990 F.

2d 1545

UNITED STATES of America, Plaintiff-Appellee,

v.
Kim A. WISE, Defendant-Appellant.
No. 91-3275.

United States Court of Appeals,

Tenth Circuit.
June 11, 1992.

Layn Phillips (Frank H. McCarthy of Barkley, Rodolf & McCarthy,

Tulsa, OK, and Gerald L. Goodell and Les E. Diehl of Goodell, Stratton,
Edmonds & Palmer, Topeka, KS, with him on the brief) of Irell &
Mandella, Newport Beach, CA, for defendant-appellant.
Richard L. Hathaway (Lee Thompson, U.S. Atty., with him on the brief),
Asst. U.S. Atty., Topeka, KS, for plaintiff-appellee.
Before McKAY, Chief Judge, BARRETT, Circuit Judge, and
BRIMMER * , District Judge.
BARRETT, Senior Circuit Judge.

Kim A. Wise appeals from a sentence and order of restitution following his
plea of guilty to one count of executing a scheme to obtain money from a
federally insured financial institution by means of false or fraudulent pretenses
in violation of 18 U.S.C. 2 and 1344(2).

On January 10, 1991, Wise and six others were charged in a twenty-five count
indictment with conspiracy and various bank fraud crimes leading to the failure
of Peoples Heritage Savings and Loan of Salina, Kansas (Peoples), a federally
chartered and insured savings and loan. Wise was charged with engaging in a
number of ventures with his co-defendants, including James Cruce, fifty percent
owner of Peoples, and Thomas Burger, Peoples' chief lending officer, to
fraudulently acquire moneys from Peoples.

Wise pled guilty to Count 23 in which he and his co-defendants were charged

Wise pled guilty to Count 23 in which he and his co-defendants were charged
with:

4
knowingly
and unlawfully execut[ing] or attempt[ing] to execute a scheme or artifice
to obtain the moneys ... of Peoples ... by means of false or fraudulent pretenses ... in
that defendants obtained $510,000.00 structured as a draw "to be used as working
capital" from the $1,700,000 KIM A. WISE commercial line of credit ... which had
been granted to him for business purposes only, and which had grown to $3,500,000
through a series of renewals and extensions ... when in truth and in fact, as the
defendants well knew, the proceeds from this draw were applied and to be applied to
cover a margin call ... on Wise's investment in stock in....
5

(Appendix of Appellant, p. 000044).

During his plea hearing, Wise, a lawyer and a real estate licensee,
acknowledged that: he could be sentenced to five years in prison and ordered to
pay restitution; the government had reserved the right to describe fully to the
sentencing judge the nature and seriousness of his misconduct, including
misconduct not described in the charges to which he had pled guilty; and that
he would be sentenced under the sentencing guidelines.

The presentence report prepared in Wise's case related that: Wise and his
company were "mega-borrowers" from Peoples, borrowing in excess of fifty
million dollars; the damages incurred by Resolution Trust Corporation (RTC)
as a result of the acts charged in Count 23 were three and one-half million
dollars; the damages to the RTC on an unsecured one and one-half million
dollar line of credit to Wise were $1,483,248.09; and the net total of damages
reflecting actual losses to the RTC from Wise's involvement were
$106,807,577. The report set forth a guideline imprisonment range of 24 to 30
months.

Wise filed detailed objections to the presentence report. He also made three
general objections to the report challenging: the failure to find that he was a
minimal participant in the offense; the finding that he engaged in more than
minimal planning in the offense; and the relevant conduct to be considered for
sentencing. Wise reiterated his objections during the course of his sentencing
hearing.

Wise was sentenced to 24 months imprisonment, three years supervised release,

and ordered to immediately pay three and one-half million dollars in restitution
to the RTC.

10

On appeal, Wise contends that the district court erred in: (1) ordering

10

On appeal, Wise contends that the district court erred in: (1) ordering
restitution and in setting the amount of restitution; (2) limiting inquiry
concerning the information in the presentence report; and (3) its findings
relative to the sentencing guideline range.

I.
11

Wise contends that the district court committed reversible error by ordering him
to pay restitution and in setting the amount of restitution at three and one-half
million dollars. Wise states that the "court's error may have stemmed from
Wise's acknowledgment, for purposes of Guideline loss applications, that the
total loss associated with the AmeriWest stock transaction was $3.5 million."
(Appellant's Opening Brief, p. 18, n. 2).

a.
12
13

Wise contends that under Hughey v. United States, 495 U.S. 411, 412-13, 110
S.Ct. 1979, 1981, 109 L.Ed.2d 408 (1990), the district court erred in imposing
restitution in excess of $510,000. The government concedes, without citing
Hughey, that "[b]ased on existing caselaw it appears that this case should be
remanded for the limited purpose of reducing the restitution order to
$510,000." (Brief of Appellee at p. 9).

