Steven D. Mueffelman ("Mueffelman") was found guilty by a juryof thirteen counts of mail and wire fraud in violation of18 U.S.C. §§ 1341 and 1343. His co-defendant, John S. Lombardi("Lombardi"), pled guilty to similar counts and testified againstMueffelman. Together, Mueffelman and Lombardi set up acorporation whose goal was to guarantee home ownership to personswith marginal or poor credit, promising "100 percent financingand no closing costs." These promises induced numerous clients tohand over money for various fees and expenses, but with fewexceptions, they received little in return — neither the moneythey had spent nor the home they desired. Tragically, the clientswere poor, trusting, and disadvantaged.
The critical issue in the sentencing and in the determinationof restitution (under 18 U.S.C. § 3663A (c)(1)(A)(ii), theMandatory Victim Restitution Act ("MVRA")) was the amount of lossto these victims, an issue whose determination was complicated bythe changing sentencing law. Specifically, this case raised anissue of first impression in this Circuit — whether victims who were not specifically named in the indictmentcould receive restitution under the MVRA. That issue requiresresolution of at least two others — whether restitution under theMVRA is compensatory (to the victims) or punitive (to thedefendant) or both, and if punitive to any degree, whether theorder is subject to the protections of the Sixth Amendment. Ihave concluded that restitution is punitive, and subject to theSixth Amendment's protections. Nevertheless, in applying thatanalysis to the case at bar, I have ordered restitution tovictims who, while not named in the indictment, fit within the"scheme" that was alleged and proved.
The restitution issues, like the sentencing issues involved inthe instant case, were crystallized following a series of caseshanded down by the United States Supreme Court after theMueffelman verdict, but before the defendant's sentencing. First,the United States Supreme Court decided Blakely v. Washington,542 U.S. 296 (2004). Blakely held that a Washington Statestatute violated the Sixth Amendment because it authorized thetrial court to impose a sentence above the "standard" statutoryrange if the government found any one of a list of aggravatingfactors. The Court noted that "[w]hen a judge inflicts punishmentthat the jury's verdict alone does not allow, the jury has notfound all the facts `which the law makes essential to thepunishment,' and the judge exceeds [her] proper authority."524 U.S. at 303. Immediately after Blakely, I issued a procedural ordercalling for briefing on the decision's impact on prosecutionsbefore me in which the verdict/plea occurred pre-Blakely butsentencing occurred post-Blakely.1 Subsequently, Iconcluded that Blakely must be applied to the FederalSentencing Guidelines and, as such, the Guidelines wereunconstitutional in their entirety. I found: [I]t is inconceivable that the system now required by the [Blakely] decision is at all consistent with anything contemplated by the drafters of the Sentencing Reform Act ("SRA"), Pub.L. No. 98-473, 98 Stat. 1837 (1987), or of the Guidelines. To literally engraft a system of jury trials involving fact-finding enhancements onto the Sentencing Guideline is to create a completely different regime than that comprehensive sentencing system envisioned by the legislation's drafters or the drafters of the Guidelines. If such a system is required to give full effect to the Constitution's jury trial guarantee then the entire sentencing system has to be recast. The constitutional sentencing pieces cannot be cobbled together by judges on a case by case basis.United States v. Mueffelman, 327 F. Supp. 2d 79, 82 (D. Mass.2004) (hereinafter Mueffelman I). At the same time, I foundthat the Guidelines, which had anchored sentencing analysis forover fifteen years, must be taken into account in all cases. I addressed the specifics of this case (and that ofco-defendant Lombardi) during two days of hearings.2Defendant Mueffelman took the position that I did not have theauthority to sentence him on the basis of facts not found by thejury. Since the jury was not asked to determine the amount ofmoney that the clients of the company had lost, the defendant'sposition meant that the Court would be obliged to ignore thescope of this offense in determining the sentence. The governmenttook the position that the Court should determine the amount ofloss and that that number should drive Mueffelman's sentencingrange as though the Guidelines were unchanged.
I rejected both approaches (although I adopted the government'sposition with respect to restitution — but not the government'srationale). I was not willing to adopt the Guidelines-mandatedsentence of nearly three years suggested by the government. Norwas I willing to sentence Mueffelman to probation as thedefendant urged.
I took the Guidelines into account, calculating the amount ofloss attributable to Mueffelman's acts as I would havepre-Blakely. I then used the loss calculations to determine theamount of restitution required by the MVRA, but I did not use itto determine Mueffelman's sentence. In sentencing Mueffelman, Idiscounted the Guideline sentencing range three levels because I found that the amount of loss did not serve as a fair proxy forMueffelman's culpability. The sentencing range that resulted fromthat adjustment was more in keeping with Mueffelman's culpabilityand the purposes of sentencing.
Within months of the Mueffelman sentencing, The United StatesSupreme Court issued United States v. Booker,160 L. Ed. 2d 621, 125 S. Ct. 738 (2005), in which it applied Blakely to theFederal Sentencing Guidelines, finding that the mandatory"Guideline" scheme violated the Sixth Amendment.
This constitutional defect required the Court to excise theportion of the Sentencing Reform Act of 1984 (hereinafter "SRA"),28 U.S.C. § 991 et seq., 18 U.S.C. § 3551 et seq., that made theGuidelines mandatory, namely, 18 U.S.C. § 3553(b)(1). As aresult, the Court declared the Guidelines to be "advisory."Courts are to "consider" Guidelines ranges, see18 U.S.C. § 3553(a)(4), but are permitted to tailor their sentences in lightof other statutory concerns. See § 3553(a); Booker,125 S. Ct. at 757-69.
