951 F.

2d 521
60 USLW 2403

UNITED STATES of America

v.
Larry KOPP, Appellant.
No. 91-5453.

United States Court of Appeals,

Third Circuit.
Argued Sept. 19, 1991.
Decided Dec. 4, 1991.
As Amended Feb. 18, 1992.
Order on Denial of Rehearing and
Rehearing En Banc Feb. 18, 1992.

James A. Plaisted (argued), Walter, Sondak, Berkeley & Brogan, P.A.,

Roseland, N.J., for appellant.
Michael Chertoff, U.S. Atty., Daniel J. Gibbons (argued), Asst. U.S. Atty.,
Newark, N.J., for appellee.
Before BECKER and HUTCHINSON, Circuit Judges, and FULLAM,
District Judge.*
OPINION OF THE COURT
BECKER, Circuit Judge.

Defendant Larry Kopp pled guilty to procuring a $13.75 million bank loan by
fraudulent misrepresentations, in violation of 18 U.S.C. 1344 (1988)
(subsequently amended). The district court for the District of New Jersey
sentenced him to a term of 33 months in prison. In calculating the sentence
under United States Sentencing Guideline ("U.S.S.G.") 2F1.1, the district
court had to determine, as a specific offense characteristic, the amount of the
"loss." The defendant argued that the "loss" was zero (and therefore that no
offense level increase was necessary) on the following grounds: (1) the bank's
actual loss was nil because the bank later sold the security for the loan for more

than the loan balance; (2) even if the bank did incur an out-of-pocket loss, such
loss resulted from misconduct by the bank and the defendant's nephew David
Kopp, thus the defendant was not responsible for any actual loss; and (3) the
defendant did not intend to inflict any loss on the bank. The court rejected the
defendant's position and also declined to accept the probation officer's
calculation that the bank's actual loss was only $3.4 million (an estimate which
also took into account operating expenses, lost interest, and the cost of a lowinterest loan to the new purchaser). Instead, the court agreed with the
government that the "loss" was the amount that the defendant fraudulently
obtained (the full $13.75 million face value of the loan), thereby increasing the
offense level by eleven levels and the applicable sentence range to 30-37
months.
2

The defendant's appeal from the judgment of sentence requires us to decide

how to apply the fraud guideline in this context, a question on which other
circuits have split. For the reasons that follow, we conclude that the district
court erred in fixing the "loss" as the face value of the loan. Rather, we hold
that the district court should have calculated the "loss" as actual loss,
substituting intended or probable loss if either amount was higher and
determinable. In our view, the court's error stemmed in part from its failure to
recognize fundamental differences between theft and fraud crimes, differences
which the sentencing guidelines covering the two types of offenses take into
account. We further hold that the guideline "loss" should not be reduced simply
because the bank or David Kopp may have augmented it. When sentencing, the
district court may, however, depart downward if any such augmentation caused
the properly calculated "loss" to overstate the seriousness of the offense.
Correspondingly, if the court finds that the "loss" understates the seriousness of
the offense (which might be the case if actual and intended loss were zero and
the risk of loss were significant), it may depart upward, so long as the sentence
does not exceed the statutory maximum, in this case five years' imprisonment.1
Because the district court made no findings on actual or intended loss, we will
vacate the judgment of sentence and remand for resentencing. That court
remains free not only to recalculate the "loss," but also to reevaluate other facts
pertinent to its decision whether to depart from the guideline range.

The defendant also raises several other issues. He objects to added offense
levels for more than minimal planning and for a supervisory role, and he
complains that the district court should have granted him an offense level
reduction for minor participation. We find these arguments without merit. He
also alleges that the district court improperly refused to depart downward from
the guideline range based on a misconception of its legal ability to do so.
Because the district court is free to revisit the departure issues on remand, we

need not reach that issue.

I. FACTS AND PROCEDURAL HISTORY
A. The Offense
4

In the early 1980s, the defendant and his brother, Marvin Kopp, began a real
estate development business, which they operated through various corporations
and partnerships. The seed capital came largely from the family of Barbara
Kopp, the defendant's wife. In November 1984, Marvin Kopp died, and, as the
business faced ever more severe financial problems, disputes arose between the
defendant on one side and Marvin Kopp's widow Judith Kopp and her son
David Kopp on the other.2 By the spring of 1987, David Kopp had become the
managing partner, although the defendant remained involved. Financial
difficulties, however, continued, even though the Kopps sank still more of their
own funds into the partnerships.

In August 1987, the Kopp partnership began to negotiate with Ensign Bank,
FSB ("the bank") for a $14 million loan, $12.3 million of which was necessary
to refinance a shopping mall owned by one of the real estate partnerships. The
refinancing was apparently required because an earlier lender, having
discovered that the Kopps had obtained a second mortgage on the property
without permission, was about to declare a default. To induce the bank to make
the loan, Stuart Sherer, the Kopp partnership's office manager, prepared and
signed false leases and estoppel letters 3 that inflated the true amount of rental
income the shopping center was then generating. The defendant was aware of
the fraudulent inducement of the bank loan and, Sherer claims, personally
directed the forgeries. The defendant also personally certified two rent rolls he
knew to be false. The misrepresentations suggested that the shopping center
was fully occupied and that the rental income stream would be sufficient to
cover the mortgage payments on the loan, neither of which was true.

Relying on the misrepresentations, the bank loaned the Kopp partnership $13
million in December 1987 and $750,000 more in January 1988. Apparently the
debt-service ratio was insufficient to collect the remaining $250,000 of the $14
million loan commitment. To obtain the first installment, Sherer, with the
defendant's knowledge, submitted five forged leases and twenty-one forged
estoppel letters, along with three more leases that the partners knew would be
broken by tenants. To obtain the second installment, Sherer further submitted a
lease that overstated the rent due, as well as a new forged estoppel letter and an
updated fraudulent rent roll.

B. The Default and the Bank's Actual Loss

7

The loan went into default in February 1988: no payments were made after the
second loan installment was received. The defendant blames the failure to
repay in part on David Kopp's diversion of partnership money and his failure to
collect all amounts receivable. The government doubts that the defendant ever
intended that the loan be repaid. In any event, the bank demanded and received
a deed in lieu of foreclosure and eventually sold the property for $14.5 million,
$750,000 more than the face value of the loan. The bank nonetheless calculated
that it actually lost approximately $3.4 million overall, due to lost interest ($1.5
million), the bank's operating expenses when taking over the property ($0.4
million), and the cost of a low-interest loan to the new purchaser ($2.3 million).

