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United States v. Foley

United States Court of Appeals, First Circuit

April 1, 2015

UNITED STATES OF AMERICA, Appellee,
v.
MARC D. FOLEY, Defendant, Appellant

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Richard G. Stearns, U.S. District Judge.

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[Copyrighted Material Omitted]

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Rebecca A. Jacobstein, with whom Office of Appellate Advocacy was on brief, for appellant.

Ross B. Goldman, Criminal Division, Appellate Section, United States Department of Justice, with whom Carmen M. Ortiz, United States Attorney, Victor A. Wild and Veronica M. Lei, Assistant United States Attorneys, Mythili Raman, Acting Assistant Attorney General and Denis J. McInerney, Deputy Assistant Attorney General, were on brief, for appellee.

Before Lynch, Chief Judge, Torruella and Howard, Circuit Judges.

OPINION

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HOWARD, Circuit Judge.

Marc Foley appeals his conviction and sentence for 33 counts of wire fraud and five counts of money laundering arising from his role in a mortgage fraud scheme. Foley challenges the sufficiency of the evidence as to 28 of the wire fraud counts and all of the money laundering counts, argues that the district court abused its discretion in three of its evidentiary rulings, and alleges that the prosecutor engaged in misconduct in his closing statement. Foley also disputes the procedural and substantive reasonableness of his 72-month sentence and the district court's methodology in ordering restitution of nearly $2.2 million. We find no error in Foley's conviction and sentence, except that we vacate in part the district court's restitution order.

I.

At the center of this case is a 24-unit apartment building at 135 Neponset Avenue in Dorchester, Massachusetts (the " Neponset Building" ), purchased and converted into a condominium form of ownership by Elizabeth (Lisa) Reed in December 2006. Reed was the owner of Mass. Lending, LLC, a mortgage brokerage firm, in which capacity she frequently worked with Foley, a real estate lawyer, on loan closings. Foley also prepared the condominium conversion documents for the Neponset Building.

Reed financed the purchase of the Neponset Building with a short-term " hard money" loan, pursuant to which she paid a private lender $100,000 in exchange for a ten-day loan of $2.6 million. Needing to recoup her investment at once to repay the loan, Reed took three steps to generate immediate sales of condominium units. First, she rewarded buyers with kickbacks for their purchases. Second, she directed her employees at Mass. Lending to submit falsified mortgage loan applications on the buyers' behalf, misrepresenting the buyers' incomes, employment, and assets in order to obtain loans covering 90 to 95

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percent of the purchase price. Third, she ensured that the buyers would not need to provide the remaining down payment at the loan closing. It was this last measure for which she once again obtained Foley's assistance.

Either Foley or his associate, Sean Robbins, served as the closing attorney and settlement agent at each of the loan closings, which took place from December 19, 2006 to January 12, 2007. In that role, Foley and Robbins were responsible for preparing HUD-1 settlement statements (" HUD-1s" ) -- documents certified by the buyer, seller, and settlement agent and indicating to the lender, inter alia, the amount of funds collected from the buyer at the closing.[1] Each of the 33 submitted HUD-1 forms at issue in this case -- seven of which were not signed by the settlement agent -- indicated that the buyer had made a down payment at the loan closing. In fact, however, no such payments were ever made.

Upon receipt of the HUD-1 forms, lenders would wire funds to Foley's Interest on Lawyers Trust Account (" IOLTA" ). Foley would then disburse those funds to Reed, writing Reed a check for the amount denoted " Cash to Seller" on the HUD-1, less the amount of the buyer's supposed down payment (denoted " Cash from Borrower" on the HUD-1). To avoid potential liability to Reed over the remaining proceeds, Foley directed Reed to sign a " disbursement authorization" form for each of the loan closings, reducing Reed's sale proceeds by the amount of the purported down payment.[2] When a lender required additional proof of a buyer's down payment, Foley instructed Reed to prepare bogus checks indicating that the buyer had actually brought funds to the closing. Foley then directed his paralegal to draw a check from his IOLTA in the amount due from the borrower and to later redeposit that check as " cash from buyer," creating the illusion that Foley had received money from the borrower.

Foley was charged with 33 counts of wire fraud, 18 U.S.C. § 1343, and five counts of money laundering, id. § 1957, for his role in these transactions. At trial, Foley mounted a defense of " good faith" in the face of damning testimony from Robbins and Reed, both of whom testified against him pursuant to plea agreements.[3] The crux of Foley's defense was that he honestly believed that the money would be forthcoming from the buyers and that Robbins and Reed lacked credibility. The jury, however, saw the evidence differently and found Foley guilty on all counts. The case then proceeded to sentencing, where the district court imposed a below-Guidelines sentence of 72 months' incarceration

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and also ordered restitution in the amount of $2,198,204. This appeal followed.