After Booker, the defendant moved for re-sentencing; thegovernment opposed. I declined to re-sentence. My decision inMueffelman I was consistent with the United States SupremeCourt's later decision in Booker.3 I sentencedMueffelman to twenty-seven months in prison and Lombardi, who cooperated, tothree years of probation. I ordered restitution in the amount of$907,864.89.
I. GUIDELINE ANALYSIS4
The government and Probation argued for a loss of between$800,000 and $1,500,000, which would increase the base offenselevel eleven levels to a level seventeen (base offense of sixplus an eleven level enhancement) U.S.S.G. § 2F1.1(a), § 2F1.1(b)(1)(L); an adjustment for more than one victim, underU.S.S.G. § 2F1.1(b)(2)(B), with an additional two levels; and anadjustment for a vulnerable victim under U.S.S.G. § 3A1.1(b) fortwo more points. The result was a base offense level oftwenty-one with a category I criminal history, yielding aGuideline range of thirty-seven to forty-six months.5
Defendant argued pre-Booker that there should be noenhancement beyond the base offense level of six, because theissues of loss (as well as the number of victims and thevulnerability of the victims) were not submitted to the jury. Ata base offense level of six, with a criminal history of I, theGuideline range was zero to six months.6 Post-Booker,defendant has argued that probation is the most appropriatesentence because it would maximize defendant's ability to payrestitution under 18 U.S.C. § 3553(a)(7) (describing "the need toprovide restitution to any victims of the offense").
The principal issue driving both the sentence and therestitution amount was the "loss" to which I now turn. II. LOSS
A. General Principles
The amount of loss that a given crime has engendered is surelyone measure of the seriousness of the offense. Sometimes loss isan entirely appropriate proxy for culpability. At other times, itis not. All other things being equal, one who causes a greaterloss as a result of his or her illegal acts is more culpable thanone who causes a lesser loss. But, as Judge Lynch noted inUnited States v. Emmenegger, 329 F. Supp. 2d 416, 427 (S.D.N.Y.2004), "[i]n many cases . . . the amount stolen is a relativelyweak indicator of the moral seriousness of the offense or theneed for deterrence." Loss may well be a kind of accident,depending on the fortuities of law enforcement or even themarket, as much as the defendant's culpability.
Judge Lynch's comments apply with particular force in the caseat bar. There is no question that real people lost money —vulnerable people sometimes losing their life savings — as aresult of Mueffelman's businesses, Commonwealth Capital FundingCorporation ("CCFC") and Home Buyers Solutions Inc. ("HBSI").There is also no question that the business Mueffelman andLombardi formed was not a sham,7 that they worked hard toset it up, trying to participate in a less-than-clear legislative andregulatory housing initiative just implemented during the Clintonadministration. They met with potential lenders, madepresentations, traveled across the country at their own expense,drafted agreements, tried to set up connections with non-profitorganizations who would meet the regulatory standards, and workedvery long hours. They even had some — to be sure, not many —successes. The problem was that their representations and thefees they collected as a result, far, far outstripped theirability to deliver results. And, even after it was abundantlyclear that they would not be able to satisfy the expectationsthey created, they continued to collect money and to profoundlymisrepresent the risks to the people they ostensibly served.
B. The Evidence
Commonwealth Capital Funding Corporation ("CCFC"), aMassachusetts corporation, was founded by Mueffelman, Lombardiand Richard O. Wirth. Each was a one-third owner of CCFC, as wellas a CCFC officer and director. In founding CCFC, the defendant,Lombardi and Wirth used an inactive Massachusetts corporation that had been formed in 1993, changing its name toCCFC.8
The defendant became CCFC's President. He was involved in therecruitment of sales representatives and conducted extensivenegotiations with potential lenders and non-profit corporations.Lombardi was named Vice President and Treasurer of CCFC; he waspresent at CCFC's offices on a regular basis throughout itsoperations. Wirth was the Clerk of CCFC and, at times, acted asits General Counsel. Wirth was actively involved in CCFC fromSeptember until December 1996, when he had a falling out with thedefendant and Lombardi regarding money they had taken out ofCCFC.
CCFC's avowed purpose was to assist individuals of marginal orpoor credit to achieve home ownership, supposedly offering 100%financing and no closing costs. (After CCFC had been operatingfor a while, it changed its sales literature to state that itguaranteed "up to" 100% financing.) The defendant and Lombardidescribed CCFC to potential clients as a group of investors whopurchased homes at 94% of market value and then resold the homesto clients at 100% of market value. They claimed that they wereable to do so by using local, state, and federal government loan programs. They further represented thatthey had lenders ready to provide loans to enrolled clients.
Initially, CCFC purported to offer two programs. The first wasknown as the "direct purchase" program. Under this program,clients would pay an enrollment fee and CCFC would assign a realestate agent to work with them to find a suitable home withintheir price range. When a house was located, CCFC was to make anoffer of no more than of 94% of the value of the house. If theoffer was accepted, CCFC would re-sell the house to the client at100% of market value, and arrange for 100% financing and noclosing costs. CCFC represented that it had lenders available toprovide such financing.
The second program, called either the "delayed purchase" or"lease-to-own" program, was designed for clients who could notqualify for immediate purchase because of problems with theircredit history.9 Under this program, clients wereassigned a real estate agent who would try to locate a homewithin their price range. Once a home was located, CCFC was topurchase the home and lease it to the client. In the later stagesof its operation, CCFC represented that a non-profit corporation,Community Homeowners Association, Inc. ("CHA"), would purchasethe home and lease it to the client. Monthly lease payments wereto equal the monthly principal, interest, taxes and insurance on the property, plus a 10% management fee. The lease was to includean option to purchase the house once the client had cleaned uphis/her credit history and could qualify for the loan.