The defendant, however, contends that the $3.4 million actual loss estimate was
overstated and that any actual loss was a result of misconduct by David Kopp
and bank officer Brian Maloney. He called a real estate appraiser, who testified
that the value of the foreclosed property was at least $17.5 million, $3 million
more than the sale price. He also introduced evidence that the lower sale price
and a linked low-interest loan were due to an unethical "sweetheart" deal
between the bank (in the person of Maloney) and David Kopp. The bank
wanted control over the shopping center more quickly, so sought a deed from
both Kopps in lieu of foreclosure. The defendant alleges that to obtain rapid
title, Maloney secretly agreed to steer the resale to David Kopp's friend Clifford
Streit, who in turn would give David Kopp back a 25% interest in the
property.4 The defendant claims that he was trying to arrange a profitable sale
to third parties at that time but consented to giving the bank the deed when
Maloney falsely told him there would be no criminal referral if he agreed.
Pursuant to the secret exclusive option deal, the bank sold the property to Streit
and his hidden partner David Kopp for below-market value. This
underhandedness, the defendant continues, also led to an unnecessary lowinterest loan, with the result that the bank's loss, if any, was inflated.

The defendant also claims that the actual loss figure of $3.4 million was
improperly calculated, even given the way the resale took place. He argues that
Maloney, who made that calculation, had an incentive to distort it because of
Maloney's own misconduct. Moreover, he contends, the bank's own remaining
records5 show that the bank recorded an operating surplus on the property, not a
$400,000 deficit, and fail to support the claimed $1.5 million in lost interest on
the bad loan. Finally, the defendant asserts that the operating surplus would
have been higher but for the bank's failure to credit rents received in June and
July, 1988 and the bank's payment of $15,000 to the defendant and his wife for
their equity interest. In short, the defendant claims that if the resale had not

been tainted by misconduct, the bank would have profited, and that even as
events transpired, the bank's actual loss was far less than $3.4 million.
C. The Criminal Proceedings
10

The federal authorities discovered the fraud in May 1988, when David Kopp
reported the offense, admitted his complicity, and agreed to cooperate in
prosecuting Stuart Sherer and his uncle, the defendant. David Kopp began
secretly to record his conversations with the other conspirators. Confronted
with the recordings, Sherer later agreed to cooperate and record additional
conversations with the defendant. On August 8, 1989, the defendant was
indicted for, among other things, one count of bank fraud under 18 U.S.C.
1344 and one count of conspiracy to commit bank fraud. On June 11, 1990,
under a plea bargain, the defendant pled guilty to those counts; the remaining
ten counts, five of which related to other alleged crimes, were dropped.

11

The U.S. Probation Office submitted a Presentence Investigation Report on

September 10, 1990, which adopted the bank's estimate of $3.4 million in outof-pocket loss as the "loss" for purposes of U.S.S.G. 2F1.1, the applicable
sentencing guideline. Both parties objected. The government claimed that
because the bank would not have made the loan at all had it known the truth,
the defendant fraudulently obtained $13.75 million, which was therefore the
proper measure of the "loss."6 The defendant argued, as discussed above, that
the "loss" was zero. The district court held hearings on the defendant's
objections on October 25 and November 2 and 5, 1990, but ruled on April 30,
1991, that the full $13.75 million the defendant put at risk was the appropriate
measure of loss. Hence an increase of eleven offense levels was required under
original U.S.S.G. 2F1.1 because the "loss" exceeded $5 million.7 On May 17,
1991, the district court sentenced the defendant to 33 months in prison (roughly
in the middle of the guideline range) for the reasons stated in its April 30, 1991
opinion. The defendant filed a timely appeal.

12

The impact of the challenged ruling is significant. Because the defendant had
no prior criminal record, if the "loss" was zero (as he claims), the sentencing
range would drop from the 30-37 months that the district court considered to a
range of 2-8 months. If the district court also found that no upward departure
was warranted, it might have elected to impose probation conditioned on a
combination of community confinement, home detention or intermittent
confinement under U.S.S.G. 5B1.1 and 5C1.1(c), rather than continuous
incarceration in prison. For this reason, the defendant sought bail pending
appeal from the district court. The district court agreed that the defendant was
not dangerous, was unlikely to flee, and that the grounds for appeal were

substantial. It stated that if this court did reverse, the probable reduction would
be eleven levels, leaving the sentence range at 2-8 months. It therefore ordered
the defendant to begin serving an eight-month sentence on July 8, 1991, noting
its inclination to impose the maximum in that range if resentencing proved
necessary. It further ordered that bail pending appeal would be granted only if
no decision from this court came down in eight months.
13

The defendant then sought bail pending appeal from this court. A motions
panel denied that request without prejudice to reconsideration after hearing the
merits. After hearing oral argument and anticipating the probable outcome on
the merits, we issued an order granting the defendant bail pending our final
decision and eventual resentencing.

II. DEFINITION OF "LOSS" IN THE FRAUD GUIDELINE

14
A. Analysis of U.S.S.G. 2F1.1 as It Was in Effect at Sentencing
15
16

The guideline in effect here is a combination of the fraud guideline in effect at

the time of sentencing and the original fraud guideline in effect at the time of
the crime. As a general rule, sentencing courts must apply the guidelines in
effect at the time of sentencing, not the time of the crime. See 18 U.S.C.A.
3553(a)(4), (5) (West 1985 & Supp 1991); United States v. Cianscewski, 894
F.2d 74, 77 n. 6 (3d Cir.1990). But where such retroactivity results in harsher
penalties, Ex Post Facto Clause problems arise, and courts must apply the
earlier version. See Miller v. Florida, 482 U.S. 423, 107 S.Ct. 2446, 96 L.Ed.2d
351 (1987). See also United States v. Underwood, 938 F.2d 1086, 1090 (10th
Cir.1991); United States v. Morrow, 925 F.2d 779, 782 (4th Cir.1991). We
consequently review the district court's decision for consistency with the
guidelines in effect on May 17, 1991, the date of sentencing, except where
amendments since the time of the crime would yield a harsher result.

17

The version of the fraud guideline, U.S.S.G. 2F1.1(b)(1), that is in effect here
reads:

If the loss exceeded $2,000, increase the offense level as follows:

18
Loss
(A) $2,000 or less
...
(K) $2,000,001--$5,000,000
(L) over $5,000,000

19

Increase in Level
no increase
add 10
add 118

As originally written, U.S.S.G. 2F1.1(b)(1) directed the sentencing

As originally written, U.S.S.G. 2F1.1(b)(1) directed the sentencing

court to increase the offense level above the base offense level of six
according to the amount of "estimated, probable, or intended loss." But
effective June 15, 1988, the Commission amended the text of U.S.S.G.
2F1.1(b)(1) to delete "estimated, probable, or intended" immediately before
"loss." United States Sentencing Commission, Guidelines Manual Appendix C
10
amendmnt 30) (Nov.1991) ("1991 Guidelines Manual Appendix C "). The
Commission described the amendment as a clarification, id., and on its face
the change was not necessarily substantive. Because the official Commentary
to U.S.S.G. 2F1.1 retained its original discussion of types of losses
includng actual, estimated, probable, and intended losses), we agree with
the Ninth Circuit that this portion of the amendment was editorial. See
United States v. Wilson, 900 F.2d 1350, 1355 (9th Cir.1990). Applying it here
therefore raises no ex post facto concerns.
FNBNFN On the other hand, effective November 1, 1989, the Commission
revised the
"loss" table for "losses" over $40,000, such that for the same "loss" amount
the offense level is greater. See 1991 Guidelines Manual Appendix C at 70"71
amendmnt 154). This change was clearly substantive, and applying the
stricter punishments retroactively would violate the Ex Post Facto Clause.
Therefore, as both parties agree, the original, unamended table applies.
FNBNFN One other presentencing change to the guideline is also inapplicable
here
because of ex post facto problems. Effective November 1, 1990, as a result of