14

In Hughey, the Court held that "the language and structure" of the Victim and
Witness Protection Act of 1982 "make plain Congress' intent to authorize an
award of restitution only for the loss caused by the specific conduct that is the
basis of the conviction." 495 U.S. at 413, 110 S.Ct. at 1981. See also, United
States v. Rogat, 924 F.2d 983 (10th Cir.1991), cert. denied, --- U.S. ----, 111
S.Ct. 1637, 113 L.Ed.2d 732 (1991). Inasmuch as Wise pled guilty to Count 23,
i.e., obtaining $510,000 by means of false or fraudulent pretenses in violation of
18 U.S.C. 2 and 1344(2), we hold that the district court erred in ordering
restitution in excess of $510,000.

b.
15
16

Wise contends that the district court erred by failing to adequately consider his
inability to pay restitution. He argues that his $27.7 million negative net worth
and our holdings in United States v. Clark, 901 F.2d 855, 857 (10th Cir.1990)
(order of restitution vacated where presentence report reflected a negative
monthly cash flow) and United States v. Kelley, 929 F.2d 582, 587 (10th
Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 341, 116 L.Ed.2d 280 (1991)
(restitution order reversed where nothing supported district court's statement
that Kelley would be able to pay $192,092 after her release based on her future

employment opportunities and entrepreneurial skills) require that the district

court's order of restitution be vacated.
17

The government responds that inasmuch as the "court had before it

unchallenged evidence that [Wise] was a relatively young and extremely
successful real estate developer" (Brief of Appellee, p. 9) whose "substantial
entrepreneurial skills were evidenced by a net worth of at least $11,000,000 as
of April 1985," id., the court did not err in ordering restitution. The government
concludes by stating that "[t]he defendant's real complaint appears to be that the
lower court imposed the restitution order immediately as opposed to a period of
time after release. To the extent this court believes that this was incorrect, it can
be remedied on remand." Id.

18

In ordering restitution, the district court found:

THE COURT:
******
19
20

Three, the Victim and Witness Protection Act of 1982 clearly confirms that
Congress intended restitution to be considered an integral part of the criminal
punishment in the sentencing process of criminal proceedings.

21

Four, Mr. Wise has been quite successful in his professional endeavors and it is
quite likely he will experience an ability to earn substantial sums in the future.

22

Five, after consideration of the amount of loss sustained, the questionable

financial resources of the defendant, the future earning abilities of the
defendant, the financial needs of the defendant and his dependents, he should
be required to make restitution ... [in the amount of $3,500,000 ... immediately].

23

(Appendix of Appellant, p. 000354-355).

24

We review the district court's factual findings underlying an order of restitution

under the clearly erroneous standard. Rogat, 924 F.2d at 984-85. "A restitution
order will be upheld if the evidence indicates a defendant has some assets or
earning potential and thus possibly may be able to pay the amount ordered." Id.
at p. 985. Restitution may be ordered despite a defendant's present indigency.
Id.

25

Applying these standards to the facts herein, we hold that the district court did

25

not err in ordering immediate restitution. Wise's financial statement, which he

personally prepared, reflected that he "has some assets ... [and] possibly may be
able to pay the amount ordered." Wise's statement reflected cash of $35,000,
bank accounts of $34,500, securities of $38,900, and receivables of $1,031,730.
The statement also reflected liabilities of $8,768,038, which, however, were
limited to "unsecured debt and guarantees." (Appendix of Appellant, p.
000090).

26

We hold that Wise's personal financial statement established that he had

substantial assets which could be applied to a court ordered restitution. Based
on Wise's financial statement and the district court's finding that Wise had been
quite successful and will likely experience the ability to earn substantial sums
in the future, see United States v. McClellan, 868 F.2d 210, 213 (7th Cir.1989)
(restitution of $650,000 will be upheld against a physician in bankruptcy who
had "tremendous earning potential"), we hold that the district court did not err
in ordering immediate restitution.

II.
27

Wise argues that the district court erred in refusing to permit inquiry into the
factual basis and reliability of the information used to support numerous
disputed portions of the presentence report. He states that he was denied due
process when the district court refused him the opportunity to effectively
examine the probation officer relative to inaccuracies in the presentence report.