As the jury found, many of these representations were false.CCFC did not have financing available to fund house purchases ora non-profit corporation that would purchase houses for thoseunable to qualify. In fact, CCFC even had difficulty lining upmortgages for their clients, although Mueffelman unquestionablytried hard to do so. Moreover, they did not make a formalarrangement with a non-profit organization (to which U.S.Department of Housing and Urban Development ("HUD") funds wouldbe lent) until they contracted with CHA in December of 1996 orJanuary of 1997. Even then, CHA's ability to meet theirexpectations was doubtful. While CCFC explained many of the risksof the program in its promotional materials, it clearly left outcritical facts.
At the same time, however, the government's own witness,co-defendant Lombardi, testified at great length that he andMueffelman had begun the business in good faith, and thatMueffelman, in particular, had worked long hours to get financingfor their clients. Mueffelman made arrangements for CCFC to sharespace within the offices of Constitution Financial Group ("CFG"),a bona-fide Massachusetts mortgage broker/lender companyheadquartered at the Schraffts Center in Charlestown,Massachusetts. CFG pulled credit reports on prospective CCFC clients and provided pre-qualification letters regarding whetherthe client would qualify for a mortgage and in what amount. CFGtook loan applications from CCFC clients and tried to findlenders who were willing to grant the loans. After severalmonths, however, it was clear that most CCFC clients could notqualify for any existing loan program, although some did in factget loans through CFG.10 In or about late March 1997,there was a falling out between CCFC and CFG. As a result, CCFCmoved to new office space in Dedham, Massachusetts.
During the spring of 1997, CCFC began to focus on using CHA asthe entity responsible for purchasing properties for CCFC clientsunder the delayed purchase program. CHA, with Dwight Miller asits President, had initially been formed to assist Dorchesterresidents with mortgage foreclosures. In August 1995, it hadbecome a HUD-approved, non-profit corporation eligible toparticipate in HUD programs. In September 1996, HUD issuedMortgagee Letter 96-52, permitting qualified non-profits toparticipate in HUD's 203(b) loan guarantee program as borrowers.Under this program, the Federal Housing Administration ("FHA")would guarantee loans issued to non-profits, who would in turnlease the property to tenants. These loans were then assumable.
Also during the spring of 1997, Mueffelman worked to interestseveral lenders in this non-profit, lease-to-own program, including Crossland Mortgage Corp., Merrimack MortgageCompany, North American Mortgage Company, and Malone MortgageCompany. Each organization expressed some initial interest butnone ultimately chose to fund loans for CCFC on a regular basis.On May 30, 1997, Crossland issued a letter to Dwight Miller,indicating that he was approved to do four loans with Crossland.On June 3, 1997, North American issued a handwritten letter toMiller stating that it was prepared to entertain his applicationsfor loans. On June 10, 1997, Merrimack issued a letter to RichardLahar, a CCFC employee, indicating the approval of CHA as anon-profit organization with Merrimack, provided that CHAmaintained the necessary cash balances discussed in MortgageeLetter 96-52. On June 20, 1997, Malone Mortgage Co. issued apre-qualification letter to CHA for $160,950.00, pursuant toFHA's 203(k) program for rehabilitation loans.
Indeed, Malone appeared to be a real prospect. The defendantand Dwight Miller traveled to California at the defendant'sexpense on July 1, 1997, to meet with William McGuire of Maloneand explain the CCFC program to him. On July 7, 1997, thedefendant sent McGuire a twenty-one page package via facsimile.On July 15, 1997, Dwight Miller sent Mr. McGuire five loanpackages for Malone's consideration.
But these few commitments did not come close to therepresentations Mueffelman and CCFC had made to over 300 clients.CCFC never closed any loans under its lease-to-own program, either in its own name or in the name of CHA. During June andJuly 1997, CHA obtained one loan from Crossland and two loansfrom Merrimack to purchase properties which were apparentlyunrelated to CCFC and its clients. The seventeen loans CCFCfinally closed were all direct purchases where the CCFC clientqualified for the mortgage on their own.
Still, Mueffelman and Lombardi pressed on and during July 1997,CCFC prepared new client agreements and sales literature in thename of CHA, which provided that the client would pay his/her feeto CHA. (This change in the literature followed consultationswith Michael Hanson, an attorney and former Massachusetts StateBanking Commissioner.) In late July 1997, CCFC held a meeting ina hotel in Dedham for its sales representatives, at which thedefendant and Lombardi announced that CCFC was going to be themarketing arm for CHA and distributed the new CHA salesliterature and agreements. Miller had been requested to appear atthis meeting but he did not.
By July 1997, defendant's efforts were too little, too late.CCFC had gotten in far too deep, continuing to accept new clientsdespite CCFC's problems and, more importantly, continuing toaccept their fees.11 On July 28, 1997, William McGuire(of Malone Mortgage) wrote to Dwight Miller, stating that he foundthe CCFC program "intriguing" but that "Malone is notinterested."
By August of 1997, with customer complaints mounting, and thestate investigation beginning, CCFC's activities stalled.Numerous purchase and sales ("P&S") agreements had been signed,and closings scheduled, but when the closing dates came, CCFC didnot have financing for its clients and required the sellers topostpone the closing dates. Clients had incurred expenses forappraisals, home inspections, insect inspections and movingexpenses, in addition to their CCFC enrollment fees, and thencould not close. Many clients had given notice to landlords toterminate their leases. There were numerous requests for refunds,which CCFC generally refused.