a statutory directive, fraud "substantially jeopardiz[ing] the safety and

soundness of a financial institution" yields an additional four-level
increase, at minimum to level 24. See U.S.S.G. 2F1.1(b)(6); 1991 Guidelines
Manual Appendix C at 146"47 (amendment 317). This amendment too was
obviously
not a clarification of ambiguous earlier language, and applying its stricter
punishment retroactively would violate the Ex Post Facto Clause. Neither
party suggests that it applies here.
FNBNFN Finally, the Commission also amended U.S.S.G. 2F1.1(b)(2)"(5)
effective
November 1, 1989, but those changes are irrelevant to this appeal. See 1991
Guidelines Manual Appendix C at 71"72 (amendment 156). We will discuss
relevant amendments to the official Commentary as we discuss each application
note.
The official Commentary provides some further guidance as to the calculation
of a "loss" and the difference between various types of losses. The version of
Application Note 7 in effect at sentencing9read:
Valuation of loss is discussed in the Commentary to 2B1.1 (Larceny,
Embezzlement, and Other Forms of Theft). In keeping with the Commission's
policy on attempts, if a probable or intended loss that the defendant was
attempting to inflict can be determined, that figure would be used if it was
larger than the actual loss. For example, if the fraud consisted of attempting to
sell $40,000 in worthless securities, or representing that a forged check for
$40,000 was genuine, the "loss" would be treated as $40,000 for purposes of
this guideline.
Application Note 8 explained the process of estimating a "loss":
The amount of loss need not be precise. The court is not expected to identify
each victim and the loss he suffered to arrive at an exact figure. The court need
only make a reasonable estimate of the range of loss, given the available

information. The estimate may be based on the approximate number of victims

and an estimate of the average loss to each victim, or on more general factors,
such as the nature or duration of the fraud and the revenues generated by
similar operations.... The offender's gross gain from committing the fraud is an
alternative estimate that ordinarily will understate the loss.
The Commentary also discussed possible upward or downward departures.
Application Note 9 provided that where "[d]ollar loss ... does not fully capture
the harmfulness and seriousness of the conduct ... an upward departure may be
warranted." In contrast, Application Note 10 10discussed possible downward
departures:
In a few instances, the total dollar loss that results from the offense may
overstate its seriousness. Such situations typically occur when a
misrepresentation is of limited materiality or is not the sole cause of the loss.
Examples would include understating debts to a limited degree in order to
obtain a substantial loan which the defendant genuinely expected to repay.... In
such instances, a downward departure may be warranted.
As have most courts, we begin our interpretation of "loss" under the fraud
guideline with Application Note 7's cross-reference to the theft guideline
Commentary. At the time of sentencing, Application Note 2 to U.S.S.G.
2B1.1 (the theft guideline) read:
"Loss" means the value of the property taken, damaged, or destroyed.
Ordinarily, when property is taken or destroyed the loss is the fair market value
of the particular property at issue. Where the market value is difficult to
ascertain or inadequate to measure harm to the victim, the court may measure
loss in some other way, such as reasonable replacement cost to the victim.... In
cases of partially completed conduct, the loss is to be determined in accordance
with the provisions of 2X1.1 (Attempt, Solicitation, or Conspiracy). E.g., in
the case of the theft of a government check or money order, loss refers to the
loss that would have occurred if the check or money order had been cashed.
Similarly, if a defendant is apprehended in the process of taking a vehicle, the
loss refers to the value of the vehicle even if the vehicle is recovered
immediately.11
The Background to U.S.S.G. 2B1.1 continued: "The value of the property
taken plays an important role in determining sentences for theft offenses,
because it is an indicator of both the harm to the victim and the gain to the
defendant."

The government seizes upon the first sentence of Application Note 2 to the theft
guideline, which equates the "loss" with the value "taken." The government
claims that the defendant "took" $13.75 million that was not rightfully his,
because, as proved at the hearing, the bank would have lent him nothing if it
had known the true monetary condition of the shopping center.12Furthermore,
the government correctly notes, under Application Note 2 to the theft guideline,
theft "loss" is not affected by recovery of any of the property stolen. See, for
example, United States v. Chiarelli, 898 F.2d 373, 384 (3d Cir.1990); United
States v. Cianscewski, 894 F.2d 74, 80-81 (3d Cir.1990). The government
therefore concludes that only the defendant's conduct matters to "loss"
calculation, and that the fortuity of recovery and other aspects affecting actual
loss to the victim are irrelevant.
But the analysis is not so simple. Even the theft guideline is not entirely
perpetrator-oriented. The Commentary to U.S.S.G. 2B1.1 focuses
significantly on the victim's loss, as well as the perpetrator's gain. Replacement
cost to the victim may be used to measure theft "loss" where the market value
of the stolen property is difficult to ascertain or inadequate to measure harm to
the victim. And the Background to U.S.S.G. 2B1.1 emphasizes that "loss"
measures both harm to the victim and gain to the defendant.
More basically, however, U.S.S.G. 2B1.1 is, by definition, a theft guideline,
and fraud differs from theft. In this case, for example, the defendant did
fraudulently obtain $13.75 million, but in so doing he simultaneously gave a
mortgage on the property--an obligation that eventually forced him to forfeit
the collateral to the bank. He did not "take" $13.75 million for nothing, as a
thief would. Furthermore, all thefts involve an intent to deprive the victim of
the value of the property taken. As the Seventh Circuit has noted, the same is
not always true for fraud: some fraud involves an intent to walk away with the
full amount fraudulently obtained, while other fraud is committed to obtain a
contract the fraud perpetrator intends to perform. See United States v.
Schneider, 930 F.2d 555, 558 (7th Cir.1991) (noting that a bilking con artist
differs greatly from a contract bidder who misstates its qualifications but
intends to perform).
Mechanical application of the theft guideline in fraud cases would frustrate the
legislative purpose of the guidelines and contravene the specific language of
the Commission. The sentencing guideline system was designed to sentence
similarly situated defendants similarly; basing all fraud sentences on a simple
"amount taken" rule without regard to actual or intended harm would
contravene that purpose. We think it plain that actual harm is generally relevant
to the proper sentence. More importantly, Congress has explicitly said so in 28