28

After the presentence report was prepared, a conference of some sort was held
to resolve his objections to the report. (Appendix of Appellant at p. 000100).
During that conference, Wise contends that the Assistant United States
Attorney "took the position that he did not have the burden of producing
evidence to support the allegations relating to matters for which Wise ha[d] not
been convicted which are included in the PSI under the concept of relevant
conduct." Id.

29

Wise subsequently filed detailed objections to the report, (Appendix of

Appellant at pp. 000095-000137), which were summarized and incorporated
into an addendum to the presentence report. (Appendix of Appellant at pp. 138171). Thereafter, Wise requested and received an evidentiary hearing during
which he was told to "present whatever you want to present and we'll [the
court] will consider it." Id. at p. 000196.

30

During the hearing, Wise attempted to question the probation officer about the

evidence the officer had relied upon in preparing the presentence report. The
government objected that the question was invading the thought process. The
objection was sustained by the district court. Subsequent thereto, Wise's
counsel inquired if he would "be allowed to inquire into the factual basis for his
[probation officer's] conclusions ... to determine whether or not the information
he placed in the report is reliable." (Appendix of Appellant at p. 000206). Upon
general objection by the government, the judge responded, "[n]o you may not."
Id. Wise argues that the district court's actions violated his due process rights
and precluded him from asking "the critical questions," (Opening Brief of
Appellant at p. 31), of "[w]here did this information come from" and "why was
it deemed reliable." Id.
31

We agree.

32

Due process requires that a defendant not be sentenced on the basis of

"misinformation of a constitutional magnitude." United States v. Beaulieu, 893
F.2d 1177, 1181 (10th Cir.1990), cert. denied, 497 U.S. 1038, 110 S.Ct. 3302,
111 L.Ed.2d 811 (1990), quoting, United States v. Tucker, 404 U.S. 443, 447,
92 S.Ct. 589, 591-92, 30 L.Ed.2d 592 (1972). "This right is protected by the
requirement that the defendant be given adequate notice of and an opportunity
to rebut or explain information that is used against him." Beaulieu, id. Under
Fed.R.Crim.P. 32, "it is clear that the defendant and the government enjoy
equal procedural entitlements." Burns v. United States, --- U.S. ----, ---- n. 4,
111 S.Ct. 2182, 2185 n. 4, 115 L.Ed.2d 123 (1991). In Burns, the court opined:

33

As amended by the Sentencing Reform Act, Federal Rules of Criminal

Procedure 32 provides for focused, adversarial development of the factual and
legal issues relevant to determining the appropriate guideline sentence. Rule 32
frames these issues by directing the probation officer to prepare a presentence
report addressing all the matters germane to defendant's sentence.... Rule 32(a)
(1) provides that '[a]t the sentencing hearing, the court [must] afford the
counsel for the defendant and the attorney for the Government an opportunity
to comment upon the probation officer's determination and other matters
relating to the appropriate sentence.'

34

--- U.S. at ---- - ----, 111 S.Ct. at pp. 2185-86.

35

Applying these standards to the circumstances herein, we hold that Wise was
entitled, upon request, to be informed by the probation office preparing his
presentence report, of the factual basis or source of any information contained
in the report which may have had an adverse effect on him during the

sentencing process. Upon receipt of the factual basis or source of such

information, Wise is entitled to a reasonable period of time within which to
comment upon the reliability of such information in accordance with Rule 32 as
construed in Burns.
III.
36

Wise contends that the district court's findings relating to computation of the
guideline range are clearly erroneous.

37

We review a district court's application of the guidelines for errors of law de

novo. United States v. Norman, 951 F.2d 1182, 1184 (10th Cir.1991). We
review factual findings supporting a district court's offense level calculations
under the clearly erroneous standard. United States v. Smith, 951 F.2d 1164,
1166 (10th Cir.1991).

a.
38
39

Wise contends that the court erred in failing to find that he was not a minimal
participant. He argues that he was "clearly the least culpable of those involved
in the transaction," (Brief of Appellant at p. 38), and that the court's finding that
he was equally culpable with his codefendants was clearly erroneous.

40

The government responds that Wise was neither a minimal nor minor
participant when, as here: he executed an unsecured commercial promissory
note as a routine business transaction and committed the loan proceeds to the
purchase of stock and to meet margin calls; he executed five subsequent notes
in a continuing effort to conceal the true nature of the transaction; he submitted
fraudulent draw letters to obtain funds to make margin calls while representing
that the draws were for working capital or operating expenses in his business;
and, the scheme was executed over a period from February, 1986, to
November, 1988, and worked successfully enough to defraud Peoples of
$3,500,000.

