United States v. Kenneth Quigley

Citation: 382 F.3d 617Docket: 03-2495, 04-1160

Court: Court of Appeals for the Sixth Circuit; September 23, 2004; Federal Appellate Court

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Defendant Kenneth Quigley appeals his sentence resulting from a plea agreement in a wire fraud case, contending the district court incorrectly determined the loss amount impacting the sentencing guidelines range. Although the appellate court agrees with this assertion, it affirms the sentence as the revised loss amount would not alter the sentencing range.

The fraud scheme spanned from May 1997 to May 1998, involving Quigley and his partners at First Finance, Inc., who misappropriated funds from their warehouse lender, Pinnacle Mortgage Warehouse, for purposes unrelated to closing mortgage loans. Sterling Bank & Trust was identified as the ultimate victim for restitution. First Finance, founded in 1993 and based in Bloomfield Hills, Michigan, primarily engaged in originating and selling residential mortgage loans. Quigley became an investor in 1994 and later a partner and shareholder, sharing ownership with Randall Sage and Robert Geissbuhler, who together executed a Voting Agreement granting Sage majority voting rights.

First Finance managed loan applications and financing directly with consumers, receiving funding from Sterling via Pinnacle, which acted as an administrator. Upon confirmation of loan agreements, Pinnacle transferred funds to First Finance's settlement trust account for eventual disbursement at loan closure. The Mortgage Warehouse and Security Agreement mandated the use of these funds strictly for loan closings, with any unutilized funds required to be returned to Pinnacle. Sterling financed approximately 98% of each loan, while First Finance covered the remaining 2%, expecting to recoup this amount plus an additional premium upon selling the loans to other companies, such as Advanta Mortgage.

First Finance frequently closed mortgages in clusters, resulting in variable closure times and delays, with some mortgages not closing at all. Instead of returning funds for these unclosed mortgages, First Finance often transferred money from the settlement trust account to its general operating account to cover operational expenses, including salaries. Under the MWS Agreement, First Finance assigned various securities and claims related to the mortgages to Pinnacle, which in turn assigned its interests in the Participation Agreements to Sterling, granting Sterling a security interest in all loans originated by First Finance.

First Finance ceased operations in May 1998, allowing Sterling to execute its rights under the Participation Purchase Agreement and acquire all loans originated by First Finance, later selling them at a profit. On December 4, 2001, Kenneth Quigley was charged with wire fraud and waived indictment, subsequently pleading guilty on June 13, 2002, under a Rule 11 plea agreement. The agreement stipulated a maximum sentence of 41 months, with potential for a downward departure recommendation based on substantial assistance. The court was also to impose restitution up to $2,353,151, adjusted for amounts recovered by Pinnacle Warehouse Mortgage or Sterling Bank.

Following the Defendant’s guilty plea, the Probation Department prepared a Presentence Investigation Report (PSI), establishing a total offense level of 21, which included a twelve-level adjustment for losses exceeding $1,500,000. The PSI reported a total loss to Sterling of $2,353,151 for sentencing. The Defendant objected to this loss figure, arguing it did not account for profits made from collateralized mortgages after First Finance ceased operations. The Probation Department stated the loss amount was provided by the government and would be decided by the court, leaving the report unchanged.

In a Sentencing Memorandum, the Defendant detailed how Sterling was protected through agreements with Pinnacle and noted that Sterling recovered over $20 million by exercising its rights under these agreements. This total included principal, a premium of 6% to 8%, and recovery of the 2% "haircut" from First Finance. The Memorandum also documented wire transfers from Advanta Mortgage to Sterling that confirmed the recovery of principal and premium.

The government did not contest the Defendant's Sentencing Memorandum but filed a motion for a downward departure in sentencing due to the Defendant's substantial assistance, recommending a sentence of 12 to 15 months, against a calculated range of 24 to 30 months. 

During sentencing on October 24, 2003, the court did not allow the defense counsel to address the objection to the loss figure, stating it had been previously resolved. The defense argued that the Defendant had preserved the issue, unlike a co-defendant. The trial court acknowledged that the restitution amount would be lower than the loss figure but maintained its previous decision to grant the downward departure. The court sentenced the Defendant to 12 months and one day in prison, with restitution to be determined in a later hearing. The government argued that the $2.3 million loss figure was intended by the defendants and dismissed the Defendant's recoupment arguments as irrelevant. The trial court upheld its previous decision without changes.

The government calculated a restitution figure of $2,413,788.50 based on 46 mortgages that had funds wired to a settlement trust account but never closed. This amount was adjusted by offsets: $373,768.28 for loan payments received by Sterling from First Finance, and $803,409.90 from seized First Finance loans. The defendant also claimed a further offset of $384,390 from an additional loan listing. After a hearing on January 20, 2004, the parties agreed to reduce the restitution amount to $907,251.84, resulting in an offset of $1,506,536.66. The court ordered the defendant to pay 50 percent of this total, amounting to $453,625.92.

In the subsequent appeal, the defendant contended that the district court failed to properly establish the loss amount used in determining the sentencing guideline range. The government argued that the district court was not obligated to resolve this factual dispute since it believed the ultimate sentence would remain unchanged. The government noted that the defendant was sentenced to 12 months and 1 day, which would allow for good conduct time credits that could reduce actual time served. However, this was rejected because the district court had various sentencing options that could impact the sentence's terms or conditions. Additionally, the government claimed the district court's use of the intended loss amount of $2,413,788.50 for sentencing was appropriate, but the court found that the district court had erred in its determination of the loss amount.

The appellant faces a significant burden to prove that the court's loss calculation was both inaccurate and beyond permissible limits, per *United States v. Jackson*. The defendant contended that the loss amount should be reduced to the restitution figure because the victim bank could mitigate its losses with other collateral. He referenced cases where banks recouped losses via foreclosures. However, the government argued that these cases were not applicable since the defendant's fraud involved misusing funds rather than securing loans with collateral. Although the appellate court acknowledged the differences, it found the referenced cases relevant for evaluating intended loss.

The court concluded that the district court erred in not reducing the loss amount of $2,413,778.50. Upon reviewing the offsets, only the cash amount of $373,768.28—derived from profits of loans sold—was deemed relevant for offsetting the gross loss, as it represented a secured interest. The court rejected the defendant's claims for offsets related to potential profits from loans not sold (categories 2 and 3), stating that these were merely expectancies and not guaranteed returns.

Ultimately, the court determined that the only valid offset was $373,768.28, resulting in an adjusted loss amount of approximately $2 million. This figure falls within the range used by the district court to set the defendant's sentence, eliminating the need for resentencing. The defendant's sentence was affirmed. Additional notes clarified that the restitution calculation's starting loss figure and other ambiguities did not impact the case's outcome.