U.S.C.A. 994(c)(3) (West Supp.1991), which directs the Commission to take

"the nature and degree of the harm caused by the offense" into account in its
guidelines. See also U.S.S.G. 1B1.3(a)(3) (factors that determine guideline
ranges include actual and intended harm).
Indeed, the fraud guideline does reflect the differences between theft and fraud
and between the types of fraud. Even after the June 15, 1988 amendment, fraud
guideline analysis only begins and does not end with the discussion of "loss" in
the theft guideline. The revised Application Note 7 to U.S.S.G. 2F1.1 does
not say that the definitions of "loss" for theft and fraud crimes are identical, just
that "[v]aluation of loss is discussed in the Commentary to 2B1.1 ..."
(emphasis added). While the calculations under the two guidelines are
essentially consistent, the fraud analysis is slightly (and crucially, here) more
complicated, as a detailed analysis of the entire fraud guideline Commentary
reveals. We part company with several other circuits and join ranks with the
Seventh Circuit largely because we decline to impose an identical analysis for
theft and fraud crimes in all cases. Compare United States v. Brach, 942 F.2d
141, 143 (2d Cir.1991) (applying theft analysis to fraud crime with no
qualification), and United States v. Johnson, 941 F.2d 1102, 1113-15 (10th
Cir.1991) (same), with United States v. Schneider, 930 F.2d 555, 558-59 (7th
Cir.1991) ("simple" but "irrational" to treat all frauds the same, whether or not
the defendant intended to walk away with the face value). See generally Part
II.B at pages 532-34.
The remainder of Application Note 7 to U.S.S.G. 2F1.1 (which was part of
the original Commentary) made a critical distinction between actual, probable,
and intended loss. Under Application Note 7 as in effect here, "if a probable
loss or intended loss ... can be determined, that figure would be used if it was
larger than the actual loss." Consistent with the ordinary meaning of "loss,"
sentencing courts were to use the victim's actual loss as the basic "loss" under
the fraud guideline. But, consistent with the guidelines' overall theory of
culpability for attempts, see U.S.S.G. 2X1.1, courts were to switch to either
"probable" or "intended" loss if either was both reasonably calculable (as
discussed in Application Note 8) and higher. The fraud guideline thus has never
endorsed sentencing based on the worst-case scenario potential loss (here, the
face value of the loan). See also U.S.S.G. 1B1.3 appl. note 4 (fraud guideline
only refers to actual, attempted, or intended harm, hence risk of harm enters
only into the base offense level and the possibility of an upward departure).
This plain reading of Application Note 7 is in fact consistent with the crossreference to the theft guideline. In both theft and fraud cases, the guideline
"loss" turns out to be the higher of the actual loss and the intended loss.

Admittedly, the theft guideline does not state this approach in terms. But in a
theft case, the thief intends to steal whatever he or she takes; the amount taken
is the loss the defendant intended to inflict (even though the defendant may not
have known exactly the value on the market or to the victim of the things
taken). Although the theft guideline does not tell the sentencing court to
compare actual and intended loss, as the fraud guideline Commentary explictly
does, no comparison is necessary. In a theft case, unlike a fraud case, the
amount taken (the intended loss) is always as high or higher than the amount
the victim actually lost (which may be reduced due to fortuitous recovery of the
stolen property).13Our interpretation of the fraud guideline therefore harmonizes
with the approach of the theft guideline.14
Aside from the cross-reference to the theft guideline, the only support in the
fraud guideline for the government's position comes from Application Note 8.
That Note primarily emphasizes that the "loss" need not be estimated with
precision, but the version in effect at the time of sentencing did end with the
statement that "[t]he offender's gross gain from committing the fraud is an
alternative estimate that ordinarily will understate the loss" (emphasis added).15
The government suggests that the "gross gain" here was the $13.75 million that
the defendant obtained but would not have received had he not committed
fraud, and that $13.75 million is an appropriate alternative estimate of the
"loss." Although that interpretation seems sensible, we reject the use of an
alternative estimate when, as here, the true "loss" is measurable. Application
Note 8 primarily addresses "loss" estimation, not the proper definition of "loss,"
which is discussed in Application Note 7.
The government also relies on original Application Note 11, which noted that
"a downward departure may be warranted" when "a misrepresentation is of
limited materiality or is not the sole cause of the loss." Indeed, one example
given is comparable to this case: where a defendant "understat[es] debts to a
limited degree in order to obtain a substantial loan which the defendant
genuinely expect[s] to repay," the court may decide to depart downward. The
district court concluded that the use of "substantial loan" in the Application
Note suggests that the drafters had the full amount of the loan in mind as the
"loss," and to the extent that this "loss" measure was overstated, the court could
depart downward (although it chose not to). We disagree. Application Note 11
discussed downward departures, not the calculation of "loss" in the first
instance. We think that the Commission was emphasizing the defendant's lack
of culpability--his or her "limited degree" of understatement and his or her
intent to repay--as a basis for downward departure, rather than suggesting an
alternative definition of "loss."

The government is correct on one point, however: Application Note 11

definitively rejected adjusting the "loss" itself downward to reflect other causes
beyond the defendant's control. As an example of when the dollar loss may
overstate the seriousness of the offense and hence a downward departure may
be appropriate, Application Note 11 included situations where the
"misrepresentation ... is not the sole cause of the loss." Application Note 11
made it clear that actual loss was how much better off the victim would be but
for the defendant's fraud. To the extent actual loss had other, more proximate
causes, a discretionary downward departure--but not a mandatory "loss"
adjustment--might be appropriate. Here, then, the district court might conclude
that the defendant deserves a downward departure due to misconduct by David
Kopp and Brian Maloney, but the level of the "loss" itself would remain
unaffected.
The foregoing analysis leads to the conclusion that the fraud guideline defines
"loss" primarily as the amount of money the victim has actually ended up
losing at the time of sentencing, not what it could have lost. Under the
guideline in effect at sentencing, the "loss" should have been revised upward to
the amount of loss that the defendant intended to inflict on the victim, or to the
amount of probable loss,16if either intended or probable loss was estimatable and
higher. Before finally adopting this view, however, we will survey the case law
interpreting "loss" calculation under the fraud guideline to see if it affects our
tentative conclusion.
B. The Case Law
One other circuit, the Seventh, is on record with a similar interpretation of
"loss" in fraud cases. United States v. Schneider, 930 F.2d 555 (7th Cir.1991),
involved defendants who procured $142,400 of government contracts, but
submitted fraudulent payment and performance bonds in the process.
Apparently, however, they were the low bidders and would in fact have
performed the contracts, as they had many others. The government claimed that
the "loss" was the $142,400 face amount of the contracts obtained, but the
court disagreed. The court rejected as "irrational" a holding that would apply
the same sentence against a performing contractor who lied on its application as
against "a con artist who intended to winkle $142,400 ... from a senile old
lady." Id. at 559. Instead, the court held that because the Schneiders were the
low bidders the government's only financial "loss" was its expenses in
recontracting, which the government there had failed to prove. We agree with
the Seventh Circuit's analysis and conclusion that the government's theory was
simple, but irrational. The result also has underpinnings in the guideline text
and Commentary themselves, as we have explained above.