II.

A. Sufficiency of the Evidence

1. Wire Fraud

Foley first contends that the evidence was insufficient as to all but five of the 33 wire fraud counts. With respect to the seven counts arising from unsigned HUD-1 forms, Foley contends that without a signature there was no misrepresentation and thus no wire fraud. Because two lending companies, Taylor, Bean & Whitaker and Fremont, nevertheless extended loans based on these unsigned HUD-1 forms, Foley further argues that there was also insufficient evidence as to the 21 counts involving signed HUD-1s sent to these companies, reasoning that the presence or absence of a signature was not material to the lenders' decisionmaking.

Although the parties do not dispute that Foley moved for acquittal on the wire fraud counts under Fed. R. Crim. P. 29 both at the close of the government's case and after the trial, they nevertheless disagree as to the proper standard of review for this claim. Under our precedent, although a general sufficiency-of-the-evidence objection preserves all possible sufficiency arguments, a motion raising only specific sufficiency arguments waives unenumerated arguments. United States v. Lyons, 740 F.3d 702, 716 (1st Cir. 2014); United States v. Marston, 694 F.3d 131, 134 (1st Cir. 2012). We have suggested that a general sufficiency objection accompanied by specific objections preserves all possible sufficiency objections. See Marston, 694 F.3d at 135 (finding " good reason in case of doubt" to treat such motions as general, because " [i]t is helpful to the trial judge to have specific concerns explained even where a general motion is made; and to penalize the giving of examples, which might be understood as abandoning all other grounds, discourages defense counsel from doing so and also creates a trap for the unwary defense lawyer" ).

At the close of the government's case, Foley's counsel moved for judgment of acquittal on all counts. Defense counsel then proceeded to state: " But in reality, Judge, there is one very serious issue. And that is the government has failed to establish that the District of Massachusetts is the proper venue for this prosecution." Foley's post-trial motion for acquittal in turn stated that " [a] judgment of acquittal should be granted on Counts 1-33 [i.e., the wire fraud counts] as the government failed to prove proper venue in the District of Massachusetts." Neither of these motions are the type of " general motion accompanied by examples" contemplated in Marston. Neither motion raised any issue other than venue, and although the oral motion at the close of evidence might with some imagination be interpreted as treating venue as merely " one very serious issue" of many, the post-trial motion is not susceptible even to such liberal reading. We therefore treat Foley's signature-based sufficiency challenge as unpreserved, and review for clear and gross injustice only. Id. at 134; see also United States v. Upham, 168 F.3d 532, 537 (1st Cir. 1999), cert. denied, 527 U.S. 1011, 119 S.Ct. 2353, 144 L.Ed.2d 249 (1999). We conclude that Foley's claim fails to meet that stringent standard, which we have described as a particularly exacting variant of plain error review,[4] although our conclusion

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would be the same even under traditional plain error. See United States v. Jones, 748 F.3d 64, 73 (1st Cir. 2014).

The elements of wire fraud under 18 U.S.C. § 1343 are " (1) a scheme or artifice to defraud using false or fraudulent premises; (2) the defendant's knowing or willing participation in the scheme or artifice with the intent to defraud; and (3) the use of the interstate wires in furtherance of the scheme." United States v. Appolon, 715 F.3d 362, 367 (1st Cir. 2013). The false or fraudulent representation must also be material. Id.

HUD-1 forms contain a signature block beneath the following certification by the settlement agent: " The HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused or will cause the funds to be disbursed in accordance with the statement." By Foley's account, " the government's case was that Mr. Foley's signature was the fraud," such that the only relevant statement was " the certification on the HUD-1 that Mr. Foley had collected cash from the buyer at the closing." [5]

The prosecution did indeed allude in both its opening and closing arguments to the significance of the settlement agent's signature, stating, e.g., that " by signing the HUD-1s for these loans, the defendant certified to the mortgage company that he did collect the funds" and that the " HUD-1 when it said I have or will disburse in accordance with this HUD-1 is patently false." Nevertheless, the government advanced a broader theory than Foley suggests. Signed or unsigned, each of the HUD-1s misrepresented the amount of " cash from borrower," falsely indicating that the borrower had brought some amount of cash to the closing when in fact no funds were ever transferred. In its closing argument, the prosecution accordingly described the HUD-1 form as

a lie to the mortgage company when it was sent to the lender to get the funds released. It was a lie about what was collected from the borrowers, and it was a lie about what was paid to the seller. [Foley] had those false HUD-1s sent to the clients. The lenders' money was released based on those lies.