On August 12, 1997, the Massachusetts Attorney General ("AG")filed a civil injunctive action in Suffolk Superior Court againstCCFC, the defendant, and Lombardi, among others, alleging unfairand deceptive trade practices in violation of Mass. Gen. Laws,ch. 93A.12 Shortly thereafter, Judge Carol Ball entered a preliminary injunction prohibiting CCFC from accepting fees fromnew clients. The injunction did not prohibit CCFC from closingloans for its existing clients, and three of the seventeen loansfor CCFC clients which actually closed, did so after August 21,1997.
The defendant and Lombardi continued to operate in Florida. InMay 1997, the defendant and Lombardi had incorporated Home BuyersSolutions, Inc. ("HBSI"), a Delaware corporation, with aprincipal place of business in Largo, Florida. They claimed thatHBSI was the marketing arm for Affordable Housing Concepts, Inc.("AHCI"), a Florida non-profit, which had obtained HUDcertification as of June 3, 1997. On August 25, 1997, thedefendant and Lombardi opened an HBSI bank account in Florida.During the period from August to October 1997, they depositedapproximately $165,000.00 in additional client fees into thisaccount.
C. The Amount of Loss/Victim Impact
The victims in this case are the CCFC and HBSI clients who paidthe enrollment fees but never received a refund even when CCFCand HBSI were unable to secure financing for the purchase oftheir respective homes. The government has identified more than300 victims, though nearly half of the addresses of these victimsare unknown. The victims whose addresses were ascertainable were given an opportunity to submit a victim impact statement. Manyvictim impact statements were filed; several individualstestified at sentencing.
In addition to injunctive relief, the Massachusetts courtordered restitution based on the losses of Massachusettsresidents. To that list the government has added the names ofclients outside of Massachusetts and adjusted the amount forrefunds made.13 While Mueffelman was not representedduring the state court proceeding, he has not contested the$907,864.89 figure. He does contest its significance insentencing.
Mueffelman suggests that since CCFC was not a sham organizationand surely was not one ab initio, I should "count" only thelosses engendered from the date when there was no hope ofsatisfying the clients' expectations.14 The date of thatchange, he suggests, was July 28, 1997 — when William McGuire (ofMalone Mortgage) wrote to Dwight Miller, advising that he foundthe program "intriguing," but that "Malone is not interested."Until that point, the defendant could have reasonably believedthat CCFC's program would receive funding from one of thenumerous sources it was pursuing. But as the government rightly pointed out, the jury foundotherwise, concluding that Mueffelman was guilty of fraud withrespect to transactions spanning the entire period of theindictment. I will not ignore that verdict. See, e.g.,United States v. Pimental, 367 F. Supp. 2d 143, 150-53 (D.Mass. 2005).
D. Loss, the Guidelines and 18 U.S.C. § 3553(a)
Nonetheless, as Judge Lynch's decision in United States v.Emmenegger suggests, issues concerning the blameworthiness of adefendant found guilty of fraud are more complex than simplymeasuring the amount of the loss. Indeed, even pre-Booker, losswas not an automatic measurement of culpability. For example,Guideline law permitted a judge to consider whether the amount ofloss overstated defendant's culpability. See U.S.S.G. § 2B1.1,Appl. Note 19(C). See, e.g., United States v. McBride,362 F.3d 360 (6th Cir. 2004) (explaining that although intended lossdrives offense level even where scheme to defraud could not havesucceeded, impossibility of scheme can be a basis for departure);United States v. Lauersen, 348 F.3d 329 (2d Cir. 2003) (holdingthat where multiple adjustments result in very high offense levelthat substantially overstates seriousness of offense, districtcourt may depart downward); United States v. Gregorio,956 F.2d 341 (1st Cir. 1992) (holding that downward departure isappropriate where degree of loss was caused by downturn ineconomy); United States v. Graham, 146 F.3d 6 (1st Cir. 1998) (holding that loss overstates culpability where lower lossattributed to similarly situated defendants); United States v.Monaco, 23 F.3d 793 (3d Cir. 1994) (explaining that lossoverstates seriousness where defendant had no intent to steal);United States v. Stuart, 22 F.3d 76 (3d Cir. 1994) (affirmingloss calculation based on face value of stolen bonds, butsuggesting appropriateness of departure on remand where defendantreceived little money for participation in offense, causing lossto overstate seriousness of offense).
This approach — treating loss as a contingent factor, whosesignificance depends on the circumstances — is especially salientpost-Booker. With advisory Guidelines, the amount of lossshould be understood in the context of the purposes of sentencingenumerated in 28 U.S.C. § 3553(a), including deterrence,incapacitation, just punishment and rehabilitation, as well asthe need to provide restitution to any victims of the offense. Ican adequately address the latter through a separate order underthe MVRA (see section III). Sentencing, and more particularly,imprisonment, raises other issues.
Mueffelman, as described above, both earned a considerableamount of money, and poured money back into the business — tripspaid for on his own dime, substantial work, real efforts to salvage a failing operation.15 While the jury was notpersuaded that evidence of Mueffelman's good faith was sufficientto exonerate him,16 that evidence is neverthelessrelevant at sentencing. It suggests that the losses generated byMueffelman's businesses are not the complete, much less the fair,measure of his culpability. At the very minimum, clients gotMueffelman's work on their behalf, even if they did not get theresults he promised. Lombardi agreed that the two of them worked"sixteen hours" a day, six days a week, to make the programsuccessful.