To support its conclusion, the Schneider court cited United States v.

Whitehead, 912 F.2d 448 (10th Cir.1990), a case that also supports our earlier
reasoning. There the defendant presented fraudulent documents when renting a
home and obtaining an option to purchase. The home was worth $168,000, and
the government claimed that the whole amount was the "loss." The court
disagreed, reasoning that Whitehead had not yet attempted to purchase the
house itself, and it was uncertain that he would ever succeed in doing so, or that
the full value of the home would be lost if he did. Therefore only the value of
the option ($2,000) counted as the "loss." Id. at 451-52. We certainly agree that
the "loss" was not the $168,000, although we are not certain that even the entire
$2,000 option value was properly considered as "loss."17
We also find persuasive United States v. Hughes, 775 F.Supp. 348
(E.D.Cal.1991). There the defendant conspired to present false loan
applications to buy three homes. Hughes, however, clearly had no intention of
defaulting on the loans. Indeed, Hughes, a male friend, and their female
companions lived in the homes; the payments on two loans were in good
standing, and although the third house was sold in bankruptcy, it was sold at a
profit. The court also found that no actual economic loss had been realized, and
the government could not prove that default was probable or that any future loss
was expected. Discussing U.S.S.G. 2F1.1 and its Commentary in detail, and
rejecting blind application of the theft guideline, the court found that the "loss"
was zero and that no sentence enhancement was required.
The government cites a number of fraud guideline cases that appear to support
its view because they upheld "loss" calculations of the full amount fraudulently
obtained. On closer analysis, however, these cases do not conflict with our
reasoning. For example, in United States v. Wills, 881 F.2d 823 (9th Cir.1989),
the defendant was guilty of credit card fraud. He masterminded a scheme to
take $52,000, but $25,000 from one of the transactions was recovered. The
court summarily (and properly) upheld the "loss" calculation of $52,000,
specifically because the defendant intended to cause a $52,000 loss. Id. at 827.
Similarly, in United States v. Davis, 922 F.2d 1385 (9th Cir.1991), Davis
would call a business with an order and promise to pay by wire transfer. He
would then have someone call the business and pose as a bank officer, saying
that the wire transfer had arrived. He would then receive the goods. In the
particular instance in the case, the actual loss was zero because jewels were
never shipped. The court, however, properly held that the loss was the market
value of the jewels--again specifically because the probable and intended losses
were higher than actual loss. Id. at 1391-92.
The government relies most heavily on United States v. Johnson, 908 F.2d 396

(8th Cir.1990). There Johnson had a poor credit history, so she obtained false
new identification and fraudulently obtained $22,000 in car loans under that
new name. The court held that the full $22,000 was the proper measure of the
"loss," even though the two banks involved eventually recovered most of the
money by repossessing Johnson's cars, saying that "the focus for sentencing
purposes should be on the amount of the possible loss which Johnson attempted
to inflict on the banks." Id. at 398.
The Eighth Circuit's opinion is ambiguous, but it may in fact be consistent with
our approach. Although the court did mention "possible loss," it did so only in
referring to the loss that Johnson attempted (and therefore intended) to inflict.
And in the next sentence, the court referred to Application Note 7's discussion
of "probable or intended loss" as an alternative measure to actual loss. Id. On a
reasonable reading of the case, therefore, the court held that Johnson intended
to commit actions she knew would inflict the full $22,000 loss. See Schneider,
930 F.2d at 559 (reading Johnson as a case where the defendant had no
intention to repay). If so, we agree with the holding, but if Johnson did legally
equate "possible loss" with "probable or intended" loss, we must reject that
linguistic stretch.
In another case also styled United States v. Johnson, 941 F.2d 1102 (10th
Cir.1991), the Tenth Circuit unhesitatingly applied the "value of the property
taken" language from U.S.S.G. 2B1.1 Application Note 2 in remanding a
sentence for mail fraud under U.S.S.G. 2F1.1. Johnson somehow bought
eighteen homes worth over $400,000 from a realty company with no money
down, even though he was only making $1200 each month in salary. He never
made a payment even though he collected $16,000 in rent. The lender
foreclosed, and Johnson was convicted of mail fraud and equity skimming. The
court of appeals agreed with the district court that the "loss" covered both the
value of the real estate and the cash rents, but its entire discussion of "loss"
centered on the Commentary to U.S.S.G. 2B1.1: the real estate was "taken"
and the reacquisition by foreclosure was irrelevant. Id. at 1113-14. The court
remanded only because it was unsure of the fair market value of the real estate
under U.S.S.G. 2B1.1. Id. at 1114-15. The same result could easily (and more
properly) have been reached under the fraud guideline by determining that
Johnson intended to cause such a loss. To the extent the Tenth Circuit believes
that fraud "loss" must be calculated under the theft guideline, we disagree for
the reasons outlined above.
The Second Circuit has also rejected the holding advanced by the defendant
here. In United States v. Brach, 942 F.2d 141 (2d Cir.1991), Brach fraudulently
procured a loan of $250,000 from a town. Upon discovering the fraud, the town

demanded the money back. Brach refused, but after the FBI came, he returned
the money. The Second Circuit upheld the use of the $250,000 face value of
the loan as the "loss," rather than the few days' interest the victim actually lost.
The court relied on the cross-reference to U.S.S.G. 2B1.1 and specifically
declined to treat fraud cases any differently from theft cases. Id. at 143.
According to the court, the "loss" was therefore the amount taken and put at
risk, and Brach's claimed intent to repay the loan and the trivial ultimate harm
to the victim were irrelevant. Id. (also equating "probable" loss with the amount
put at risk). Although the result in Brach may have been correct, we
respectfully decline to follow its reasoning. If the court believed that Brach
intended to steal the whole $250,000 (not simply to borrow it), then the
intended loss was $250,000 and the result was proper. But if Brach intended to
repay the borrowed money--something the opinion declined to address--the
case is more like the present one, and we disagree with the Second Circuit. In
our view, Application Note 7 to U.S.S.G. 2F1.1 straightforwardly requires the
sentencing court to use actual loss in the first instance. Indeed, actual and
intended loss, the two factors that the Second Circuit insisted were irrelevant,
942 F.2d at 143, are the primary proper factors in determining a "loss" under
18 The Post-Sentencing Amendments to U.S.S.G. 2F1.1
the fraud guideline.C.
The Sentencing Commission's recent (postsentencing) elucidation of proper
"loss" calculation in the fraudulent loan procurement context buttresses our
interpretation and that of the case law on which we rely, although we
emphasize that we need not and do not rely upon the postsentencing
amendments as "clarifications" of the fraud guideline in holding as we do. See
also United States v. Ofchinick, 877 F.2d 251, 257 n. 9 (3d Cir.1989) (proposed
amendment purporting to clarify sentencing guideline noted for its support, but
discussion explicitly labeled as not necessary to the result). Technically, the
postsentencing amendments are subsequent legislative history, always a
controversial interpretative tool. See note 9. As subsequent legislative history,
the amendments do not directly apply retrospectively to earlier sentencings, but
they may still have limited relevance as indications of what the guidelines in
effect here meant. We also feel it necessary to discuss the amendments in light
of our ultimate decision to remand: those amendments not posing ex post facto
problems will be in effect at resentencing.
The most recent round of guideline amendments went into effect on November
1, 1991. Of the recent amendments, two address "loss" calculation. The first
responded to section 2507 of the Crime Control Act of 1990, Pub.L. 101-647,
104 Stat. 4789, 4862, reprinted in note following 28 U.S.C.A. 994 (West
Supp.1991), which instructed the Commission to promulgate or amend
guidelines to require an offense level of at least 24 for defendants deriving over

