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U.S. v. Shaffer

filed: September 8, 1994; As Amended September 26, 1994.


On Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Crim. Nos. 91-00060, 92-00320).

Before: Cowen and Roth, Circuit Judges, and Ackerman, District Judge*fn*

Author: Cowen


COWEN, Circuit Judge.

This case presents the issue of whether the bank fraud sentencing guidelines, which we earlier interpreted as requiring a sentencing court to calculate the amount of the victim's loss as it exists at the time of sentencing rather than at the time of the commission of the offense, permit a defendant convicted of kiting checks to significantly reduce his sentence by paying back all or a portion of the amount he absconded with during the commission of the offense. In the particular case of a defendant who has violated the bank fraud statute through the act of kiting checks, we conclude that, in the absence of overriding facts dictating other treatment, the sentencing court must ordinarily calculate the amount of the loss as it exists at the time the crime was detected, rather than as it exists at the later time of sentencing. Because the district court in this case sentenced the defendant by calculating the amount of the actual loss which resulted from the crime as it existed at the time of sentencing, we will vacate the sentence and remand for resentencing.


The facts giving rise to Franklin Shaffer's conviction and sentence are relatively simple and largely undisputed. Shaffer formerly led several engineering and construction firms which were engaged in large construction projects in central Pennsylvania. During the summer of 1988, collections of accounts receivable fell significantly behind, resulting in a sizable cash shortfall for the companies. After the companies' line of credit was canceled, Shaffer attempted to keep his businesses afloat by kiting checks for large sums of money between his personal bank accounts and the various business accounts.*fn1 At the time he was writing checks, Shaffer did not have sufficient funds in the accounts to cover the check amounts.

In September, 1988, a bank officer reported the matter to federal authorities. After an investigation, Shaffer was charged with executing and attempting to execute a check kiting scheme from July through September, 1988. By the time the FBI investigated the matter, Shaffer had sufficient funds in all the accounts to cover all the checks. For this reason, the United States Attorney for the Middle District of Pennsylvania recommended Shaffer as a possible candidate for pre-trial diversion. By order dated August 21, 1991, the district court placed Shaffer on pre-trial diversion for twelve months, ordered him to pay the victim banks the interest each would have earned on the money Shaffer had borrowed through the check kiting scheme, and ordered him to perform community service.

While on pre-trial diversion, Shaffer again began kiting checks because of cash flow shortfalls in his various construction firms. Bank officials notified the government of suspicious activity in Shaffer's accounts on August 19, 1992. A motion was filed with the district court requesting that Shaffer be removed from pre-trial diversion. The motion was granted and the FBI undertook an investigation. Unlike the first time his check kiting was discovered, Shaffer was not able to cover all the checks he had written. Four of the five victim banks used by Shaffer in the check kiting scheme reported gross losses at the time of detection as follows: Fulton Bank--$40,371.46; Commerce Bank--$18,020.88; Dauphin Deposit Bank--$206,636.60; and CCNB--$197,280.66. The total loss was determined to be $462,309.60.

Shaffer was charged with two counts of bank fraud, in violation of 18 U.S.C. § 1344, for the two separate check kiting incidents. After plea bargain negotiations, Shaffer pleaded guilty to both counts on January 13, 1993. As part of the plea agreement, Shaffer agreed to make restitution to the victim banks in an amount to be determined by the district court at a pre-sentencing hearing. At his arraignment, Shaffer requested a sentencing delay in order to allow him to get his business affairs in order and to give him sufficient time to attempt to make restitution to the victim banks.

The United States Probation Office prepared a pre-sentence report pursuant to the United States Sentencing Guidelines ("U.S.S.G.") which assessed a total offense level of 17 against Shaffer. The offense level was determined in the following manner: (1) a base level of 6 was assessed pursuant to U.S.S.G. § 2F1.1(a); (2) an increase of 9 levels was added under U.S.S.G. § 2F1.1(b)(1)(J) since the total amount of the loss to the victim banks exceeded $350,000 but was less than $500,000; and (3) an additional 2 level increase was made pursuant to U.S.S.G. § 2F1.1(b)(2)(B) because the crime involved a scheme to defraud more than one victim. The pre-sentence report concluded that the applicable guideline sentence range was from 24 to 30 months.

A sentencing hearing was held on July 16, 1993. By this time, Shaffer had negotiated settlement agreements with three of the four victim banks. Pursuant to these agreements, Fulton Bank had accepted a settlement of $20,000 in "full satisfaction" of its loss of $40,371.46; Commerce Bank had accepted $10,500 in "full satisfaction" of its loss of $18,020.88; and Dauphin Deposit Bank agreed to accept the conveyance of a parcel of real estate in Shreveport, Louisiana held by Shaffer in his retirement account, secured by a judgment against one of Shaffer's business corporations, and a promissory note in the sum of $84,000 from Shaffer in "full satisfaction" for its loss of $206,636.60. No agreement was reached between Shaffer and the fourth victim bank, CCNB.

At the sentencing hearing, Shaffer objected to the 9 level increase pursuant to U.S.S.G. § 2F1.1(b)(1)(J). He argued that no increase was warranted because he actually intended no loss to the victim banks at the time of the commission of the offense. Based on the evidence presented, the district court agreed that Shaffer at all times intended to repay the amounts borrowed during the check kiting scheme through the collection of accounts receivable, and made a factual finding that Shaffer actually intended no permanent loss to the victim banks. Nevertheless, the district court disagreed that the loss was zero for all victim banks or the three banks which had entered into settlement agreements with Shaffer. The district court concluded that the "actual loss" at the time of sentencing was the total loss of $462,309.60 less the amounts the three victim banks had agreed to accept in lieu of their initial losses pursuant to the settlement agreements.*fn2

Since this reduced the loss for sentencing purposes to $347,809.60, the district court enhanced Shaffer's base level only by 8 levels pursuant to U.S.S.G § 2F1.1(b)(1)(I). In so doing, the district court rejected the government's position that "actual loss" in a check kiting bank fraud case is the initial loss of the victim banks at the time the fraud is detected, which should not be reduced by any subsequent settlement payments in the nature of restitution that the defendant makes. The district court further granted Shaffer a 2 level base level reduction pursuant to U.S.S.G. § 3E1.1(a) for acceptance of responsibility. Premised on a base level of 14, the district court sentenced ...

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