In the Courts

The Seventh Circuit found that only the government could bring a post-sentencing motion under Rule 35(b). But the court found that the defendant's motion should be treated as a collateral attack on his sentence under 28 U.S.C. ' 2255, the proper vehicle for such a motion. Under this provision, the court found that the government's demand for a waiver needed only be “'rationally related to any legitimate Government end.'” (quoting Wade v. United States, 504 U.S. 181 (1992)). The court found that “[g]etting a defendant to abandon a challenge to his conviction is a legitimate such end, as it secures the conviction and spares the government the time and expense of defending an appeal.”

The court distinguished its prior ruling in Wilson v. United States, 390 F.3d 1003 (7th Cir. 2005). In Wilson, the court had held that the government's condition for filing a Rule 35(b) motion was not “rationally related” where it sought to have the defendant dismiss his civil claims based on two years of allegedly improper imprisonment. The court also found that heading off civil litigation was not “rationally related” to the prosecution. In comparison, Richardson's appeal was sufficiently related to his prosecution to pass muster under 28 U.S.C. ' 2255.

Eighth Circuit Upholds Mortgage Broker's Sentencing Enhancements

The Eighth Circuit Court of Appeals upheld the sentencing court's application of enhancements for the use of sophisticated means and abuse of a relationship of trust under the U.S. Sentencing Guidelines for mortgage broker Edward Arnold Septon. United States v. Septon, 557 F.3d 934, 938 (8th Cir. 2009).

Septon owned and operated First Rate Mortgage Group in Minneapolis. The government alleged that, as part of a scheme to defraud, Septon had his employees submit fraudulent loan applications to banks and mortgage lenders to mask his provision of bridge loans to home buyers for their down payments. He also allegedly used his companies as fictitious employers so borrowers could establish income sources. While Septon collected interest on the bridge loan, and fees and commissions for the loans he brokered, his fraud led to more than $2 million in default losses.

The government charged Septon with conspiracy to commit mail and bank fraud. After reaching plea agreements with his alleged co-conspirators, the government negotiated a plea agreement with Septon, which provided for a potential sentencing range of 51-63 months. The sentencing court, however, found that Septon should be subject to additional two-level enhancements for his use of sophisticated means, and his abuse of a position of trust, raising his sentencing range to 78-97 months. The court imposed a sentence of 70 months and five years' supervised release.

On appeal, Septon claimed that the sentencing court erred in applying these enhancements. The Eighth Circuit disagreed, noting that Septon's situation mirrored that outlined in the Sentencing Commission's examples of “sophisticated means.” This included his use of a variety of business entities to hide bridge loans and the true sources of income of his borrowers, and forgery. The Eighth Circuit also found that the trial court did not err in finding that Septon had abused a position of trust. Although it noted that an arms-length commercial relationship will generally be insufficient to establish such a trust, the relationship between lender and middleman was more than “arms-length” and created a relationship of trust.

Seventh Circuit Reverses Food Misbranding Conviction, Skewers Federal Prosecutor

The Seventh Circuit Court of Appeals reversed the convictions of Charles Farinella based on the government's failure to prove its case. United States v. Farinella, 558 F.3d 695, 702 (7th Cir. 2009).

Farinella had purchased 1.6 million bottles of Henri's Salad Dressing in May 2003, each of which had a “best when puchased by” date in the first half of that year. Before selling the salad dressing on to discount stores, Farinella covered the “best when purchased by” date with a sticker indicating a date approximately one year later, in mid-2004. After a jury trial, Farinella was convicted of wire fraud, and of introducing a misbranded food into interstate commerce with intent to defraud or mislead. He was sentenced to six months' home confinement as part of five years of probation, and a fine of $75,000. He was also required to return the more than $400,000 gain from the transactions. He appealed, claiming primarily that there was insufficient evidence to convict him, and the government cross appealed, claiming that the sentence was too lenient.

The Seventh Circuit, in an opinion by Judge Richard A. Posner, found that the government had fallen woefully short of proving its case. The court determined that the defendant's conduct could only have been illegal if it was “'false and misleading.'” But there was no regulatory definition of the phrase “best when used by.” Further, because the government did not present any evidence of consumers' understanding of “best when purchased by,” “whether the defendant's redating was misleading cannot be determined.” The court outlined a number of potential interpretations of the phrase, any of which it felt would be more likely than the government's suggestion that the phrase was synonymous with “expires on.”

The Court also found serious fault with the prosecution of the case. It noted several alleged misrepresentations by the prosecutor both to the district court and to the jury, and found that the prosecution's expert witness from the Food and Drug Administration (FDA) made improper implications about the applicable legal requirements and should not have been permitted to testify. Judge Posner noted that, even if the court had not found the evidence insufficient, it would have ordered a new trial based solely on the prosecutorial misconduct it identified.

Seventh Circuit Allows Government to Condition Request for Sentence Reduction

The Seventh Circuit approved the government's condition of its motion for the reduction of Ronald J. Richardson's sentence on his agreement to waive his right to appeal. United States v. Richardson , 558 F.3d 680, 683 (7th Cir. 2009). Richardson had been convicted of racketeering, wire fraud, money laundering, and tax evasion after a jury trial. United States v. Ghilarducci , 480 F.3d 542, 543 (7th Cir. 2007). At trial, Richardson was accused of assisting August C. Ghilarducci, president of Westchester Financial Associates, Inc. (WFA), with a scheme in which WFA clients were charged for obtaining letters showing that financial institutions were able to provide short-term leases of large sums of money to the clients. These Confirmation of Funds letters proved worthless and left WFA clients with huge losses. The court sentenced Richardson to 40 months in prison.

