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MITCHEL A. FUCHS, Defendant-Appellant.

No. 09-1611.

Mitchel Fuchs brokered subprime mortgages by enticing lenders with falsified loan applications and phony documentation. He was convicted after a jury trial of mail and wire fraud. See 18 U.S.C. §§ 1341, 1343.

After applying a number of sentencing guidelines adjustments, including a two-level increase for abuse of a position of trust, see U.S.S.G. § 3B1.3, the district court calculated Fuchs’s imprisonment range at 100 to 125 months. The court went above that range and imposed a total of 144 months’ imprisonment.

We conclude that the court erred in applying the abuse-of-trust increase under § 3B1.3. Accordingly, we vacate the sentence and remand for resentencing.

I. Background

Fuchs used an alias to land a job with Mortgage Solutions, a broker in Rockford, Illinois, that helped its clients finance residential real-estate transactions. Most of the loans Fuchs brokered were denominated as “subprime” because the borrower’s credit rating was so poor that only a lender specializing in high-risk loans was willing to provide a mortgage. For every loan Fuchs generated, he earned a commission averaging between $2,000 and $3,000.

What the lenders did not know is that many of the borrowers were poor risks even for subprime loans.

Fuchs and his two codefendants hid this fact by doctoring the loan applications with, for example, inflated incomes or phony employers, and often they altered credit reports or fabricated W-2s to corroborate the lies in the loan applications. Most times the lenders relied on the information from Fuchs without verification, but sometimes a lender contacted a listed employer or obtained a credit report independently. If a lender did try calling a bogus employer, the phone number Fuchs supplied on the loan application would lead back to him or his fiancée.

When the FBI got wind of the scheme and raided Mortgage Solutions in June 2004, Fuchs simply took another name and found another job with Leader Mortgage, a different broker where he continued the fraud unabated. Investigators eventually connected him to at least 14 fraudulent loans; many of those predictably went into foreclosure. These lenders lost about $184,000.

In preparation for sentencing, the government proposed an increase under U.S.S.G. § 3B1.3 on the ground that Fuchs held and abused a position of trust with respect to the lenders.

That section of the guidelines provides for a two-step increase in offense level if the defendant “abused a position of public or private trust . . . in a manner that significantly facilitated the commission or concealment of the offense.” U.S.S.G. § 3B1.1.

The probation officer evaluated but ultimately rejected the government’s position. In drafting the presentence report, the probation officer expressed skepticism that the lenders had relied on Fuchs rather than exercising independent judgment. The probation officer reasoned that Fuchs himself was not licensed as a mortgage broker (although his employers presumably were, see 205 ILL. COMP. STAT. 635/1-3). And Fuchs was not supervised by the lenders and had never attested to the accuracy of the information he gave them.

The government objected to the probation officer’s conclusion and highlighted evidence from trial that it said showed the lenders had relied upon Fuchs to a significant degree.

The district court sided with the government. The court held that Fuchs’s position as a broker had facilitated the fraudulent scheme and allowed its concealment, and that the lenders had relied on Fuchs to provide them with accurate information.

The district court also concluded that Fuchs had abused a position of trust with respect to borrowers who were placed at risk of defaulting, further impairing their credit when they obtained financing for which they did not qualify.

II. Discussion

The sole issue on appeal is whether the § 3B1.3 enhancement for abuse of a position of trust was properly applied.

Fuchs argues that he did not occupy a position of trust with respect to the lenders and thus it was error to assess the two-level increase. According to Fuchs, the record establishes only an arm’s-length, commercial relationship between him and the lenders.

We review the district court’s interpretation of § 3B1.3 de novo and its underlying factual findings for clear error. United States v. Andrews, 484 F.3d 476, 478-79 (7th Cir. 2007).

The relationship between Fuchs and the lenders would be unimportant if, as the district court found, he also abused a position of trust with respect to the borrowers. See United States v. Fiorito, No. 07-CR-0212(1) (PJS/JSM), 2010 WL 1507645, at *36 (D. Minn. Apr. 14, 2010)

Under established Illinois law, Fuchs was an agent of the borrowers, see 205 ILL. COMP. STAT. 635/5-7, and agency carries with it fiduciary duties, Sphere Drake Ins. Ltd. v. Am. Gen. Life Ins. Co., 376 F.3d 664, 672 (7th Cir. 2004) (applying Illinois law).

