Court: Court of Appeals for the Ninth Circuit; September 17, 2001; Federal Appellate Court
William Douglas Lomow pleaded guilty to money laundering and conspiracy related to a fraudulent scheme targeting the Central Contra Costa Sanitary District, which had exclusive authority to award sanitation contracts. Lomow, president and 50% shareholder of Orinda-Moraga Disposal Service (OMDS), engaged in a scheme that involved creating eleven sham companies to falsely inflate OMDS's operational costs, thereby increasing the rates charged to the District. He also concealed revenues by failing to report fees from major customers and created unreported bank accounts to divert funds for personal use. Between 1991 and 1995, Lomow submitted fraudulent rate increase applications that did not account for these diverted funds and included false expenses.
Lomow faced indictment on fifty-two counts but pleaded guilty to two. He was sentenced to seventy-two months in prison and ordered to pay restitution to the District. Prior to his plea, the District had successfully sued Lomow and OMDS in state court, resulting in a judgment exceeding nine million dollars against them. The district court's handling of the plea colloquy was deemed proper, leading to the affirmation of the court's decision on these claims.
The district court did not breach Federal Rule of Criminal Procedure 11 during the plea colloquy by failing to outline the elements of mail fraud (18 U.S.C. § 1341) and money laundering (18 U.S.C. § 1956(a)(1)(A)(i) and (B)(i)). Lomow's argument that the elements of money laundering inherently include those of the underlying criminal activity (mail fraud) has been previously rejected in United States v. Golb, 69 F.3d 1417 (9th Cir. 1995), which is applicable here. Consequently, the court was not required to inform Lomow about the elements of mail fraud.
Additionally, the plea colloquy provided a sufficient factual basis demonstrating that the proceeds were derived from mail fraud, as required by Rule 11(f). The court may consider all available evidence to ascertain whether it is justified in accepting a guilty plea, needing only sufficient evidence rather than proof beyond a reasonable doubt. Evidence presented included Lomow's establishment of post office boxes for sham companies, the issuance of invoices for transactions not recorded in OMDS's books, and his communication with the District regarding rate increases, which collectively supported the acceptance of his plea.
Lomow also challenged the sufficiency of the factual basis regarding the separate transaction requirement under 18 U.S.C. § 1956. However, depositing a check from Sierra Diesel was deemed a separate transaction from the fraud that generated the funds, consistent with precedents such as United States v. Montoya, 945 F.2d 1068 (9th Cir. 1991).
Finally, Lomow contended that he did not knowingly and intelligently waive his right to a jury trial concerning the calculation of loss for sentencing. The examination of the colloquy confirmed that the waiver was indeed knowing and intelligent. His argument referencing Apprendi v. New Jersey, 530 U.S. 466 (2000), failed since the loss calculation did not expose him to a greater punishment than that authorized by the jury's verdict, negating the claim for a jury determination of loss. Thus, the district court did not err by not informing him of a non-existent right.
The district court appropriately applied the money-laundering guideline, U.S.S.G. 2S1.1, instead of the fraud guideline, U.S.S.G. 2F1.1, for Lomow's sentencing, resulting in a seventy-two-month sentence for his money-laundering conviction under 18 U.S.C. 1956. Lomow's argument referencing United States v. Smith, which suggested a different guideline application, was rejected, as the circuit had not adopted the analytical structure established by the Third Circuit. Amendments to the guidelines clarified that U.S.S.G. 2S1.1 is suitable in this context, negating the Smith interpretation.
Additionally, the district court erred in conditioning Lomow's supervised release on the repayment of his court-appointed counsel's costs. Such conditions must meet three criteria: they must relate reasonably to the factors in 18 U.S.C. 3553(a), not excessively deprive liberty, and align with Sentencing Commission policy statements. The court found that requiring repayment does not reasonably relate to the statutory goals of deterrence, public protection, or rehabilitation, supported by precedents in United States v. Eyler and United States v. Lorenzini.
