United States of America v. Kenneth Quigley

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0285P (6th Cir.)
File Name: 04a0285p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
KENNETH QUIGLEY,
Defendant-Appellant.
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Nos. 03-2495;
04-1160
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 01-80992—John Corbett O’Meara, District Judge.
Submitted: August 5, 2004
Decided and Filed: August 30, 2004
Before: KENNEDY, SUTTON, and COOK, Circuit
Judges.
_________________
COUNSEL
ON BRIEF: Michael J. Rex, Walter J. Piszczatowski,
HERTZ, SCHRAM & SARETZKY, Bloomfield Hills,
Michigan, for Appellant. Jennifer M. Gorland, ASSISTANT
UNITED STATES ATTORNEY, Detroit, Michigan, for
Appellee.
2 United States v. Quigley Nos. 03-2495; 04-1160
_________________
OPINION
_________________
KENNEDY, Circuit Judge. Defendant appeals his sentence
pursuant to a plea agreement in a wire fraud case. Defendant
argues that the district court erred in its determination of the
loss amount for the purposes of identifying the sentencing
guidelines range. While we agree that the district court erred
in its determination, we affirm the sentence imposed because
the corrected loss amount would still keep Defendant in the
same range.
BACKGROUND
This case arises out of a scheme to defraud which occurred
from approximately May 1997 through May 1998. The
government described the scheme as follows:
The fraud occurred when defendants, through their
mortgage company, First Finance, Inc., used funds
borrowed from their warehouse lender, Pinnacle
Mortgage Warehouse (“Pinnacle”) for purposes other
than closing mortgage loans. Sterling Bank & Trust
(“Sterling”) was the ultimate source of the warehouse
funds, and therefore the victim for purposes of
restitution.
First Finance, Inc. (“First Finance) was a Michigan
corporation with its principal place of business located in
Bloomfield Hills, Michigan. It was founded in 1993 by
Randall Sage, who was charged separately for his conduct.
From about 1993 until May 1998, First Finance engaged in
the business of originating and selling residential mortgage
loans. In 1994, Defendant became an investor in First
Finance. In the fall of 1996, he became a working partner and
shareholder. At that point, the three principal shareholders of

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Nos. 03-2495; 04-1160 United States v. Quigley 3
1Robert Geissbuhler was not named as a co-defendant to the wire
fraud charge.
First Finance were Randall Sage, Robert Geissbuhler,1 and
Defendant. A Voting Agreement executed between the three
reflected that each became a one-third owner of the
corporation with Randall Sage holding 51 percent of the
voting stock. All three were signatories on the Surety
Agreement that accompanied the Mortgage Warehouse and
Security Agreement between Pinnacle and First Finance
(“MWS Agreement”).
First Finance dealt directly with the consumer by
processing loan applications and arranging for financing.
Sterling provided the loan money through Pinnacle, which
acted as an administrator for the mortgage funding. Upon
notification by First Finance that a loan note had been signed
by an individual borrower, Pinnacle wired funds for the loan
from an account in New York to a settlement trust account
that First Finance maintained. First Finance would then
disburse the funds when the mortgage closed. Money was
advanced to First Finance pursuant to the terms of the MWS
Agreement. That agreement specified that First Finance was
to use the funds for the purpose of closing loans it originated.
The agreement also required First Finance to return the funds
to Pinnacle if the closing did not occur as scheduled. Sterling
funded about 98 percent of each loan that First Finance
originated. First Finance advanced the other 2 percent (the
“haircut), expecting to recoup not only the haircut, but also an
additional premium of 4 to 8 percent of the loan value when
it ultimately sold the loan to another company, typically
Advanta Mortgage.
Due to a high volume of mortgages that First Finance was
closing, Pinnacle funded them in groups (or clusters). Some
mortgages would close on time, some would be delayed, and
some would not close at all. Often, First Finance did not
immediately return the money for the mortgages that did not
4 United States v. Quigley Nos. 03-2495; 04-1160
close. Over the course of its relationship with Pinnacle, First
Finance, instead of closing mortgage loans with the money
that had been specifically deposited into the settlement trust
account, frequently transferred that money from the
settlement trust account into its general operating account in
order to cover, on a temporary basis, general operating
expenses, including the payment of salaries, benefits, and
other expenses.
As part of the MWS Agreement, First Finance assigned to
Pinnacle as security each and every mortgage or evidence of
indebtedness, right, title, or interest in any insurance; all
property of First Finance in possession of Pinnacle; and all
causes of actions, claims, or demands that First Finance had
or might acquire in connection with the mortgages. Pinnacle,
in turn, assigned to Sterling all its rights, title, and interest in
the Participation Agreements (which included mortgage loans
originated by First Finance as security) as part of a
Participation Purchase Agreement between the two parties.
Accordingly, Sterling had a security interest (through
Pinnacle) in each of the loans closed by First Finance. It also
retained a security interest in each and every instance of
indebtedness, loan, and asset belonging to First Finance.
First Finance ceased its business operations in May of
1998. At that time, Sterling immediately executed its rights
under its Participation Purchase Agreement, which was cross-
collateralized through the MWS Agreement between Pinnacle
and First Finance, and obtained all First Finance originated
loans. It later sold these loans at a profit.
On December 4, 2001, the government filed an Information
charging Defendant Kenneth Quigley with one count of wire
fraud in violation of 18 U.S.C. § 1343. On February 4, 2002,
Defendant appeared before the magistrate judge, signed a
formal waiver of indictment, and was arraigned on the
Information. On June 13, 2002, Defendant appeared before
the district court and entered a plea of guilty to the charge.
After extensive negotiations, the plea was entered pursuant to