That theory was amply supported by trial evidence showing that after each closing, Robbins gave Foley's paralegal the unsigned HUD-1s to be sent to the lenders, which in turn accepted the forms and funded the loans.

We accordingly reject Foley's contention that the government's case rested solely on the stroke of a pen. To the extent that Foley takes issue more broadly with what he characterizes as the government's " claim[] that the mere submission of an unsigned HUD-1 to a lender can be a fraudulent misrepresentation even though there is a required certification on the

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form," he points to no cases imposing such a " certification" requirement under § 1343. On the contrary, we and other circuits have rejected comparable attempts to narrow the scope of analogous statutes. See United States v. Ayewoh, 627 F.3d 914, 922 (1st Cir. 2010) (interpreting identical language in the bank fraud statute, 18 U.S.C. § 1344, and holding that " the misrepresentation element of § 1344 is fulfilled by any intentional act or statement by an individual that falsely indicates, explicitly or implicitly, that he has authority to withdraw money from a bank," including the entry of a credit card number into a point-of-sale device); see also United States ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 390 (1st Cir. 2011) (" So long as the statement in question is knowingly false when made, it matters not whether it is a certification, assertion, statement, or secret handshake; False Claims liability can attach." (quoting United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1172 (9th Cir. 2006)) (internal quotation marks omitted)); United States v. Zwego, 657 F.2d 248, 250 (10th Cir. 1981) (holding that 18 U.S.C. § 1014, criminalizing false statements in connection with loan and credit applications, extends to both written and oral statements); United States v. Sackett, 598 F.2d 739, 741-42 (2d Cir. 1979) (same). We therefore find no clear and gross injustice or plain error in Foley's conviction.

Foley's secondary argument that the lenders' acceptance of unsigned HUD-1s in turn demonstrates a lack of materiality as to the signed forms rests on the same misguided premise that the signature was the sole misrepresentation. As we have explained, both the signed and unsigned HUD-1s falsely indicated the receipt of " cash from borrower." That the loan companies were apparently willing to extend loans based on unsigned HUD-1s hardly compels the additional inference that the loans would still have been extended even without the misrepresentations as to the receipt of down payments. On the contrary, Foley himself acknowledges the testimony of three lending company employees that the loans would not have closed if the lenders had known that the " cash from borrower" was in fact never obtained. That was more than enough evidence for the jury to conclude that these misrepresentations were material to the lenders' decisions.

2. Money Laundering

Foley also attacks his five money laundering convictions under 18 U.S.C. § 1957, arguing that the government failed to adduce evidence that the underlying transactions involved " criminally derived property" within the meaning of the statute. Foley concedes that he failed to renew this sufficiency challenge after trial and that our review is accordingly for clear and gross injustice only.[6] See Marston, 694 F.3d at 134.

Section 1957 punishes individuals who " knowingly engage[] or attempt[] to engage in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity." 18 U.S.C. § 1957(a). " Criminally derived property" is in turn defined as " any property constituting, or derived from, proceeds obtained from a criminal offense." Id. § 1957(f)(2). At the time of the transactions at issue here, the statute provided no definition of " proceeds." [7]

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In United States v. Santos, 553 U.S. 507, 128 S.Ct. 2020, 170 L.Ed.2d 912 (2008), a divided Supreme Court grappled with alternate definitions of " proceeds" as " receipts" versus " profits" of a crime. Citing the rule of lenity, a plurality of the Court adopted the " profits" definition. Id. at 514 (Scalia, J., joined by Souter, Thomas, and Ginsburg, JJ.). The plurality further noted that the " receipts" interpretation would create a " merger problem" for statutes such as the illegal gambling statute, 18 U.S.C. § 1955, at issue in Santos itself: " If 'proceeds' meant 'receipts,' nearly every violation of the illegal-lottery statute would also be a violation of the money-laundering statute, because paying a winning bettor is a transaction involving receipts that the defendant intends to promote the carrying on of the lottery." Id. at 515.

Justice Stevens, concurring, disagreed with the plurality's broad application of the rule of lenity and focused instead on the merger issue. With respect to the illegal gambling statute, Justice Stevens stated that " [t]he revenue generated by a gambling business that is used to pay the essential expenses of operating that business is not 'proceeds' within the meaning of the money laundering statute," because " [a]llowing the Government to treat the mere payment of the expense of operating an illegal gambling business as a separate offense is in practical effect tantamount to double jeopardy." Id. at 528, 527 (Stevens, J., concurring). Justice Stevens suggested, however, that the Court " need not pick a single definition of 'proceeds' applicable to every unlawful activity," thereby implying that the " profits" definition is only warranted in the context of crimes creating such merger problems. Id. at 525.

