980 F.

2d 8

UNITED STATES, Appellee,

v.
Lloyd R. HAGGERT, Defendant, Appellant.
No. 91-2293.

United States Court of Appeals,

First Circuit.
Heard Oct. 9, 1992.
Decided Nov. 20, 1992.

Charles F. Dalton, Jr., with whom Dalton, Baron & London, Andover,
Mass., were on brief, for defendant, appellant.
F. Mark Terison, Asst. U.S. Atty., Augusta, Me., with whom James L.
McCarthy, Asst. U.S. Atty., Bangor, Me., and Richard S. Cohen, U.S.
Atty., Portland, Me., were on brief, for appellee.
Before TORRUELLA, Circuit Judge, BROWN,* Senior Circuit Judge,
and BOWNES, Senior Circuit Judge.
BOWNES, Senior Circuit Judge.

I.

Defendant-Appellant, Lloyd Haggert, appeals the sentence imposed by the

district court following his conviction for bank fraud. Specifically, Haggert
challenges the court's imposition of a five-level increase from his base offense
under Sentencing Guideline 2F1.1, which mandates such an increase when
the "loss" attendant to fraud is "more than $40,000." U.S.S.G. 2F1.1(b)(1)(F)
(Nov.1991). The district court looked to the amount of loss that Haggert
intended to obtain fraudulently from the bank, in assessing loss at $62,508.50,
the sum total of Haggert's fraudulent sight drafts. Haggert asserts that the court
ought instead to have used the actual loss resulting from his criminal conduct,
which the court had determined was $5,511.30. We affirm the sentence
imposed by the district court.

Background
2

Lloyd Haggert was convicted by a jury in the United States District Court for
the District of Maine of violating Title 18 U.S.C. 1344, by defrauding the
federally-insured Skowhegan Savings Bank. The act underlying Haggert's
conviction was his attempt to pay delinquent real estate mortgages with
valueless sight drafts. On May 30, 1989, Haggert presented two sight drafts,
totalling $62,508.50, to the assistant manager of the Skowhegan Savings Bank
who, at that time, believed them to be cashier's checks and stamped them as
paid. The bank later discovered that these drafts lacked a financial institution
identification number. Further investigation revealed that the financial
institution upon which they were drawn was not a legitimate, operating
institution.

When the Skowhegan Savings Bank refused to discharge Haggert's mortgages,

Haggert obtained a judgment to enforce the sight drafts.1 The bank eventually
foreclosed on Haggert's mortgages. After accounting for the proceeds from
foreclosure, the bank suffered a loss of $20,248.10. In addition, the bank
incurred costs of $5,511.30, in fending off Haggert's attempts to force the bank
to honor the fraudulent sight drafts.

Prior to his sentencing, Haggert responded to the pre-sentence report prepared

by the government. Haggert objected to the determination of the amount of
restitution, which had been set at $25,759.40, to reflect the total loss to the bank
in its dealings with Haggert. In addition, Haggert challenged two factual
assertions that are not pertinent to the issue before us. Haggert made no further
objections either at the pre-sentence stage or during the sentencing hearing. In
fact, the district judge directly asked Haggert whether he had any additional
objections, at the beginning of the sentencing hearing, and whether he had
anything to add, near the end of the hearing.

The district court determined that the amount of the defendant's fraud was
$62,508.50, and added the mandatory five-level increase for loss of more than
$40,000 to Haggert's sentence. For the purpose of calculating restitution, the
court determined that the bank's actual damages were limited by statute to the
loss directly related to the criminal conduct of the defendant and thus exclusive
of the bank's foreclosure costs. See 18 U.S.C. 3664 (1988). The court
established that the actual damage caused by the defendant's fraud was
$5,511.30, the cost to the bank of Haggert's attempts to enforce the fraudulent
sight drafts. Haggert was sentenced to a term of fifteen months in prison,
followed by a two-year term of supervised release, and was ordered to pay
$5,511.30 in restitution to the Skowhegan Savings Bank.