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Nos. 03-2495; 04-1160 United States v. Quigley 5
a Rule 11 plea agreement (“Agreement) in which the parties
agreed on all sentencing guideline factors, except for U.S.S.G.
§ 2F1.1(b)(8)(B) (relating to offenses from which the
defendant derived more than $1,000,000 in gross receipts)
and U.S.S.G. § 2F.1.1(b)(1)(N) (relating to the amount of
loss). Prior to sentencing, the government concluded that
§ 2F1.1(b)(8)(B) did not apply in this case and, accordingly,
it was not factored into the guideline calculation. The
Agreement contained a sentencing agreement of no more than
41 months’ imprisonment with an understanding that the
government would file a motion for downward departure
based on substantial assistance and recommend a sentence
range of 18 to 24 months, “or a similar percentage reduction
if the court determines a lower guideline range is applicable.”
The Agreement also provided that the district court would
enter an Order of Restitution in an amount “up to
$2,353,151.00, less those amounts recovered by Pinnacle
Warehouse Mortgage or Sterling Bank & Trust.”
Following Defendant’s plea, the Probation Department
prepared the Presentence Investigation Report (“PSI”) in
which it determined that Defendant’s total offense level was
21 (including a twelve-level adjustment under
§ 2F1.1(b)(1)(N) for loss exceeding $1,500,000.) The PSI
listed the total loss to Sterling as $2,353,151 for sentencing
purposes. Defendant filed numerous objections to the PSI,
including an objection to the amount of loss, arguing that the
figure did not reflect the profits Sterling made on the sale of
the collateralized mortgages it acquired when First Finance
ceased operations. The Probation Department responded by
saying that “the amount was provided by the government and
the case agent,” that the issue “will be decided by the Court,”
and that the report will remain unchanged. Prior to
sentencing, Defendant filed his Sentencing Memorandum,
addressing a number of issues, including the loss figure. The
Memorandum explained the manner in which Sterling was
protected through its Participation Purchase Agreement with
Pinnacle and the MWS Agreement between Pinnacle and
First Finance. The Memorandum showed that when Sterling
6 United States v. Quigley Nos. 03-2495; 04-1160
exercised its rights under the two cross-collateralized
agreements, it obtained receivables in excess of $20 million.
This amount represented not only the principal amount of the
loans that Sterling funded, but also a premium in the 6 percent
to 8 percent range, plus recovery of the 2 percent “haircut,”
the amount initially funded by First Finance. Sterling also
seized another $5,806,510 worth of loans originated by First
Finance and funded them directly, thereby eliminating
Pinnacle’s involvement and guaranteeing recovery of the
entire premium on those loans. In addition, the Memorandum
identified a number of wire transfers from Advanta Mortgage
directly to Sterling, which reflected the payment of the
principal amount loaned by Sterling on a number of
mortgages, in addition to the premium that would have gone
to First Finance had it not ceased operations.
The government did not respond to Defendant’s Sentencing
Memorandum but did file a Combined Motion and Brief for
a Downward Departure pursuant to U.S.S.G. § 5K1.1. Citing
the Probation Department’s calculated guideline range of 24
to 30 months for Defendant, the government recommended
that the court depart downward and sentence Defendant to a
term of imprisonment between 12 to 15 months due to the
substantial assistance that Defendant rendered.
On October 24, 2003, Defendant appeared for sentencing.
The defense counsel attempted to address Defendant’s
objection to the loss, an objection that was specifically
preserved in the Rule 11 Plea Agreement. The court did not
permit the defense counsel to make that argument, ruling that
the issue had been already raised and resolved the previous
day during the sentencing of Randall Sage. The defense
counsel informed the court that there was a significant
difference between the two defendants because Defendant
Quigley had specifically preserved the issue whereas his co-
defendant Sage had not. The trial court acknowledged that
the restitution figure, to be determined at a later hearing,
would be substantially smaller than the loss figure, but
indicated that it was not going to do anything different from

