the alleged losses in
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this case were not results from the offenses for which he was convicted and therefore no restitution should be ordered. In the event the court does order restitution it does not appear that the court has the jurisdiction to order that the Defendant pay the restitution within 3 to 6 months as the court suggested. All of the Defendant's property is currently part of his bankruptcy estate and any restitution payments be submitted and considered by the Bankruptcy Court pursuant to its jurisdiction. Based on the foregoing, Defendant respectfully submits that he is an offense level 8 with a criminal history category of 3 and the suggested range of sentencing is 6-12 months

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pursuant to the guidelines. Defendant submits that a sentence under this guideline range would
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be a fair and just sentence under 18 U.S.C. 3553 and would be sufficient and not greater than
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necessary to promote the sentencing consideration set forth in that statute. RESPECTFULLY SUBMITTED this 30th day of November, 2005.

/S/ Cameron A. Morgan Cameron A. Morgan Attorney for Defendant

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FILED ELECTRONICALLY this 30th day of November, 2005, with a copy automatically electronically mailed to: John Lopez Assistant United States Attorney COPY electronically mailed this 30th day of November, 2005, to: Honorable Neil V. Wake U.S. District Court [email protected] and faxed to:

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Elizabeth Gonshak-Peters U.S. Probation Officer 602-322-7409 BY: /s/ Dawn-Marie Kenney

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