II.
Discussion
A. Standard of Review
6

We have repeatedly stated in the sentencing context, as well as in other areas,

that issues not presented to the district court will not be addressed for the first
time on appeal. See, e.g., United States v. Shattuck, 961 F.2d 1012, 1015 (1st
Cir.1992) ("[w]e do not review sentencing guideline disputes which were not
preserved before the district court.") (citing United States v. Dietz, 950 F.2d 50,
55 (1st Cir.1991)); United States v. Uricoechea-Casallas, 946 F.2d 162, 166
(1st Cir.1991) (failure to raise sentencing guideline issue at district court
precludes raising it on appeal); United States v. Curzi, 867 F.2d 36, 44 (1st
Cir.1989) ("an issue not presented in the district court will not be addressed for
the first time on appeal."). As we observed in the case of Hernandez-Hernandez
v. United States, 904 F.2d 758, 763 (1st Cir.1990), "[w]e have applied this
proposition in well over a hundred cases since Johnston v. Holiday Inns, 595
F.2d 890 (1st Cir.1979)."

In Johnston, this court explained that while the rule governing issues raised for
the first time on appeal is not absolute, it is relaxed only in extreme cases.
Arguments not raised below will be entertained on appeal only in " 'horrendous
cases where a gross miscarriage of justice would occur' " and, in addition,
where the newly asserted ground is " 'so compelling as virtually to insure
appellant's success'." Id. at 894. The Johnston standard was recently affirmed in
United States v. McMahon, 935 F.2d 397, 400 (1st Cir.1991).

In this case, Haggert had ample opportunity to challenge the sentence imposed.
The pre-sentence report assessed the amount of fraud as $62,508.50, and
expressly recommended the five-level increase eventually adopted by the
district court. In his memorandum responding to the pre-sentence report,
Haggert offered three objections, none of which concerned either the
calculation of the amount of fraud or the five-level increase. Moreover, during
the sentencing hearing, the district court judge took care to inquire whether
Haggert had further objections or comments, and Haggert voiced no additional
concerns. See generally, United States v. McMahon, 935 F.2d at 399 (failure to
object to pre-sentence report); United States v. Fox, 889 F.2d 357, 359 (1st
Cir.1989) (failure to challenge facts set forth in pre-sentence report either in
responsive memorandum or during sentencing hearing precluded raising
challenge as to same issue on appeal).

Because Haggert neglected to raise before the district court the sole basis of his
appeal, Haggert's appeal is precluded subject only to the narrow exception
articulated in Johnston. Our reading of the Sentencing Guidelines and the
supporting case law convinces us that no error of such proportion exists in this
case. Far from implicating a miscarriage of justice, or evoking a new ground of
almost assured success, the district court's sentence was a proper interpretation
and application of the Sentencing Guidelines.2 Indeed, we are convinced that
Haggert would not have prevailed on the merits even if the issue had been
preserved for appeal.

B. The Sentencing Guidelines

10

The issue raised on appeal is the meaning of "loss" in the Sentencing Guideline
covering fraud. The district court measured loss by the amount that the
defendant intended to obtain fraudulently from the bank. Defendant argues that
the actual loss resulting from his criminal conduct should have provided the
basis for augmenting his sentence. We begin with an examination of the
Sentencing Guidelines.

11

Guideline 2F1.1 covers crimes involving fraud and deceit. That Guideline
begins with a base offense level of six, which level is adjusted upward in
accordance with the dollar value of the loss involved in the crime. Section
2F1.1 mandates an increase of five levels when the "loss" is "more than
$40,000." U.S.S.G. 2F1.1(b)(1)(F) (Nov.1991).