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Nos. 03-2495; 04-1160 United States v. Quigley 7
2False, or fraudulent, application cases involve situations where the
creditor lies about the value of the collateral to obtain a more favorable
loan.
3It is unclear why the restitution calculatio n started with a
$2,413,788.50 loss rather than a $ 2,35 3,15 1 loss id entified in PSI. We do
not resolve this ambiguity because it does not affect the outcom e of this
case. W e proceed on the assumption that $2,413,788.5 is the proper
starting point for the loss amount calculation.
what it had previously indicated it would do, namely grant the
Motion for Downward Departure.
When the trial court asked the government if it wanted to
add anything, the government argued that the $2.3 million
loss figure represented the loss intended by the defendants.
The government also argued that the false loan application
cases2 Defendant cited in support of his position that the loss
figure should be offset by that which was recouped by
security or pledge had no bearing on the present case. The
trial court reiterated that it was not going to do anything
differently since it had granted the downward departure
motion. The court imposed a sentence of incarceration of
twelve months and one day in the custody of the Bureau of
Prisons. Additionally, the court ordered restitution in the
amount to be determined at a later hearing.
For the purposes of determining the restitution figure, the
government started with a loss figure of $2,413,788.50.3 This
amount represented 46 separate mortgages for which money
had been wired into the settlement trust account, but had
never closed. The government, however, acknowledged that
this figure should be offset by (1) the payments Sterling
received for loans that were originated by First Finance and
subsequently sold to Advanta Mortgage and for which a 4
percent premium and a 2 percent “haircut” were realized and
paid directly to Sterling instead of First Finance
($373,768.28); and (2) the amount realized through the
seizure of First Finance Loans pursuant to the cross-
8 United States v. Quigley Nos. 03-2495; 04-1160
4It is unclear how the parties arrive d at that figure since it represents
an offset gre ater tha n wha t the government acknowledged
($1,177,178.18) but less than what the government acknowledged
coupled with what Defendant additionally insisted upon ($1,561,568 .18).
collateralization agreements ($803,409.90). Defendant also
insisted that the restitution figure should be offset by 6
percent of an additional $5,806,510 in loans that had been
listed on the “Sterling Advantage Line,” or $384,390. On
January 20, 2004, the parties appeared at the restitution
hearing where they stipulated to credit Defendant with offsets
reducing the restitution figure from $2,413,788.50 to
$907,251.84 (or an offset of $1,506,536.66).4 The court then
considered the allocation of restitution among the parties and
ordered that Defendant be held responsible for 50 percent of
the total restitution, or $453,625.92.
ANALYSIS
We review a district court’s findings under the Guidelines
under the clearly erroneous standard. United States v. Clay,
346 F.3d 173, 178 (6th Cir. 2003). The application of the
Guidelines to factual findings is a question of law subject to
de novo review. United States v. Finkley, 324 F.3d 401, 403
(6th Cir. 2003).
Defendant argues on this appeal that the district court erred
when it failed to make the requisite findings of fact
concerning the amount of loss used in arriving at the
sentencing guideline range. The government presents two
distinct arguments for affirming Defendant’s sentence. For
the reasons stated below, we reject those arguments.
First, the government argues that the district court was not
required to resolve the factual dispute concerning the amount
of loss from Defendant’s fraud because the ultimate sentence
would not be affected. According to the government,
Defendant was sentenced to twelve months and one day,