$1 million in "gross receipts" from crimes affecting financial institutions.19The

Commission responded by amending several guidelines, including U.S.S.G.
2F1.1, to increase offense levels by four levels (but at least to level 24) for
defendants deriving over $1 million in gross receipts from their bank crimes.
See 1991 Guidelines Manual Appendix C at 184-85 (amendment 364). Because
the new amendment's effective date postdates the defendant's crime, and it
works a substantive change that could only be detrimental to the defendant, it
obviously cannot apply to him, whether or not he received $1 million in "gross
receipts." But the Commission's use of both "gross receipts" and "loss" in the
same Commentary does suggest that the two terms do not mean the same thing
(to today's Commission, at least), which renders the government's position here
even more dubious. See also United States v. Hughes, 775 F.Supp. at 352
(same reasoning).
Even better evidence that the current Commission does not define "loss" as the
amount fraudulently obtained comes from the other recent amendment to
U.S.S.G. 2F1.1 See 1991 Guidelines Manual Appendix C at 221-24
(amendment 393). After the changes, the relevant portions of Application Note
7 to U.S.S.G. 2F1.1 now read:
Valuation of loss is discussed in the Commentary to 2B1.1 (Larceny,
Embezzlement, and Other Forms of Theft). 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. Frequently, loss in a fraud case will be the
same as in a theft case. For example, if the fraud consisted of selling or
attempting to sell $40,000 in worthless securities, or representing that a forged
check for $40,000 was genuine, the loss would be $40,000.
There are, however, instances where additional factors are to be considered in
determining the loss or intended loss:
.....
(b) Fraudulent Loan Application and Contract Procurement Cases
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.

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

overstate the seriousness of the defendant's conduct. For example, where the
defendant substantially understated his debts to obtain a loan, which he
nevertheless repaid, the loss determined above (zero loss) will tend not to
reflect adequately the risk of loss created by the defendant's conduct.
Conversely, a defendant may understate his debts to a limited degree to obtain a
loan (e.g., to expand a grain export business), which he genuinely expected to
repay and for which he would have qualified at a higher interest rate had he
made truthful disclosure, but he is unable to repay the loan because of some
unfor[e]seen event (e.g., an embargo imposed on grain exports) which would
have caused a default in any event. In such a case the loss determined above
may overstate the seriousness of the defendant's conduct.
Application Note 7 still cross-references the theft guideline Commentary, but
notes that "[f]requently, loss in a fraud case will be the same as in a theft case"
(emphasis added). Thus the Commission implicitly recognized that
occasionally the definitions will differ. Moreover, although Application Note 7
no longer discusses actual, probable, and intended loss in precisely the same
way, a "loss" is generally still to be calculated as we concluded above: actual
loss incurred at the time of sentencing remains the basic "loss," and intended
(attempted) loss is substituted if greater.20More tellingly, new subheading (b) in
Application Note 7 specifically addresses fraudulent loan application cases and
supports our earlier analysis entirely. It plainly states that where, as here, the
defendant fraudulently misstates its assets, the "loss" is the victim's actual loss-unpaid principal and interest less the amount the lender has recovered (or can
expect to recover) from the loan collateral. As the revised Application Note
suggests, that "loss" calculation may well over- or understate the seriousness of
the offense, but the proper solution under former Application Notes 9 and 10
and current Application Note 10 is to depart upward or downward from the
sentencing range.
We accordingly find nothing in the subsequent legislative history that causes us
to doubt our analysis under the original guidelines themselves. Indeed, to the
limited extent that we consider the subsequent amendments to U.S.S.G. 2F1.1
at all, our earlier conclusions are only confirmed.
D. Summary
In sum, a close examination of the fraud guideline and its entire official
Commentary requires the conclusion that the district court erred here by
equating the "loss" with the full amount of the loan. Although the courts have
split on how to define fraud "loss," we find the logic in Schneider and Hughes

compelling, and we believe that the contrary case law relies on a flawed
equation of fraud and theft crimes. From the recent amendments to U.S.S.G.
2F1.1, it appears that the Sentencing Commission also agrees. We therefore
confirm our tentative view above and hold that fraud "loss" is, in the first
instance, the amount of money the victim has actually lost (estimated at the
time of sentencing), not the potential loss as measured at the time of the crime.
However, the "loss" should be revised upward to the loss that the defendant
intended to inflict, if that amount is higher than actual loss.
The record in this case requires vacatur of the judgment of sentence and remand
to the district court for resentencing. The district court made no findings on
actual or intended loss, and the parties contest both amounts. As discussed
above, the government claims that actual loss was at least $3.4 million, while
the defendant claims that the bank's records cannot support an actual loss of
anywhere near that amount. Also, the defendant claims he intended to repay the
loan and so intended no loss, while the government (somewhat belatedly)
contends that the defendant's failure to make any payments after receiving the
second loan installment belies his claim. It is the district court's province to
resolve these questions, and we leave it to that court on remand to decide
whether further hearings on these issues are necessary.21We must also remand
because only the district court is authorized to determine whether the properly
calculated "loss" significantly over- or understates the gravity of the crime, and
therefore whether departure from the normal sentencing range is appropriate.22
III. CONCLUSION
The district court erred in concluding that a "loss" under the fraud sentencing
guideline, U.S.S.G. 2F1.1, is always the amount fraudulently obtained,
regardless of intended or actual loss. We will therefore vacate the judgment of
sentence and remand for resentencing consistent with this opinion.SUR
PETITION FOR PANEL REHEARING WITH SUGGESTION FOR
REHEARING IN BANC
Feb. 18, 1992.
PRESENT: SLOVITER, Chief Judge, BECKER, STAPLETON,
MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN,
NYGAARD, ALITO, ROTH, Circuit Judges and FULLAM, District Judge.*
The petition for rehearing filed by Appellant, having been submitted to the
judges who participated in the decision of this Court and to all the other

available circuit judges in active service, and no judge who concurred in the
decision having asked for rehearing, and a majority of the circuit judges of the
circuit in regular active service not having voted for rehearing by the court in
banc, the petition for rehearing is DENIED.
*

The Honorable John P. Fullam, Senior United States District Judge for the
Eastern District of Pennsylvania, sitting by designation