41

We hold that the court was not clearly erroneous in refusing to find that Wise
was a minimal participant. On the contrary, it is obvious that the scheme to
which Wise pled guilty could not have been effectuated without his cooperation
and participation.

b.
42
43

Wise contends that the district court's determination that a two-level upward

43

Wise contends that the district court's determination that a two-level upward
adjustment for "more than minimal planning" under U.S.S.G. 2F1.1(b)(2)(A)
was clearly erroneous. He argues that the "entire planning" was done by his codefendants and that he "simply carried out their specific instructions."
(Appellant's Opening Brief at p. 40).

44

In United States v. Sanchez, 914 F.2d 206, 207 (10th Cir.1990), we opined:

45

The Sentencing Guidelines envision an increase in base offense levels for

crimes involving fraud or deceit where "more than minimal planning" is
present. U.S.S.G. 2F1.1(b)(2)(A). The term "more than minimal planning" is
defined, in relevant part to include the following:

"46'More than minimal planning' is deemed present in any case involving repeated
acts over a period of time, unless it is clear that each instance was clearly
opportune."
U.S.S.G. 1B1.1, comment. (n. 1(f)) (referenced by 2F1.1, comment. (n. 2)).
47
48

The scheme to which Wise pled guilty extended over two and one-half years.
During the course of the scheme, Wise executed five notes and submitted at
least twelve false draw letters in order to obtain money from Peoples "by means
of false or fraudulent pretenses, representations, or promises." (Appendix of
Appellant at p. 000044).

49

We hold that the district court's two level adjustment for "more than minimal
planning" was not clearly erroneous.

c.
50
51

Wise contends that the district court's computation of the amount of loss and
definition of relevant conduct was clearly erroneous. He argues that "the district
court simply assumed that [he] was criminally liable for all counts of the
indictment and the losses caused thereby" and ignored the fact that the "only
conduct relevant to loss calculation under the Guidelines relates to the loan
Wise utilized for the purpose of purchasing stock in AmeriWest ... [which
amounted to] $3.5 million." (Appellant's Opening Brief at pp. 41-2).

52

"Sentencing courts are authorized, under 1B1.3, to consider a broad spectrum

of relevant information in determining the guideline range." United States v.
Smith, 930 F.2d 1450, 1455 (10th Cir.1991), cert. denied, 494 U.S. 1068, 110
S.Ct. 1786, 108 L.Ed.2d 788 (1990). Moreover, contrary to Wise's assertion

that the district court "simply assumed that [he] was criminally accountable for
all counts of the indictment and losses caused thereby," the district court found,
in accordance with 1B1.3:
53that all acts and omissions committed or aided and abetted by the defendant, or for
...
which the defendant would be otherwise accountable, that occurred during the
commission of the offense of conviction, in preparation for that offense, or in the
course of attempting to avoid detection of responsibility for that offense, or that
otherwise were in furtherance of that offense, should be considered "Relevant
Conduct" and incorporated in the Offense Conduct section of the presentence report.
The calculation of the relevant conduct set forth in the presentence report is correct
and the court finds this to be so.
54

(Appendix of Appellant at pp. 000149-151).

IV.
55

Wise argues that if the district court's initial findings on guideline computations
are found to be in error, the district court's alternative findings regarding
upward departure are clearly erroneous. Having determined that the district
court's initial findings on guideline computations were correct, we need not
consider the court's alternative findings regarding upward departure.

56

The judgment of conviction is AFFIRMED. The case is remanded, however,

for resentencing consistent with this opinion.

57

McKAY, Chief Judge, concurring in part and dissenting in part:

58

I join in the court's opinion in every respect except section Ib. From that section
I respectfully dissent.

59

I believe the evidence is insufficient to support a finding of capacity for

restitution of even the $510,000 amount we have affirmed. To the extent that
the trial court relied on the fact that the defendant, a lawyer and real estate
broker, has tremendous future earning capacity, I find that not only unsupported
but directly contrary to the reasonable inferences that may be drawn from the
evidence. Unlike a physician (United States v. McClellan, 868 F.2d 210, 213
(7th Cir.1989)), a felon convicted of fraud crimes could not hold either of these
licenses which appear to underpin the trial court's "future earning capacity"
findings.

60

I would vacate the immediate restitution order and require the trial court to
make specific findings of the current asset basis from which immediate
restitution reasonably can be made, and then fix the immediate amount to
correspond to that sum.

The Honorable Clarence A. Brimmer, Chief Judge, United States District Court
for the District of Wyoming, sitting by designation