As was the case in Emmenegger, Mueffelman surely did notintend for people to lose over $900,000.00. On the contrary, hewas consistently optimistic about his chances of gettingfinancing for his clients in time to meet his obligations. As late as July of 1997, he was still tirelessly trying to makedeals and close transactions.
Let me repeat: None of this excuses Mueffelman's conduct orcast doubt on the jury's verdict. His efforts did not begin tomeet the demand he had generated or the representations he hadmade. But the bona fide work he put into these enterprisessuggests that the amount of the loss is not an appropriate proxyfor Mueffelman's culpability or a one-to-one measure of what hissentence ought to be. Consequently, I discounted the loss threelevels from the Guideline sentencing range (level twenty-one tolevel eighteen), and sentenced the defendant to the low end ofthe applicable range. He had no record; he had been a productiveand law abiding member of the community for most of his sixtyplus years. A sentence of imprisonment of this length is plainlyconsistent with deterrence, and with just punishment under18 U.S.C. § 3553(a).
III. RESTITUTION AND BOOKER
According to the government, the Mandatory Victims RestitutionAct ("MVRA"), 18 U.S.C. § 3663A(a)(1), obliges the Court to orderfull restitution to all of the victims of the defendant's scheme,without regard to the defendant's economic circumstances orwhether the victim is specifically named in the indictment. Atthe sentencing hearing on November 1, 2004, the United States introduced into evidence the affidavit of Thomas J.Zappala, an auditor employed by the United States Attorney'soffice. Zappala's affidavit listed the 326 victims of thedefendants' offenses and calculated the restitution owed as$907,864.89.17 The government urged the Court toincorporate Exhibits A-1, A-2 and A-3 to the Zappala Affidavitinto the Judgments, as well as to include those three schedulesas part of the restitution order. (These exhibits listed thenames and addresses of the 326 victims. See United States v.Stover, 93 F.3d 1379, 1389 (8th Cir. 1996) (holding that, as ageneral rule, district court should identify recipient ofrestitution and the amount owed).
The defendant argued that the Apprendi-Blakely-Bookertrilogy limits restitution to the victims named in the counts ofconviction. Since the indictment only named individuals inconnection with the thirteen counts that corresponded to thethirteen charged instances of fraudulent mailing, defendantsuggests that only those victims can be the subject of therestitution order. This issue is one of first impression in thisDistrict.
The MVRA requires this Court to order the defendants to makerestitution to the victims of their offense, except in circumstances not applicable here.1818 U.S.C. § 3663A(a)(1) ("the court shall order . . . the defendant to makerestitution to the victim of the offense. . . ."). Thedefendant's financial circumstances provide no basis for him toavoid his restitution obligations.19 A defendant'sfinancial circumstances may be considered only in establishingthe schedule of restitution payments.18 U.S.C. § 3664(f)(2)(A)-(C).
The plain language of the MVRA suggests that restitution can beordered for victims who were not the subject of the counts ofconviction. The MVRA defines a victim of the offense as: a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme . . . any person directly harmed by the defendant's criminal conduct in the course of the scheme. . . .18 U.S.C. § 3663A(a)(2). (Italics supplied).
In the instant case, the indictment charged mail fraud under18 U.S.C. § 1341 and wire fraud under 18 U.S.C. § 1343. It alleged that the defendants contrived "a scheme" to defraudindividuals, notably the clients of CCFC and their otherbusinesses, in the course of which they used the mails onthirteen specific occasions. The individuals named in theindictment were not described as the only individuals who weredefrauded; the offense of conviction — the scheme to defraud —was plainly broader than that. Rather, the individual countsdefined specific mailings pursuant to the larger scheme much asan overt act might define specific acts pursuant to a largerconspiracy. Indeed, Congress expressly added the word "scheme" tothe words, "conspiracy, or pattern of criminal activity" in thestatute.
But while that may have been Congress' intent, the question iswhether Congress' intent can be fulfilled post-Booker, withoutrunning afoul of the Sixth Amendment. Three main arguments havebeen advanced against applying these constitutional protectionsto an award of restitution. First, some courts, adopting a ratherformal approach, rejected Apprendi challenges on the groundsthat the restitution statute, unlike sentencing provisions, hadno "statutory maximum." As such, there was no benchmark thatwould be impermissibly increased by the findings of a judge, asin Apprendi. But, as I describe below, Apprendi's "statutorymaximum" language was considerably broadened by Blakely andBooker, which announced a constitutional violation whenever"facts essential for sentencing" are found by a judge rather than a jury. See United States v. Malouf,377 F. Supp. 2d 315, 324 (D. Mass. 2005) (citing to Blakely,124 S. Ct. at 2537). A second and related position was taken by courts thatlooked to the text of the restitution statute, and concluded thatsince it gave considerable discretion to courts, as in thepre-Guidelines indeterminate sentencing days, there were noBooker problems at all. However, many of these cases addressedthe Victim Witness Protection Act ("VWPA"), which was supplantedin part by the MVRA. While the VWPA gave the judge considerablediscretion, it is at least an open question as to whether theMVRA, which is by its own terms "mandatory", changed the Act'sdiscretionary nature, at least with respect to the offenses towhich the MVRA applied.