12

Application Note 7 of the Commentary accompanying the Guideline deals with

the valuation of loss. In relevant part, Application Note 7 provides:

13
Consistent
with the provisions of 2X1.1 (Attempt, Solicitation or Conspiracy), if
an intended loss that the defendant was attempting to inflict can be determined, this
figure will be used if it is greater than the actual loss.
14

U.S.S.G. 2F1.1, comment. (n. 7).3 This explication of the Guideline has been
relied upon in the First Circuit and in other circuits. See United States v. Cesar
Resurreccion, 978 F.2d 759, 762 (1st Cir.1992) (even where it cannot be stated
precisely, the intended loss will be used if it is larger than the actual loss). See
also United States v. Schneider, 930 F.2d at 556; United States v. Palinkas, 938
F.2d 456, 465 n. 19 (4th Cir.1991); United States v. Smith, 951 F.2d 1164,
1166 (10th Cir.1991); United States v. Shattuck, 961 F.2d at 1016 (citing
United States v. Kopp, 951 F.2d 521 (3rd Cir.1991)).
Application Note 7 contains an example of intended loss that closely

15

Application Note 7 contains an example of intended loss that closely

approximates the crime committed by Haggert. The example provides that, "if
the fraud consisted in ... representing that a forged check for $40,000 was
genuine, the loss would be $40,000." U.S.S.G. 2F1.1, comment. (n. 7). The
fraudulent sight drafts that Haggert presented to the bank as genuine totalled
$62,508.50. By analogy to this example, the loss would be $62,508.50, the
assessment made by the district court.

16

Notwithstanding the general rule whereby loss for the purpose of sentencing is
the greater of the actual or intended losses, Haggert urges us to apply to his
case an exception narrowly created for loan application and contract
procurement cases. The exception, articulated in subpart (a) of Application
Note 7, defines a category of fraudulent actions for which the expected or
actual loss to the victim provides the basis for the sentence enhancement.
Application Note 7(a), in pertinent part, provides as follows:

17

In fraudulent loan application cases and contract procurement cases where the
defendant's capabilities are fraudulently represented, the loss is the actual loss
to the victim (or if the loss has not yet come about, the expected loss). For
example, if a defendant fraudulently obtains a loan by misrepresenting the
value of his assets, the loss is the amount of the loan not repaid at the time the
offense is discovered, reduced by the amount the lending institution has
recovered, or can expect to recover, from any assets pledged to secure the loan.

18

In some cases, the loss determined above may significantly understate or

overstate the seriousness of the defendant's conduct....

19

U.S.S.G. 2F1.1, comment. (n. 7(a)). We fail to see the relevance of this
exception for the factually distinct crime of fraudulent loan payments made
well after loans have been secured. Nevertheless, we examine the scope of this
exception in order to underscore our conclusion that Haggert's fraud is precisely
the sort of criminal conduct that the exception does not cover.

20

The Seventh Circuit has explained the scope of the exception for fraudulent
information in a loan application or in contract procurement by distinguishing
between two types of fraud. See United States v. Schneider, 930 F.2d at 558.
The first type of fraud implicates the "true con artist," who never intends to
perform the undertaking, such as the terms of the contract or loan repayments,
but who intends only to pocket the money without rendering any service in
return. The second type of fraud involves a person who would not have attained
the contract or loan but for the fraud, but who fully intends to perform.4 Id. In
the latter case, and only in the latter case, is the intended loss not to be

considered for sentencing.

21

Contrary to Haggert's attempt to place himself in the latter category of

offenders, Haggert's conduct is a paradigm of the first type of fraud. Haggert
had no intention of paying the loans for which he was in default. He drafted
valueless forms of payment which he presented to the bank as valid. When he
succeeded momentarily in his ploy, Haggert went so far as to attempt to enforce
a judgment against the bank for the amount of his fraudulent sight drafts. When
the bank had difficulty locating the financial institution upon which the
fraudulent drafts were drawn, Haggert evaded the bank's requests for his
assistance, and obstructed the bank's attempts to determine the facts, by
continuing to insist upon the veracity of the information he provided the bank.
Finally, Haggert knowingly presented the sight drafts that had been falsely
stamped as "paid" to another financial institution to support new loan
applications. Any of these actions alone would suffice to establish Haggert's
intention not to pay the debts he owed to the bank; together, they underscore
that Haggert fully intended to defraud the Skowhegan Savings bank in the
amount of $62,508.50.