As a fiduciary Fuchs occupied a position of trust with respect to legitimate borrowers, and so the upward adjustment might on the surface seem appropriate. See United States v. Mabrook, 301 F.3d 503, 510 (7th Cir. 2002) (noting that defendant’s fiduciary duty vis-à-vis investors in his company placed him in a position of private trust).

But the government has waived Fuchs’s waiver by declining to defend the district court’s application of § 3B1.3 on this alternative ground. See United States v. Archambault, 62 F.3d 995, 998 (7th Cir. 1995).

And for good reason. Before trial, prosecutors conceded that the borrowers either had actual knowledge of the fraud—which would make them coconspirators, not victims—or at least should have known of the fraud. See United States v. Berkley, 333 F.3d 776, 777-78 (7th Cir. 2003) (upholding buyer’s convictions for wire fraud based on false statements in mortgage applications).

That concession undermines the district court’s finding that an increase under § 3B1.3 could be applied based on Fuchs’s relationship with the borrowers. Since the government has declined to defend the application of the enhancement on this ground, we need not decide whether the increase could have been sustained on that basis.

This brings us back to Fuchs’s relationship with the lenders, and on that question we agree with him that the government did not establish anything more than an ordinary, commercial relationship, which we and other circuits have said isn’t enough to warrant an upward adjustment under § 3B1.3.

In reaching this conclusion, we do not rely on Fuchs’s assertion that as a matter of law, he could not have been in a position of trust because he did not have the authority to access or control the lenders’ assets.

It is true that control over assets is a significant factor in many cases. See, e.g., United States v. Peterson-Knox, 471 F.3d 816, 825-26 (7th Cir. 2006) (upholding application of § 3B1.3 to company manager responsible for supplying laptops who shipped computers to herself and coconspirators)

And the government does not dispute that such access and control was absent here. But we have cautioned against using bright-line rules when applying § 3B1.3. Andrews, 484 F.3d at 479.

We have upheld upward adjustments even when the defendant had no access to or authority over the victim’s valuables.

Conversely, a defendant’s ability to access or control the victim’s valuables does not always trigger an increase under § 3B1.3. Rather, a defendant’s authority over the victim’s valuables and the degree of discretion given to the defendant by the victim are simply indicia of the victim’s special trust and reliance, and that is the common thread in these decisions.

We have explained that § 3B1.3 “encourages trust by making trust less risky to the trusting, and trust is an efficient substitute for continuous surveillance.” United States v. Deal, 147 F.3d 562, 563 (7th Cir. 1998). But this understanding of the guideline should not be confused with lax supervision or the victim’s abdication of his own duties. See United States v. Ollison, 555 F.3d 152, 167-69 (5th Cir. 2009) (overturning increase under § 3B1.3 where secretary’s sustained misuse of business credit card went undetected, not because her job entailed substantial discretionary judgment but because of lax supervision)

In Fuchs’s situation the information before the district court was unremarkable. His fraud convictions do not themselves justify the application of § 3B1.3. He did take advantage of the lenders, but their reliance (or for that matter, his success) was not an element necessary to convict him of mail or wire fraud. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 648-49 (2008).

Again, we have cautioned against drawing bright lines defining where a position of trust begins or ends, see Andrews, 484 F.3d at 479, and we’ve repeatedly emphasized that the § 3B1.3 inquiry is case-specific and that a job title cannot answer whether the defendant is in a position of trust, see, e.g., id..

But whether a mortgage broker actually does occupy a position of trust ultimately depends on the particular facts of the case. See Andrews, 484 F.3d at 479.

The limited evidence here fails to show that Fuchs (or the companies he worked for) occupied a special relationship of trust with any lender.

But this testimony and the rest of the government’s argument rests on generalities. During the sentencing proceeding, the government did not establish that the lenders in this case had a relationship of trust with Fuchs in particular. That is, the government introduced no evidence explaining the nature of the relationship between Fuchs or his employers and the victim lenders. In fact, the government did not even disclose the actual written agreements the lenders had with these brokers.

What the evidence does tell us is that the victim lenders sometimes verified Fuchs’s work but more often than not they didn’t. On this record, an inference that the lenders operated this way based on their trust in Fuchs is no stronger than the inference that they simply failed to do their own due diligence.

All we can do is speculate because aside from the general evidence of the industry of which Fuchs was a part—in which there is a statutory agency relationship between Fuchs and the borrowers, 205 ILL. COMP. STAT. 635/5-7—there is nothing pointing to a special relationship of trust outside of the ordinary arm’s-length, commercial relationship between him and the lenders.

Accordingly, we VACATE the sentence and REMAND for resentencing without the § 3B1.3 adjustment.