Third, and far more significant, numerous courts have announcedthat restitution is a civil and not a criminal penalty, becauseit is designed to compensate the victim rather than to punish thedefendant. The implications of that position are the mosttroubling: Not only would the Sixth Amendment be inapplicable butalso many of the criminal procedure provisions of theConstitution. It would effectively carve out a zone in thecriminal sentencing process which was comparatively rights-free.While the law is by no means clear, thisrestitution-as-civil-remedy position, is belied by a) thehistorical treatment of restitution as a punishment tied toconcepts of personal accountability, b) the legislative historyof the VWPA and the MVRA suggesting that, at best, its purposes were both punitiveand compensatory, c) the case law addressing the treatment ofrestitution as criminal in other contexts, notably bankruptcy,double jeopardy, ex post facto, and abatement. See BrianKleinhaus, Serving Two Masters: Evaluating the Criminal or CivilNature of the VWPA and MVRA Through the Lens of the Ex Post FactoClause, the Abatement Doctrine and the Sixth Amendment, 73Fordham L. Rev. 2711 (2005) (hereinafter "Serving TwoMasters"). The First Circuit has not spoken on the issue.
I have concluded that restitution under the MVRA is bestunderstood as a criminal penalty. But even when understood as acriminal penalty, the award is appropriate here. First, theamount of restitution flows directly from the offense ofconviction, obviating any Sixth Amendment issues. Mueffelman wasfound guilty of participating in a very specific fraudulentscheme which involved CCFC and HBSI. The names of the clients whoparticipated and the amount of money that they were charged bythe companies was readily available in the company's files. Theamount was recorded in a "client file" maintained by thecompanies, along with a copy of that client's check or moneyorder.20 The company also kept track of the refunds thathad been made, an amount which was subtracted from the total.Money paid by any client who was successful in their home searches werealso eliminated from the total.21
Second, restitution here serves both to compensate victims whoare sorely in need of help as well as to make the defendantspersonally accountable to the people they have affected. Thelatter cannot be underestimated. Restitution advances thepurposes of punishment — deterrence, even rehabilitation —because it makes it clear to the defendants that they must beresponsible for the losses these "clients" suffered.
1. The Apprendi Position
In United States v. Behrman, 235 F.3d 1049, 1050-51 (7th Cir.2000), the Seventh Circuit noted that "[18 U.S.C.] § 3663A doesnot include a `statutory maximum' that could be `increased' by agiven finding. Section 3663A is in this respect like a statutethat permits the judge to impose any term of years up to life inprison." 235 F.3d at 1054. See United States v. Syme,276 F.3d 131, 158-59 (3d Cir. 2002) (holding the VWPA does notspecify a maximum amount of restitution, that it simply providesguidelines for the sentencing judge; accordingly, Apprendi doesnot apply because Apprendi only addressed criminal penaltiesthat increased a sentence "beyond the prescribed statutorymaximum"). See also, United States v. Bearden,274 F.3d 1031, 1042 (6th Cir. 2001) (holding that Apprendi concerns are inapplicable as longas restitution does not require payment in excess of the value ofthe goods stolen).
Blakely and Booker, however, plainly broadened Apprendi'srule. In Apprendi, the Court was primarily concerned withjudicial factfindings that would increase a sentence beyond thestatutory maximum, while in Booker and Blakely the Court'sconcern shifted to judicial factfindings that impact factsessential to punishment. See Malouf, 377 F. Supp. at 324;Mueffelman I, 327 F. Supp. 2d at 88. ("What `statutory maximum'means now is not just the broad punishment range in the criminalstatutes. It is the `maximum sentence a judge may impose solelyon the basis of facts reflected in the jury verdict or admittedby the defendant.' Blakely, 542 U.S. at ___,124 S. Ct. at 2537.) See also, Kleinhaus, Serving Two Masters, 73 FordhamL. Rev. at 2759 ("[T]he contestable issue debatably is not whatthe restitution statutes state is the maximum amount ofrestitution available for a judge to impose, but the maximumbased on facts put to a jury and found beyond a reasonabledoubt.")
2. The Indeterminate Sentence Position
Some courts have varied the Apprendi theme by suggesting thatthe absence of a statutory maximum in the restitution statutemeant that restitution orders were never part of a mandatory sentencing scheme. As such, the concerns of Bookerare not triggered. In United States v. Einstman,325 F. Supp. 2d 373, 374 (S.D.N.Y. 2004), for example, the defendant arguedthat restitution should not be imposed because he wasconstitutionally entitled to have a jury find the amount ofrestitution beyond a reasonable doubt. Id. at 382. The Courtrejected the argument, relying on the Seventh Circuit's opinionin Behrman, supra, that a judicial finding of the amount ofrestitution does not violate Apprendi but added: Nothing in Blakely would appear to alter this result; the restitutionary scheme is not part of the USSG and does not include anything like the `relevant statutory maximum' that was decreed in Blakely. It appears that Congress wanted district courts to set the amount of restitution in the old-fashioned, pre-USSG way. . . . I see no constitutional infirmity in that . . .Id. The "old fashioned way" is an indeterminate regime withoutSixth Amendment (or for that matter, any other constitutionalcriminal procedure) issues. See Mueffelman I. See also,United States v. DeGeorge, 380 F.3d 1203, 1221 (9th Cir. 2004)(holding that restitution order pursuant to VWPA "unaffected byBlakely") (citing United States v. Baker, 25 F.3d 1452, 1456(9th Cir. 1994)); United States v. Wooten, 377 F.3d 1134,1143-44 (10th Cir. 2004) (same).
It is not at all clear, particularly after the passage of theMVRA, that restitution orders mirror the old indeterminatesentencing regime. Just because there is no ceiling to the statute — no statutory maximum — does not mean that judges havediscretion to order restitution in any amount they choose. Boththe VWPA and the MVRA are to be enforced in accordance with §3664. See 18 U.S.C. § 3663(d), § 3663A(d).18 U.S.C. § 3664(f)(1)(A) notes "[i]n each order of restitution, the courtshall order restitution to each victim in the full amount ofeach victim's losses as determined by the court." Id. (Italicssupplied.) Prior to the enactment of the MVRA, "as determined bythe court" meant that restitution was completely discretionary;it could be ordered "in addition to . . . or in lieu of any otherpenalty authorized by law." 18 U.S.C. § 3663(a)(1)(A). And itcould be used to cover only a portion of the victim's losses ifthe financial situation of the defendant so required.