The repayment condition imposed on Lomow during his supervised release was deemed unnecessary and overly punitive, failing to meet the criteria outlined in 18 U.S.C. 3583(d)(2). Consequently, it was unnecessary to assess its relevance to the nature of the offense or the defendant's history. The district court incorrectly mandated that Lomow repay the costs of his court-appointed attorney. Additionally, the court erred in its handling of restitution, failing to offset certain assets and payments. Lomow and the government agreed that his actions caused a total loss of $2,862,657, with Lomow and Sliepka jointly responsible for restitution, minus any amounts already recovered. The court ordered Lomow to pay $1,980,789.90 in restitution but incorrectly credited him based on the net proceeds from asset sales after deducting receiver expenses. The restitution must reflect losses directly linked to Lomow's criminal conduct, excluding receiver expenses. As such, these expenses cannot be factored into the restitution order. Furthermore, once the receiver took control of Lomow's assets, he should receive credit towards his restitution obligation. The government’s argument that Lomow should only receive credit for funds distributed to ratepayers was rejected, affirming that the District, as represented by the receiver, is the actual victim for restitution purposes.
A state court judgment requires Lomow to pay nine million dollars to the District, which will reimburse ratepayers with the first two million recovered plus interest. While the civil judgment compensates victims, criminal restitution is considered penal rather than compensatory, meaning fulfilling the restitution order does not relieve Lomow from his obligation to pay the civil judgment and receiver's expenses. The district court lacks inherent authority to order restitution beyond direct losses caused by Lomow's fraud; thus, expenses authorized by the civil court cannot be included. Accordingly, Lomow is entitled to a credit of $232,733.69 for funds transferred to the District, rather than the lesser amount post-expense.
Additionally, the district court erred by not valuing property as of the date it was assigned to the receiver, maintaining that valuation should be based on sales price unless delays were caused by the receiver. This approach was deemed an abuse of discretion, as restitution must be reduced to reflect the property's value at the time the receiver gained control. Lomow's claim for credit on properties requiring multiple signatures was rejected, affirming that credit is only applicable once the receiver has actual control.
Furthermore, the district court erred by not offsetting restitution by $250,000 recovered from a settlement with Eckhoff Accounting, which related to the same losses as Lomow's fraud. Under Section 3664(j)(2), amounts received by a victim in civil proceedings should reduce any restitution order for the same loss, confirming Lomow's entitlement to this offset.
The District's civil action against Eckhoff alleged that he failed to disclose the connection between fraudulent companies and OMDS, which was misappropriating revenue from three clients. As a result, the District relied on OMDS's representations and did not terminate its agreement. The District accused Eckhoff of negligence in not detecting Lomow's fraud, but his actions did not cause new losses; any loss was linked to Lomow's conduct. The court determined that Lomow established, by a preponderance of the evidence, that the compensation from the Eckhoff settlement was for the same loss as defined under 18 U.S.C. 3664(j)(2), necessitating an offset of Lomow's restitution by the settlement amount.
Lomow also sought credit for a $30,000 insurance payment made to the District as a performance bond, but the record did not confirm that this payment was related to the losses from the fraud. Due to unclear burden of proof regarding this offset, the issue was remanded for further consideration.
Lomow pleaded guilty to conspiracy, receiving a seventy-two-month sentence, exceeding the statutory maximum of sixty months, which constitutes plain error. Consequently, the sentence for this count was vacated and remanded for resentencing. The plea agreement established the total loss amount, rendering Lomow's argument about the district court's failure to determine victims' losses within ninety days moot. The court affirmed the acceptance of Lomow's plea and the plea colloquy, as well as the application of U.S.S.G. 2S1.1 for his money-laundering conviction. However, the order for him to repay court-appointed counsel costs was reversed, and the restitution order and conspiracy count sentence were vacated for further proceedings.
The court affirmed, reversed, vacated, and remanded the case for resentencing based on specific instructions. Sliepka, Lomow's co-defendant and owner of OMDS, participated in the fraud but is not part of this appeal. Lomow's reliance on the Cambra case is addressed; in Cambra, the defendant stipulated to more serious offense facts, leading to a guideline deemed most applicable. However, Lomow's case involves a standard money laundering plea, which does not qualify as atypical, thus Cambra is not applicable here. The Ninth Circuit has not adopted the Smith analysis, making Amendment 591 a clarifying amendment without ex post facto implications. Additionally, a valid recoupment order under 18 U.S.C. 3000a(f) can be enforced independently of supervised release conditions. Lastly, while Section 3664(e) allows the court to assign the burden of proof to either party, this case did not address which party bore that burden, and the district court did not clarify its position.