We have suggested in dicta that Justice Stevens's narrower opinion controls, such that the definition of " proceeds" is only limited to profits where the broader " receipts" definition would give rise to a merger issue. See United States v. García-Pastrana, 584 F.3d 351, 380 (1st Cir. 2009) (noting " some question as to the holding of Santos, since Justice Stevens, the fifth and deciding vote, suggested in concurrence that the holding may vary by offense and the legislative history," and questioning Santos's applicability to a case that did not present merger problems); United States v. Levesque, 546 F.3d 78, 82 (1st Cir. 2008) (describing Santos as limiting " proceeds" to profits " at least when the predicate offense is an illegal lottery operation" ); see also, e.g., United States v. Van Alstyne, 584 F.3d 803, 814 (9th Cir. 2009) (" We therefore view the holding that commanded five votes in Santos as being that 'proceeds' means 'profits' where viewing 'proceeds' as 'receipts' would present a 'merger' problem of the kind that troubled the plurality and concurrence in Santos." ); United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009) (same). Other circuits have construed Santos even more narrowly. See, e.g., United States v. Thornburgh, 645 F.3d 1197, 1209 (10th Cir. 2011) (" '[P]roceeds' means 'profits' for the purpose of the money laundering statute only where an illegal gambling operation is involved." ); United States v. Demarest, 570 F.3d 1232, 1242 (11th Cir. 2009) (same).

As an initial matter, given the ambiguity of Santos's holding and the lack of clear guidance in our cases, we doubt that any misapplication of Santos by the district

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court rises to the level of plain error, let alone clear and gross injustice. See Thornburgh, 645 F.3d at 1209 (" [A]ssuming that Santos dictates that it was error in this case to not require proof of profits, that error cannot be plain, in view of the widely differing interpretations of Santos." ); United States v. Aslan, 644 F.3d 526, 547-50 (7th Cir. 2011) (same). And in any event, Foley's arguments fail on their merits.

The money laundering counts against Foley were based upon the transfer of money obtained from the fraudulent loan closings. Four of the counts arose from checks drawn on Foley's IOLTA account and deposited into Elizabeth Reed's bank account; the fifth count arose from a check drawn on Foley's IOLTA account and used to make a payment on Reed's behalf to Capital Trust LLC, which had loaned Reed the money to buy the Neponset Building. Foley avers that his case implicates the merger issues contemplated by Justice Stevens in Santos and that " proceeds" in this case must accordingly be limited to the profits of the wire fraud scheme, but he fails to elaborate why, in his estimation, " the transferred funds were not profits." Nevertheless, even setting aside the issue of appellate waiver, see United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990), and accepting arguendo Foley's conclusory premise that the transferred funds were not " profits" of the wire fraud, we find no merger problem and thus no basis for limiting " proceeds" to profits in the first place.

Foley likens this case to Van Alstyne, a mail fraud case in which the Ninth Circuit held that distribution payments made to investors in the defendant's Ponzi scheme were operational expenses, thereby implicating the merger problem contemplated in Santos. See 584 F.3d at 815 (" [I]ssuing distribution checks . . . directly inspired investors to send more money to [the defendant's] funds, which could then be used to pay returns to other investors. The very nature of the scheme thus required some payments to investors for it to be at all successful." ). But the Ninth Circuit also " recognize[d] that not all mail fraud schemes will involve payments that could implicate the 'merger' problem," and stressed that the merger analysis " must focus on the concrete details of the particular 'scheme to defraud,' rather than on whether mail fraud generally requires payments of the kind implicated in Santos." Id. Applying that contextual approach to this case, we find no merger problem. Instead, we agree with the government that this case is akin to United States v. Kennedy, 707 F.3d 558 (5th Cir. 2013), in which the Fifth Circuit held that the defendants' transfer of fraudulently obtained mortgage loan funds to a co-conspirator's shell corporations did not implicate Santos. The court explained that the crime of wire fraud was consummated upon the lenders' transmission of the mortgage loan funds. Id. at 566. Unlike the Ponzi distributions in Van Alstyne, the subsequent transfer of funds to the shell corporations did not represent " 'mere payment' of an expense of carrying on the wire fraud crime." Id. at 567 (quoting Santos, 553 U.S. at 527 (Stevens, J., concurring)).

So, too, in this case. The crime of wire fraud was complete upon Foley's receipt of the mortgage loan funds, and the subsequent transfer of funds to Reed did not represent payment of an expense ...


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