The defendant's offense included conduct that occurred between November 15,
1987 and January 31, 1988. The bank fraud statute, 18 U.S.C. 1344, has since
been revised to raise the maximum sentence from 5 years or $10,000 to 30
years or $1 million, see 18 U.S.C.A. 1344 (West Supp. 1991), but those
changes do not apply to the defendant here

For example, Judith Kopp accused the defendant of preparing a fraudulent

power of attorney and of forging the signatures of Judith Kopp and her children
to obtain $1.3 million in loans secured by property in which Judith Kopp and
her children were partners. The grand jury returned charges against the
defendant as a result of these allegations (as well as certain other alleged crimes
related to his real estate dealings). Those charges, which had earlier nearly led
to a civil suit and which the defendant still vigorously denies, were dismissed as
part of the bargain surrounding the defendant's guilty plea to the fraud charge
discussed in this opinion, and they were not taken into consideration in his
sentencing

Estoppel letters are letters that tenants sign that serve to estop them from later
disputing the amount of rent they owe under their leases

According to the defendant, Maloney misled the bank's board of directors into
believing that Clifford Streit's partner was one Dan Crown, rather than David
Kopp

Apparently some of the bank's income/expense records, including some that

Maloney claims to have relied on, were "purged" and are no longer available

It is unclear how much of the defendant's version the government contests. The
Presentence Investigation Report adopted the bank's claimed out-of-pocket loss
of $3.4 million as the "loss." Under the government's theory, which the district
court endorsed, the "loss" was the face value of the loan (the $13.75 million
received as a result of the fraud). The government (at least on appeal) therefore
had little reason to challenge the defendant's claims that the victim's actual loss
was miscalculated or overstated because of misfeasance by others. The
government did suggest that to the extent the bank's out-of-pocket loss was
misestimated, the $3.4 million figure is too low

The base level for offenses of fraud and deceit is six. U.S.S.G. 2F1.1(a). The
defendant received two two-level increases for his supervisory role and more
than minimal planning, and he received a two-level decrease for acceptance of
responsibility. He was denied a two-level decrease for minor participation.
Although those rulings were also appealed, see note 21, the primary issue on
this appeal is the 11-level increase. The court also denied the government's
request for an upward departure because the "loss" substantially exceeded $5
million, but that denial is not contested on this appeal

Application Note 7 has since been amended effective November 1, 1991, well
after the sentencing date. See 1991 Guidelines Manual Appendix C at 221-23
(amendment 393). The revised and expanded version has a specific discussion
of "loss" calculation in cases of fraudulently induced bank loans. Resolution of
this case would be much simpler if the new version applied not only
prospectively but also retroactively (in the sense of suggesting the
Commission's intent in the earlier version). Although the use of such
"subsequent legislative history" to interpret earlier legislative acts is common,
it is also extremely controversial and under increasing criticism from the
Supreme Court. See, for example, Chapman v. United States, --- U.S. ----, 111
S.Ct. 1919, 1927 n. 4, 114 L.Ed.2d 524 (1991); Sullivan v. Finkelstein, 496
U.S. 617, 110 S.Ct. 2658, 2667, 110 L.Ed.2d 563 (Scalia concurring in part).
Accordingly, out of caution, we will first interpret the original guideline
without regard to the subsequent amendments and only then, in Part II.C, turn
to the amendments, which in fact confirm our original interpretation. We
therefore need not address the subtle and difficult question of when resort to
subsequent legislative history is proper

10

Original Application Note 10 cautioned that "[t]he adjustments for loss do not
distinguish frauds involving losses greater than $5,000,000. Departure above
the applicable guideline may be warranted if the loss substantially exceeds that
amount." See 1991 Guidelines Manual Appendix C at 72 (amendment 156).
This Note was deleted when the original "loss" table was revised and what were
originally Application Notes 11-14 were renumbered as 10-13. Id. Original
Application Note 10 still applies here because the original "loss" table is in
effect, but because the district court declined to depart upward on this ground, it
is irrelevant in this appeal. Because there will be no ambiguity, and for
convenience and comparability to other courts' decisions, we will refer to the
application notes as numbered at the time of sentencing

11

The fraud guideline's cross-reference to the theft guideline and the theft
guideline's expanded discussion of "loss" both took effect on June 15, 1988,
after the crime in this case. We discuss (and dismiss) possible ex post facto
concerns about that amendment in note 14. In brief, we conclude that the cross-

reference did not change fraud "loss" calculation, even though it appears to at
first glance
It is also worth noting that the Commission has recently revised Application
Note 2 to U.S.S.G. 2B1.1 effective November 1, 1991. See 1991 Guidelines
Manual Appendix C at 221 (amendment 393). Those changes appear to be
editorial only.
12

The government's theory is not that the face value of a fraudulently obtained
loan is always the proper measure of the "loss." Rather, it argues that the face
value is the proper measure where, as here, the government has proved that
absent the fraud, the bank would have lent no money. Presumably, under the
government's theory, if (knowing the truth) the bank would have lent the Kopp
partnership, say, $5 million, then the "loss" would have been the extra $8.75
million ($13.75 million - $5 million) fraudulently obtained. It is not clear how
the government would define a "loss" where a bank would have lent the fraud
perpetrator the same amount, but at a higher interest rate
In this case, the government argues that had the bank known the true income
from the property it would only have lent at most $10.2 million, based solely on
standard debt-service ratios. In actuality, however, the bank would have refused
to lend at all, says the government, because of pre-existing liens far greater
than $10.2 million and because of insufficient estoppel letters and other
problems with vacancies, maintenance, etc. The district court found that the
evidence supported these conclusions.

13

We can imagine one situation where our reconciliation of U.S.S.G. 2B1.1

and 2F1.1 might fail, however. U.S.S.G. 2B1.1 also covers embezzlement
crimes. Conceivably, an embezzler might secret away $10,000 in office funds
to invest in a reputable stock, truly intending and hoping to return the amount
taken (plus interest) after selling the stock. Under a literal reading of U.S.S.G.
2B1.1, "loss" is the "amount taken," $10,000 in our example. In that case
intended loss would be zero, and actual loss might also be zero. But if U.S.S.G.
2F1.1 applied (it would not), under our interpretation "loss" would be zero,
and no sentence enhancement would apply. However, embezzlement, unlike
ordinary theft or fraud, involves not only a taking but also an action akin to a
breach of fiduciary duty, which might justify always using the amount taken as
"loss." In any event, our general point remains that in many cases the
approaches of the fraud and theft guidelines are consistent. The cross-reference
between the fraud and theft guidelines therefore makes sense, even if "loss"
calculation is not identical in every case

