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United States v. Baker

filed: June 6, 1994.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
RONALD KEITH BAKER, DEFENDANT-APPELLANT. UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, V. ROBERT MAJORS, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of California. D.C. No. CR-92-20077-RMW, D.C, No. CR-92-20077-RMW. Ronald M. Whyte, District Judge, Presiding.

Before: Stephen Reinhardt and Edward Leavy, Circuit Judges, and William D. Browning,*fn* District Judge. Opinion by Judge Reinhardt.

Author: Reinhardt

REINHARDT, Circuit Judge:

Ronald Keith Baker and Robert Majors each pleaded guilty to one count of being an accessory after the fact to the making of a false statement on a loan application they submitted to California First Bank. See 18 U.S.C. §§ 3, 1014. The district court sentenced Baker and Majors to three years of probation. Pursuant to the Victim and Witness Protection Act, 18 U.S.C. § 3663, the district court ordered each of them to pay $20,000 in restitution to Union Bank, the successor to California First. Baker and Majors appeal only the restitution award. They claim that the district court erred in ordering that restitution be paid to Union, because Union was not a "victim" within the meaning of the Victim and Witness Protection Act. In addition, Majors argues that the district court erred by failing to conduct a sufficient inquiry into his ability to pay, as well as by ordering restitution beyond the loss attributable to the specific offense of conviction. We vacate the restitution awards and remand for further proceedings.

I.

On September 9, 1992, a grand jury returned an eight-count indictment against Baker, Majors, and three others. The indictment alleged that in 1985 the defendants had participated in a scheme to commit fraud against California First Bank by fraudulently obtaining several loans from the bank and subsequently defaulting on them. The indictment charged both Baker and Majors (and the three other codefendants) in Count One with participating in a scheme and artifice to commit bank fraud. See 18 U.S.C. §§ 2, 1344. Baker was also charged in Counts Two and Three with making false statements on a loan application. See 18 U.S.C. § 1014. Count Two alleged that as a result of these statements Baker had received a $20,000 payment from the bank on March 12, 1985. Count Three alleged that he had received $10,000 on March 26, 1985. Counts Four and Five charged Majors with making false statements on a loan application. The indictment alleged that Majors had received a $5,000 payment from the bank on April 18, 1985 (Count Four) and a $15,000 payment on May 8 (Count Five).

Baker and Majors entered into plea agreements on March 11, 1993. They each pleaded guilty to one count of being an accessory after the fact to the making of a false statement on a loan application. Baker agreed to plead guilty to Count Two (amended to charge the lesser offense). The government promised to recommend - in lieu of a prison sentence - probation, $20,000 in restitution, and a fine. Majors agreed to plead guilty to Count Five (also amended to charge the lesser offense). The government made the same promises to Majors as it had to Baker. The agreements were executed in open court, and the court then dismissed the other pending charges on the government's oral motion.

At sentencing, the government recommended that each defendant be ordered to pay $20,000 restitution. Because Union Bank of California had taken over California First Bank between the time of the bad loans and the time of sentencing, the government recommended that the restitution be paid to Union. Although both Baker and Majors objected that Union was not the "victim" of their conduct (in part because California First had written off the loans as uncollectible before the takeover), the district court ordered that Baker and Majors each pay $20,000 restitution to Union pursuant to the Victim and Witness Protection Act, 18 U.S.C. § 3663. The district court also sentenced Baker and Majors to three years probation, but it did not impose any fine or prison term. Baker and Majors appeal only the restitution order. The district court had jurisdiction pursuant to 18 U.S.C. § 3231, and we have jurisdiction pursuant to 28 U.S.C. § 1291.

II.

Both Baker and Majors challenge the district court's order that restitution be paid to Union Bank of California. Because California First Bank - the bank which suffered direct losses from the defendants' fraud - had written off the loans to Baker and Majors as uncollectible before Union Bank acquired it, Baker and Majors argue that Union suffered no loss as a result of their conduct. They claim that Union was not a "victim" for purposes of the VWPA, and that the district court therefore had no authority to order that restitution be paid to Union. Because the government did not carry its burden of establishing that Union was the "victim" of the defendants' conduct, we vacate the awards and remand for a determination of whether the loss from the bad loans to Baker and Majors (or the right to collect on these loans) passed from California First to Union in the takeover.*fn1

The VWPA authorizes a district court to order only "that the defendant make restitution to any victim of such offense." 18 U.S.C. § 3663(a)(1) (emphasis added). For the district court's restitution order to be valid, then, Union must have been a "victim" of Baker's and Majors's offenses.*fn2 The Act does not define the term "victim." However, we have held that any person or entity is a "victim" if it suffered injury - directly or indirectly - as a result of the conduct underlying the defendant's specific offense of conviction. See United States v. Smith, 944 F.2d 618, 621-22 (9th Cir. 1991), cert. denied, 117 L. Ed. 2d 651, 112 S. Ct. 1515 (1992).

In Smith, the defendant defrauded a savings and loan into making him several high risk loans totalling over $12,000,000. He eventually defaulted on these loans, and the savings and loan collapsed. The Federal Savings and Loan Insurance Corporation, which had insured the savings and loan's accounts, subsidized another financial institution's purchase of the savings and loan's assets and liabilities. In return, the FSLIC received the savings and loan's claims against the defendant and others. Following his bank fraud conviction, the district court ordered that the defendant pay restitution to the FSLIC, and we affirmed. See id. at 620-22. Although the FSLIC was not the party directly victimized by the defendant's actions, we concluded that it did suffer injury as a result of his conduct (presumably because of the subsidy it paid to the purchaser of the savings and loan). We held that the FSLIC "may receive restitution under the Act when, as in this case, it has acquired the claims of a defunct savings and loan." Id. at 622.

If in the process of the takeover Union acquired all of California First's claims, Union clearly qualified as a victim under Smith. However, it is the government's burden to establish the loss sustained by a victim. See United States v. Angelica, 951 F.2d 1007, 1010 (9th Cir. 1991). The government has not shown that Union sustained any loss from the bad loans to the defendants. Baker's presentence report stated (and the government concedes) that California First had written the loans off as uncollectible before Union acquired the bank. In its acquisition of California First, Union may not have assumed the predecessor's claims on loans that had been written off as uncollectible; in any event, the government has not carried its burden of establishing that it did. If Union did not acquire these claims, then California First's stockholders - or whoever else acquired the claims - are the proper recipients of restitution, not Union.*fn3 Because the government has not established that Union was the victim of the defendants' conduct, we vacate the restitution award. On remand, the district court should determine who suffered the loss from the defendants' conduct. In particular, it should determine whether Union acquired California First's claims against the defendants. Cf. United States v. Cannizzaro, 871 F.2d 809, 812 (9th ...


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