22

As the Schneider distinction between two types of fraud illustrates, even under
the exception for loan application and contract procurement cases, the intent of
the defendant is the measure by which the loss is to be assessed. See United
States v. Schneider, 930 F.2d at 558. In each of the cases upon which defendant
relies where the court held that the loss should be offset to reflect collateral
pledged by the defendant, or that the actual loss should constitute the loss for
sentencing purposes, the defendants lacked the intent to inflict the full amount
of the fraud. See United States v. Smith, 951 F.2d at 1169 (finding no evidence
that the defendant intended to inflict the amount of loss established by the
district court); United States v. Hughes, 775 F.Supp. 348, 349 (E.D.Cal.1991)
(noting that the defendant neither intended nor desired that his loans would go
into default). Contrawise, in loan application cases where there was no intent to
perform, the intended loss has provided the basis for augmenting the
defendant's sentence. See United States v. Johnson, 908 F.2d 396, 398 (8th
Cir.1990).

23

The Guidelines are concerned with assessing the seriousness of the defendant's
conduct, given the wide array of conduct covered by fraud. See U.S.S.G.
2F1.1 comment. (backg'd.).5 See also United States v. Rothberg, 954 F.2d 217,
218 (4th Cir.1992). What the Guidelines do not envision is rewarding a
defendant for her or his lack of skill in executing a criminal act. Haggert's
failure to reap the full financial benefits of his fraud cannot provide a basis for
lowering the sentence imposed by the district court.

24

Affirmed.

Of the Fifth Circuit, sitting by designation

It would appear that the defendant obtained the judgment himself, without
going through any judicial procedures

Had Haggert preserved his claim below, our inquiry would have been two-fold.
In Sentencing Guideline cases, we first determine de novo the scope of the
Guideline at issue and then assess the district court's fact-finding for clear error.
See United States v. St. Cyr, 977 F.2d 698, 702 (1st Cir.1992)

The first sentence in Application Note 7 refers the reader, for a discussion of
valuation of loss, to the Commentary in 2B1.1 (Larceny, Embezzlement, and
Other Forms of Theft). The Commentary in 2B1.1, in turn, refers for
discussion of partially completed offenses to 2X1.1 (Attempt, Solicitation, or
Conspiracy). The example provided in 2B1.1 of a partially completed offense
is a completed theft that is part of a larger, attempted theft. This example is
closely analogous to the case at hand where the defendant was not successful in
reaping the anticipated profits of his fraud. See generally, United States v.
Schneider, 930 F.2d 555, 556 (7th Cir.1991) ("Many fraudulent schemes are
interrupted before they reach fruition. From a practical standpoint they are
attempts, and their gravity depends in significant degree on the size of the loss
that would have been inflicted had the scheme not been interrupted.")
The second sentence in Application Note 7, which begins the quote cited above,
also refers to 2X1.1. Whichever road is taken, the result is the same. A
sentencing judge must look to the amount that the defendant intended to
defraud or to steal, or to the actual loss, whichever is greater.

See generally, United States v. Smith, 951 F.2d at 1167 ("A thief who steals
$100,000 is more culpable than a salesman who obtains $100,000 by selling a
victim an $80,000 house he fraudulently represents as being worth $100,000.")

Note 7(a), which articulates the exception for loan applications and contract
procurement, contains language that underscores the importance of assessing
the seriousness of the defendant's conduct as well. We refer to the first sentence
of the second paragraph quoted supra at p. 12