Under the MVRA, restitution was mandatory with respect to"identifiable . . . victims [who had] suffered a . . . pecuniaryloss" from an "offense against property . . . including anyoffense committed by fraud or deceit." 18 U.S.C. §§ 3663A(c)(1)(B) and (c)(1)(A)(ii). 18 U.S.C. § 3663A (b)(1) spelled outthe precise contours of the order. The exceptions to the rule —unidentifiable victims, or cases involving complex issues of factor law that would delay the sentencing process — did not materially diminish its mandatory nature in the cases that it didapply. 18 U.S.C. § 3663A (c)(3).22
If factfindings have determinate consequences then the specterof a Sixth Amendment violation is raised. This specter isparticularly apparent in cases where the monetary loss of eachvictim has the kind of one-to-one correlation with the sentence,the kind of consequence with which Booker and Blakely wereconcerned.
3. The Restitution-as-Civil Position
A number of courts have concluded that restitution ordersescape the strictures of Booker and Blakely because they arenot designed to punish the defendant. Instead, these courts findthat restitution orders are part of a separate statutory scheme,the goal of which is to compensate the victims. See UnitedStates v. Visinaiz, 344 F. Supp. 2d 1310 (D. Utah 2004) (drawingon cases addressing whether the application of the MVRA toconduct prior to its enactment violated the Ex Post FactoClause). As the Court in Visinaiz noted: The notion of compensating victims for losses attributable to the defendant's crime is logically and intuitively non-punitive. For example, if a burglar is caught running out of a house with the homeowner's television, we would not say he was `punished' if the police officer took the television and gave it back to its owner. If a bank robber is caught on the bank's front steps, we would not say it is a "penalty" to give the loot bag back to the tellers. Requiring return of the property instead works to prevent a criminal from receiving a windfall by forcing him to disgorge an unjustly obtained benefit. Variations on these fact patterns are simply matters of degree. Thus, even if the burglar or the bank robber have escaped with their stolen property and have even converted it in some way, the return of equivalent value to the homeowner or the bank is better described as compensation to the victim rather than punishment of the criminal.344 F. Supp. 2d at 1320. In United States v. Carruth,418 F.3d 900 (8th Cir. 2005), the court characterized restitution as"designed to make victims whole, not to punish perpetrators,"adding "it is essentially a civil remedy created by Congress andincorporated into criminal proceedings for reasons of economy andpracticality." 418 F.3d at 904. Likewise, in United States v.George, 403 F.3d 470 (7th Cir. 2005) the court held thatrestitution is a civil remedy to which "the sixth amendment doesnot apply." 403 F.3d at 473.
Restitution, however, is not exclusively compensatory as eitheran intuitive or an historical matter. It has been inextricablytied to concepts of personal responsibility, of forcing theoffender to come to grips with the impact of his or her crime onthe victims. The task force whose work led to the VWPA issued afollow-up report in 1986, in which it urged society to "rememberthat the responsibility for crime lies with those who commit it,not with those forced to endure it." U.S. Dep't of Justice, President's Task Force on Victims of Crime FourYears Later iii (1986). The Senate Report on the VWPA, noted: The principle of restitution is an integral part of virtually every formal system of criminal justice, of every culture and every time. It holds that, whatever else the sanctioning power of society does to punish its wrongdoers, it should also insure that the wrongdoer is required to the degree possible to restore the victim to his or her prior state of well-being.S. Rep. No. 97-532, at 30 (1982).
The Senate Report to the MVRA reiterated that the legislationwas not intended merely to address "the loss to crime victims,"but also to "ensure that the offender realizes the damage causedby the offense and pays the debt owed to the victim as well as tosociety." S. Rep. No. 104-179, at 12 (1995). Indeed, Congresspressed for the MVRA even while acknowledging that most offenderswere indigent at the time of their sentencing, and that theseorders were unlikely to materially assist the victims. The SenateReport highlighted "the benefits that even nominal restitutionpayments have for the victim of crime, as well as the potentialpenalogical benefits of requiring the offender to be accountablefor the harm caused to the victim." S. Rep. No. 104-179, at 18(1995). See generally, Kleinhaus, Serving Two Masters, 73Fordham L. Rev. at 2726-29.
No court, apart from the court in Visinaiz, has directlyaddressed the issue of whether restitution under the MVRA is acriminal punishment subject to Booker. At the same time, this topic has been addressed in other settings, which suggest thatthe MVRA is criminal in nature. For example, a number of courtshave held that the Ex Post Facto Clause applied to the VWPA.See, e.g., United States v. Jewett, 978 F.2d 248 (6thCir. 1992) (holding that attempting to apply the expandeddefinition of "victim" used in the recently amended VWPA to adefendant's restitution order for a crime committed before theamendment would violate the ex post facto clause); United Statesv. Gilberg, 75 F.3d 15, 21 (1st Cir. 1996) (referring to theJewett holding), and more recently, to the MVRA. See UnitedStates v. Thompson, 113 F.3d 13, 14 n. 1 (2d Cir. 1997)(applying this analysis to the MVRA). See also Kleinhaus,Serving Two Masters, 73 Fordham L. Rev. 2739-45.
