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United States of America v. Alexander Martinez

August 31, 2012


Appeal from United States District Court for the Eastern District of Arkansas - Little Rock

The opinion of the court was delivered by: Gruender, Circuit Judge.

Submitted: June 13, 2012

Before LOKEN and GRUENDER, Circuit Judges, and PERRY,*fn1 District Judge.

A jury found Alexander Martinez guilty of conspiring to commit bank fraud in violation of 18 U.S.C. § 1349, committing bank fraud in violation of 18 U.S.C. § 1344, and making a false statement to a financial institution in violation of 18 U.S.C. § 1014. The district court*fn2 sentenced Martinez to twelve months and one day of imprisonment and did not order restitution. The Government now appeals the district court's decisions to use Martinez's gain, instead of the actual or intended loss, for purposes of calculating the advisory sentencing guidelines range and to not order Martinez to pay restitution. For the reasons that follow, we affirm.


Martinez was the chief financial officer and manager of the accounting department at Affiliated Foods Southwest, Inc. ("Affiliated"), a food distribution company. Affiliated had a multi-million dollar line of credit with U.S. Bank collateralized by Affiliated's accounts receivable and inventory. U.S. Bank determined the amount that Affiliated could borrow based on the amount of eligible collateral Affiliated possessed. In 2008, Affiliated began struggling with cash-flow issues. In order for Affiliated to obtain additional funds from U.S. Bank on the line of credit, Martinez used various nefarious methods to enhance the apparent financial status of Affiliated. One such method was to instruct employees at subsidiaries of Affiliated to write checks to Affiliated even though the money paid to Affiliated by the subsidiaries would ultimately be provided by Affiliated. The Government characterizes this method of fraud as a check-kiting scheme.

At the time U.S. Bank discovered the fraud in February 2009, Affiliated owed U.S. Bank in excess of $55 million. U.S. Bank froze the line of credit temporarily to determine the actual status of the collateral. U.S. Bank then entered into a forbearance agreement with Affiliated Foods under which U.S. Bank continued to lend money but required Affiliated Foods to hire a "turnaround consultant." During this period, Affiliated Foods continued to operate.

Affiliated eventually filed for bankruptcy in May 2009, at which time it owed U.S. Bank a little over $28 million. Between that time and Martinez's sentencing, U.S. Bank was able to recover from collateral all but approximately $2.8 million of the principal it was owed by Affiliated. For sentencing purposes, the Presentence Investigation Report used the $2.8 million of unrecovered principal as the amount of loss for which Martinez was responsible. The Government argued, however, that Affiliated obtained approximately $11.6 million in extra loans from U.S. Bank as a result of Martinez's fraudulent activity and that this amount was the intended loss for which Martinez was responsible. In contrast, Martinez argued that U.S. Bank's loss was not caused by his fraud and that, in any event, U.S. Bank had additional collateral available that he claimed was sufficient to cover the $2.8 million in unrecovered principal. The district court concluded that it did not have a reasonable basis on which to determine the actual or intended loss. Therefore, for purposes of determining the advisory sentencing guidelines range, the district court used as an alternative loss measurement the gain to Martinez from his fraudulent activities--that is, the $48,000 in salary payments he received during the period of the scheme.

At sentencing, the Government also sought an order of restitution for the approximately $2.8 million of unrecovered principal plus about $2.3 million in interest. Martinez argued that, because outstanding collateral was sufficient to satisfy the amount Affiliated owed U.S. Bank, restitution should not be awarded. The Government countered that U.S. Bank's prior efforts to collect on various collateralized accounts receivable of Affiliated had resulted in a recovery of only a portion of the amounts owed and that it had been unable to obtain any sizeable amount of funds from the remaining accounts in recent months. The district court, due to the complexity of determining the loss to U.S. Bank properly attributable to Martinez's fraudulent behavior, declined to order any restitution.

On appeal, the Government argues that $11.6 million is the proper loss amount for purposes of the sentencing guidelines or that, in the alternative, the court should use the outstanding $2.8 million of principal as the loss amount. In addition, the Government contends that restitution should be awarded to U.S. Bank.


A. Amount of Loss

"We review a district court's interpretation of the guidelines de novo and its loss calculation for clear error." United States v. Mancini, 624 F.3d 879, 881 (8th Cir. 2010). "We will affirm the court's loss determination 'unless it is not supported by substantial evidence, was based on an erroneous view of the law, or [we have] a firm conviction that there was a mistake after reviewing the entire record.'" Id. (alteration in original) (quoting United States v. Hodge, 588 F.3d 970, 973 (8th Cir. 2009)). "Because the damage wrought by fraud is sometimes difficult to calculate, a district court is charged only with reasonably estimating the loss using a preponderance of evidence standard." United States v. Alexander, 679 F.3d 721, 731 (8th Cir. 2012) (quoting United States v. McKanry, 628 F.3d 1010, 1019 (8th Cir.), cert. denied, 563 U.S. ---, 131 S. Ct. 1837 (2011)).

The advisory sentencing guidelines provide for the application of graduated offense levels based on the amount of loss involved in specified crimes. See U.S.S.G. § 2B1.1(b)(1). "Under the guidelines, the general rule is that 'loss is the greater of actual or intended loss.'" United States v. Mitchell, 608 F.3d 384, 387 (8th Cir. 2010) (quoting U.S.S.G. § 2B1.1 cmt. n.3(A)). A district "court shall use the gain that resulted from the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be determined." U.S.S.G. § 2B1.1 cmt. n.3(B). The Government contends that the ...

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