14

In any event, it is uncontestable that on a plain reading of the original

Application Note 7 (without the cross-reference), fraud "loss" was to be

calculated in the manner suggested here. The Commission added the crossreference to the theft guideline and its simultaneously updated Commentary on
"loss" calculation as part of the same June 15, 1988 amendment that deleted
"estimated, probable, or intended" from the text of the fraud guideline. See
1991 Guideline Manual Appendix C at 5, 10 (amendments 7, 30). Thus the
cross-reference was added after the criminal conduct here. If the amendment
substantively changed the definition of fraud guideline "loss," as would be the
case if the government were correct, we would have an ex post facto problem in
this case
We think that the amendment did not change fraud "loss" calculation, and
hence the ex post facto concern disappears. The Commission's stated purpose in
amending the fraud guideline was to "clarify the guideline in respect to the
determination of loss." Id. at 10 (amendment 30). We find no reason to doubt
that explanation, although we fear that the Commission only succeeded in
confusing courts further. See Part II.B at pages 532-34 (discussing the case law
interpreting the revised guideline). In our view, both before and after the
amendment, courts imposing sentences for fraud were supposed to use actual
loss, substituting "probable or intended loss" where higher and measurable.
15

Interestingly, the Sentencing Commission has recently amended Application

Note 8 effective November 1, 1991. See 1991 Guidelines Manual Appendix C
at 221, 223 (amendment 393). Although the reference to "an alternative
estimate that ordinarily will underestimate the loss" remains, the troublesome
phrase "offender's gross gain" has been replaced by the equally ambiguous
"offender's gain."
Separately, but related to the "gross gain" issue, the Commission has followed
Congress's statutory instruction to raise the penalties for major bank fraud,
specifically including cases where the defendant reaped more than $1,000,000
in "gross receipts" from the offense. See id. at 184-85 (amendment 364). That
amendment is subsequent legislative history because it took effect after the
sentencing here. We discuss its implications below. See Part II.C at pages 53436.

16

"Probable loss" itself is an ambiguous term. "Probable loss" could be measured

as of the time of the crime. This measure would make sense in a case where a
sizeable loss was objectively predictable at the time, but the crime was
interrupted and actual loss was minimal. On the other hand, the intended loss
measure handles the problem of fortuitous recoveries that reduce actual loss.
The "probable loss" measure would only matter in the rare case where the
defendant subjectively intended no loss but objective circumstances made loss

to the victim likely

"Probable loss" could also mean the amount the victim is eventually likely to
lose, viewed from the time of sentencing. This measure would make sense
where at the time of sentencing the victim has only incurred a fraction of its
ultimate actual loss, and therefore actual loss thus far is an understatement of
the true harm to the victim. On the other hand, under Application Note 8,
"actual loss" need only be reasonably estimated, and it would certainly be
reasonable to include probable but as yet unrealized losses as actual losses.
There is little case law on the subject. Compare United States v. Davis, 922
F.2d 1385, 1392 (9th Cir.1991) (adopting first interpretation), with United
States v. Hughes, 775 F.Supp. 348, 351 (E.D.Cal.1991) (adopting the second).
Fortunately, we need not decide the issue here. Because we eventually
conclude that resentencing is required here, the definition of "probable loss"
becomes moot. As discussed above, when resentencing, the district court must
apply the guidelines in effect at that time, unless Ex Post Facto Clause
problems arise. Since the defendant's original sentencing, the Commission has
revised Application Note 7 to eliminate the "probable loss" terminology in favor
of "expected loss," a measure applicable only when actual loss is not fully
realized. See 1991 Guideline Manual Appendix C at 222 (amendment 393).
The revised guideline will not result in a stiffer sentence for the defendant here:
the "probable loss" measure could only have increased the "loss," and because
the bank's net actual loss (if any) has been fully realized, the "expected loss"
measure will drop out of the case. We are therefore relieved of deciding how to
define "probable loss."
17

Actually, it made no difference that the court included the full $2,000 as loss,
because under the guidelines, "losses" of $2,000 or less result in no offense
level increase. In any event, the Whitehead court ruled that the district court's
upward departure was warranted

18

For the same reason, we disagree with the statement in the Second Circuit's
subsequent decision in United States v. Lohan, 945 F.2d 1214 (2d Cir.1991),
that "under 2F1.1 actual loss is not the touchstone for enhancing a sentence to
reflect the victims' 'loss.' " Id. at 1219. But in Lohan, at least, the court did find
that Lohan "attempt[ed] to inflict" a "probable or intended loss" of the amount
held as the "loss." See id

19

"Gross receipts" is statutorily defined elsewhere to include "any property, real

or personal, tangible or intangible, which is obtained, directly or indirectly, as a
result of such offense." See 18 U.S.C.A. 982(a)(4) (West Supp. 1991). See
also new U.S.S.G. 2F1.1 appl. note 16 ("gross receipts" means receipts to the

defendant individually, rather than to all participants)

20

We note that on resentencing (where Amendment 393 will be in effect), the

district court will be spared the unenviable task of deciding what "probable
loss" means. See note 16. The first paragraph of revised Application Note 7 has
dropped its mention of "probable loss." Although subparagraph (b) of
Application Note 7 now instructs sentencing courts to use "expected loss" in
cases where the entire actual loss has not yet come about, in this case the bank
has realized its entire loss (if any)

21

The defendant asserts that the government failed to preserve for appeal its
contention that the defendant did not intend to repay the loan or cause loss to
the bank. He notes that the government failed to object specifically to the
finding in the Presentence Investigation Report that the defendant expected to
repay the loan. On the other hand, the government did contest the broader issue
of the correctness of the Report's overall "loss" estimate. We decline to address
the waiver issue, in part because it raises questions of construction of local
rules. We therefore leave it to the district court on remand

22

We need not dwell on the defendant's other claims of error. First, the district
court added two offense levels because it found that the defendant was the
organizer and supervisor of office manager Stuart Sherer's wrongdoings; it also
refused a two- or four-point credit for minor participation. We review these
fact-based determinations for clear error. The defendant argues that the district
court's ruling was clearly erroneous because he merely acquiesced in Sherer's
misdeeds. Both David Kopp and Sherer testified, however, that the defendant
took a managerial role and personally directed Sherer to commit the fraud. The
district court did not clearly err by believing Sherer and David Kopp and not
the defendant
Second, the defendant challenges the two offense levels added for "more than
minimal planning." He claims he was convicted of a single fraud that involved
minimal planning on his part (as opposed to Sherer's). The government
correctly counters that more than minimal planning is present whenever there
were repeated acts over time, unless each act was opportune. U.S.S.G. 1B1.1
appl. note 1(f). Here twenty-eight documents were delivered on three
occasions, demonstrating repeated fraud and not mere taking advantage of a
sudden opportunity. Again, the district court's ruling was not clearly erroneous.
Finally, the defendant contends that the district court improperly refused to
consider as valid grounds for departure: (1) his own economic suffering
(including bankruptcy); (2) David Kopp's alleged fraud while acting as a
government agent; and (3) the guideline range's overstating the seriousness of

his offense (an issue that is bound up with the earlier discussion of "loss"
calculation). Because we have ruled that the guideline range used was
improper, and because on remand the district court is free to revisit the issues
relevant to deciding whether to depart (upward or downward) from the properly
calculated sentencing range, we need not consider these claims.
*

As to panel rehearing only