The criminal/civil question is less clear when examined throughthe prism of the existing case law addressing abatement, doublejeopardy, and Seventh Amendment concerns. In the SeventhAmendment context, courts have found restitution to fall on thecriminal side of the ledger, but in the abatement and doublejeopardy contexts, courts have typically found just the opposite.See, e.g., Kleinhaus, Serving Two Masters, 73 Fordham L.Rev. at 2745-50; United States v. Fountain, 768 F.2d 790, 801(7th Cir. 1985) (explaining that "criminal restitution is notsome newfangled effort to get around the Seventh Amendment but atraditional criminal remedy"); United States v. Christopher, 273 F.3d 294, 299 (3d Cir. 2001) (holding that restitution ordersunder the MVRA and VWPA do not abate along with criminalsentences when an inmate dies during his criminal appeal);United States v. Barnette, 10 F.3d 1553, 1558-60 (11th Cir.1994) (holding that restitution does not violate the doublejeopardy clause). This jurisprudential equivocation is, perhaps,best highlighted by the Seventh Circuit's restitution decisions,in which the court first adopted the restitution qua criminalpunishment position in the abatement context, then later adoptedthe restitution qua civil proceeding position in the ex postfacto context. See United States v. Fountain, 768 F.2d 790(7th Cir. 1985); United States v. Bach, 172 F.3d 520 (7th Cir.1999).
The First Circuit has not addressed the issue directly. InUnited States v. Rostoff, 164 F.3d 63, 71 (1st Cir. 1999), theFirst Circuit rejected a defendant's claim that he had a SeventhAmendment right to a jury trial in a civil action to enforce arestitution order, stating "[t]he nature of restitution is penaland not compensatory." In United States v. Hensley,91 F.3d 274, 276 (1st Cir. 1996) the First Circuit said that the VWPA"authorizes restitutionary sentences . . . for the benefit ofvictims of federal offenses." In United States v. Vaknin,112 F.3d 579, 587 (1st Cir. 1997), the Court said that thelegislative history of the VWPA "clearly signals a congressionalpreference for rough remedial justice, emphasizing victims' rights." The Court characterized the VWPA's authorization toenter restitution orders as "remedial provisions," in holdingthat they applied to the FDIC, as successor to a failed bank.Id. at 591.
I profess to considerable discomfort with the idea that a$907,864.89 restitution award is not punishment, and that theMVRA is not akin to the mandatory guidelines approach. In myjudgment, the better approach, based on the language of the MVRA,and its legislative history, is to treat restitution as acriminal punishment fully subject to Booker's constraints.Nevertheless, I conclude that restitution is appropriate in theamount the government proposed.
The government's proposed restitution order is appropriatebecause it is directly related to the "scheme" of which the juryfound the defendants guilty. See United States v. Ross,279 F.3d 600, 602 (8th Cir. 2002) (holding that restitution in theamount of $2.7 million was related to the "advance fee" schemealleged in the indictment and that it stemmed directly from thewire transactions submitted to the jury). Holding the defendantsdirectly accountable to their victims is also appropriate forboth the victims of this offense and for the punishment of thedefendants. The defendants must be made to understand the harmthey have caused. And, as men with substantial work backgroundsand at least some resources, they must be held accountable in thesense that they are required to give back what they have taken. B. Jointly and Severally; Pro Rata
Title 18, United States Code, Section 3664(h) provides: If the court finds that more than 1 defendant has contributed to the loss of a victim, the court may make each defendant liable for payment of the full amount of restitution or may apportion liability among the defendants to reflect the level of contribution to the victim's loss and economic circumstances of each defendant.Victims, however, might not recover the full amount of theirlosses from each defendant. United States v. Scott,270 F.3d 30, 52-53 (1st Cir. 2001); United States v. Trigg,119 F.3d 493, 500-01 (7th Cir. 1997). Thus, when the Court orders fullrestitution from both defendants the implication is that thedefendants are jointly and severallyliable for the fullrestitution amount. Id.; United States v. Wall, 349 F.3d 18,26 (1st Cir. 2003). Title 18, United States Code, § 3664(i)provides, in part: If the court finds that more than 1 victim has sustained a loss requiring restitution by a defendant, the court may provide for a different payment schedule for each victim based on the type and amount of each victim's loss and accounting for the economic circumstances of each victim.Here, since there is no way to distinguish among the 326 victims,I will order that all restitution monies received by the Court bepaid to the victims on a pro rata basis. See United States v.Perry, 360 F.3d 519, 535 (6th Cir. 2004) (explaining that18 U.S.C. §§ 3664(f)(3) and (i) appear to give trial courts theright to require pro rata distribution of restitution monies.) Moreover, based on the government's concerns that many of the326 victims in this case cannot now be located, the orderprovides that if a victim cannot be located, the victim's prorata share shall be distributed among those victims who can belocated, until those victims have received their restitution infull.23 Many of the addresses in the Zappala Affidavitwere gathered in 1997 and 1998 by the Massachusetts AttorneyGeneral's Office. Many have moved since that time and cannot belocated. The Finance Section of the Clerk's Office has advisedthat, absent express direction in the restitution order to thecontrary, if a victim cannot be located then that victim's prorata share of restitution monies will be placed in an unclaimedfunds account and eventually paid to the United States Treasury.To avoid that result, the order has been drafted to permit prorata distribution of unclaimed funds to the identified victims.
Accordingly, I sentenced Mueffelman to a sentence oftwenty-seven months of imprisonment, twenty-four months ofsupervised release, and restitution in the amount of Nine Hundredand Seven Thousand, Eight Hundred Sixty-Four and 89/100($907,864.89) Dollars, and Lombardi to three years of probation with the samerestitution.