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Nos. 03-2495; 04-1160 United States v. Quigley 9
making him eligible for “good conduct time” credits awarded
by the Bureau of Prisons to prisoners who receive a sentence
of more than 12 months. 28 C.F.R. § 523.20 (an inmate earns
54 days of “good conduct time” credits for each year served).
The government, therefore, argues that Defendant would
actually only serve 312 days under his current sentence. On
the other hand, if the trial court had accepted Defendant’s
argument on the loss amount, the government would have
been obligated to recommend a sentence in the range of 10 ½
to 13 ½ months. Relying on the fact that the district court
sentenced Defendant to 12 months and 1 day when the
government recommended a sentence between 12 and 15
months, the government argues that the district court, if it
accepted Defendant’s argument, would have sentenced
Defendant to at least 10 ½ months, or 315 days, or 3 days
longer than his current sentence. We reject this argument
because, as Defendant points out, the district court may have
a number of sentencing options available to it that would
affect either the term or the conditions of the sentence. We
cannot categorically reject such a possibility.
Second, the government argues that the district court
properly used the “intended loss” amount of $2,413,788.50
for the sentencing purposes. The absence of a district court
opinion and a very perfunctory brief from the government
complicate our review in this case. However, as explained
below, we find that the district court clearly erred in
determining the loss amount.
“In challenging the court’s loss calculation, [the appellant]
must carry the heavy burden of persuading this Court that the
evaluation of the loss was not only inaccurate, but was
outside the realm of permissible computations.” United
States v. Jackson, 25 F.3d 327, 330 (6th Cir. 1994).
Defendant argued before the district court and before this
Court that the loss amount should have been reduced to the
restitution amount because the victim bank was able to use
other collateral to offset its losses. As support for his
argument, Defendant cites fraudulent loan application cases
10 United States v. Quigley Nos. 03-2495; 04-1160
where the bank was able to satisfy at least one part of the debt
by foreclosing on the underlying collateral. See, e.g., United
States v. Wright, 60 F.3d 240, 241 (6th Cir. 1995) (loss
amount should be offset by assets pledged to secure the loan).
The government insists that those cases have no relevance
here because Defendant’s “fraud in this case was the use of
the funds for purposes other than the purchase of an asset or
other collateral.” Appellee Br. at 13 (citing U.S.S.G. § 2F1.1,
Application Note 8(b) (reducing the amount of loss by “any
assets pledged to secure the loan” that was obtained through
a fraudulent application). We agree that the fraudulent loan
application cases are technically different from the case at
hand. However, we find them (and the Application Notes
related to them) extremely relevant to the question of the
valuation of an intended loss. In both types of cases, a
Defendant obtains a loan under false pretenses while
providing the lender with some collateral. The lender is thus
able to offset some of his loss through the use of the
collateral. The Guidelines provide that in the case of a false
loan application, the district court should reduce the amount
of loss by the amount recovered. We see no reason, nor have
we been provided with one by either the district court or the
government, as to why the district court in this case should
not have reduced the $2,413,788.50 loss by the amount
recovered by reason of the cross-collateralization agreement.
Having concluded that the district court erred by not
reducing the $2,413,778.50 loss amount, we now undertake
a de novo analysis of what that offset should have been. We
do so because Defendant has admitted to all facts relevant to
the legal question presented. Sterling obtained three
categories of assets when it exercised its rights under the
cross-collateralization agreements: (1) cash that represented
the profit from loans originated by First Finance, fully
funded, and subsequently sold to Advanta ($373,768.28); (2)
loans that were originated by First Finance and were fully
funded, but were not yet sold to Advanta; (3) loans that were
originated by First Finance but were not yet funded, and,
therefore, not yet sold to Advanta. Of the three categories, we

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Nos. 03-2495; 04-1160 United States v. Quigley 11
find that only the first one is relevant to the offset
determination.
We agree with Defendant that the $373,768.28 of cash
should be used to offset the gross loss amount because it
cannot be said that First Finance intended to deprive Sterling
of the entire $2.4 million when it knew, with absolute
certainty, that Sterling had a fully-enforceable security
interest in that amount as the proceeds from the sale of the
underlying loans.
The situation, however, is different with respect to
categories (2) and (3). With respect to category (2), Sterling
obtained loans in the amount of $13 million that First Finance
originated, fully funded, and was about to sell to Advanta.
Defendant argues that he is entitled to an offset equal to the
profit that First Finance would have made had it been allowed
to sell the loans to Advanta ($803,409.90). We disagree.
Unlike cash in category (1), the profit on the sale of loans was
a mere expectancy. First Finance was virtually assured of the
profit because of its contractual relationship with Advanta,
but it was not guaranteed that the sale would take place or
that the amount realized would be as expected. It is possible
that some event may have intervened to prevent First Finance
from making the profit, thereby depriving Sterling of the
funds. With respect to category (3), Sterling obtained loans
in the amount of approximately $5.8 million that were
originated by First Finance. Sterling then funded those loans
and sold them to Advanta resulting in a “lost profit” to First
Finance of $384,390. As with category (2), we find that
Defendant is not entitled to an offset that represents a profit
that First Finance may have earned if it funded the loans and
sold them.
Since we find that the only appropriate offset is for
$373,768.28, the proper loss amount for the sentencing
purposes is approximately $2 million. This amount is within
the same range ($1.5 million to $2.5 million) as the loss
amount ($2.4 million) that the district court used to establish
12 United States v. Quigley Nos. 03-2495; 04-1160
Defendant’s sentence under the Guidelines. Accordingly,
there is no need to remand for resentencing.
CONCLUSION
For the reasons stated above, we affirm Defendant’s
sentence in this case.

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