After his sentencing, Richardson assisted the government with an unrelated prosecution. As a result, the government agreed to move for a 15% reduction in Richardson's sentence, if he agreed to forego his pending appeal. Richardson refused and filed his own motion ' also under Federal Rule of Criminal Procedure 35(b) ' claiming that the government should have filed a motion on his behalf. The district court dismissed Richardson's motion and he appealed.

The Seventh Circuit found that only the government could bring a post-sentencing motion under Rule 35(b). But the court found that the defendant's motion should be treated as a collateral attack on his sentence under 28 U.S.C. ' 2255, the proper vehicle for such a motion. Under this provision, the court found that the government's demand for a waiver needed only be “'rationally related to any legitimate Government end.'” (quoting W ade v. United States , 504 U.S. 181 (1992)). The court found that “[g]etting a defendant to abandon a challenge to his conviction is a legitimate such end, as it secures the conviction and spares the government the time and expense of defending an appeal.”

The court distinguished its prior ruling in Wilson v. United States , 390 F.3d 1003 (7th Cir. 2005). In Wilson, the court had held that the government's condition for filing a Rule 35(b) motion was not “rationally related” where it sought to have the defendant dismiss his civil claims based on two years of allegedly improper imprisonment. The court also found that heading off civil litigation was not “rationally related” to the prosecution. In comparison, Richardson's appeal was sufficiently related to his prosecution to pass muster under 28 U.S.C. ' 2255.

Eighth Circuit Upholds Mortgage Broker's Sentencing Enhancements

The Eighth Circuit Court of Appeals upheld the sentencing court's application of enhancements for the use of sophisticated means and abuse of a relationship of trust under the U.S. Sentencing Guidelines for mortgage broker Edward Arnold Septon. United States v. Septon , 557 F.3d 934, 938 (8th Cir. 2009).

Septon owned and operated First Rate Mortgage Group in Minneapolis. The government alleged that, as part of a scheme to defraud, Septon had his employees submit fraudulent loan applications to banks and mortgage lenders to mask his provision of bridge loans to home buyers for their down payments. He also allegedly used his companies as fictitious employers so borrowers could establish income sources. While Septon collected interest on the bridge loan, and fees and commissions for the loans he brokered, his fraud led to more than $2 million in default losses.

The government charged Septon with conspiracy to commit mail and bank fraud. After reaching plea agreements with his alleged co-conspirators, the government negotiated a plea agreement with Septon, which provided for a potential sentencing range of 51-63 months. The sentencing court, however, found that Septon should be subject to additional two-level enhancements for his use of sophisticated means, and his abuse of a position of trust, raising his sentencing range to 78-97 months. The court imposed a sentence of 70 months and five years' supervised release.

On appeal, Septon claimed that the sentencing court erred in applying these enhancements. The Eighth Circuit disagreed, noting that Septon's situation mirrored that outlined in the Sentencing Commission's examples of “sophisticated means.” This included his use of a variety of business entities to hide bridge loans and the true sources of income of his borrowers, and forgery. The Eighth Circuit also found that the trial court did not err in finding that Septon had abused a position of trust. Although it noted that an arms-length commercial relationship will generally be insufficient to establish such a trust, the relationship between lender and middleman was more than “arms-length” and created a relationship of trust.

Seventh Circuit Reverses Food Misbranding Conviction, Skewers Federal Prosecutor

The Seventh Circuit Court of Appeals reversed the convictions of Charles Farinella based on the government's failure to prove its case. United States v. Farinella , 558 F.3d 695, 702 (7th Cir. 2009).

Farinella had purchased 1.6 million bottles of Henri's Salad Dressing in May 2003, each of which had a “best when puchased by” date in the first half of that year. Before selling the salad dressing on to discount stores, Farinella covered the “best when purchased by” date with a sticker indicating a date approximately one year later, in mid-2004. After a jury trial, Farinella was convicted of wire fraud, and of introducing a misbranded food into interstate commerce with intent to defraud or mislead. He was sentenced to six months' home confinement as part of five years of probation, and a fine of $75,000. He was also required to return the more than $400,000 gain from the transactions. He appealed, claiming primarily that there was insufficient evidence to convict him, and the government cross appealed, claiming that the sentence was too lenient.

The Seventh Circuit, in an opinion by Judge Richard A. Posner, found that the government had fallen woefully short of proving its case. The court determined that the defendant's conduct could only have been illegal if it was “'false and misleading.'” But there was no regulatory definition of the phrase “best when used by.” Further, because the government did not present any evidence of consumers' understanding of “best when purchased by,” “whether the defendant's redating was misleading cannot be determined.” The court outlined a number of potential interpretations of the phrase, any of which it felt would be more likely than the government's suggestion that the phrase was synonymous with “expires on.”

The Court also found serious fault with the prosecution of the case. It noted several alleged misrepresentations by the prosecutor both to the district court and to the jury, and found that the prosecution's expert witness from the Food and Drug Administration (FDA) made improper implications about the applicable legal requirements and should not have been permitted to testify. Judge Posner noted that, even if the court had not found the evidence insufficient, it would have ordered a new trial based solely on the prosecutorial misconduct it identified.