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United States v. Schaefer

May 28, 2002

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
RONALD T. SCHAEFER, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP99-CR-109-01 D/F--S. Hugh Dillin, Judge.

Before Harlington Wood, Jr., Cudahy, and Kanne, Circuit Judges.

The opinion of the court was delivered by: Cudahy, Circuit Judge

Argued October 23, 2001

A jury convicted Ronald Schaefer of three counts of mail fraud and two counts of wire fraud, 18 U.S.C. sec.sec. 1341, 1343, arising from the sale of Walt Disney animation art. One count of wire fraud was subsequently thrown out by the district court. The convictions carry a six (6) Base Offense Level under U.S.S.G. sec. 2F1.1(a) (2000). The district court adopted the Pre-Sentence Report, which prescribed several upward adjustments, and sentenced Schaefer to 37 months on each count, to be served concurrently. Schaefer now appeals, claiming that the district judge improperly calculated the amount of the financial loss under sec. 2F1.1(b)(1). Because the district court did not make specific findings of fact that would allow us to conclude with confidence that the relevant conduct relied upon to make the sec. 2F1.1(b)(1) calculation of loss consisted of unlawful conduct, we vacate and remand for further proceedings.

I.

On August 25, 1999, a federal grand jury indicted Ronald Schaefer on eight counts of mail fraud and six counts of wire fraud, in violation of 18 U.S.C. sec.sec. 1341, 1343. The alleged crimes occurred through Schaefer's business activities as an art dealer, though he often presented himself to his customers as a collector who did not derive his livelihood from the sale of art. Schaefer's specialty was animation art associated with the production and promotion of various Walt Disney movies. At issue in all of the charges are "cels," which are painted drawings of popular cartoon characters on clear plastic or acetates. The most valuable of these for collectors are "production cels." These pieces are one-of-a-kind artwork that are photographed and used as actual frames in an animation film. There are various other categories of cels, such as limited edition, publicity and sericels, which command less money than production cels as collectibles. Whether the cels are matted and framed may also affect their value.

Because the true market value of his wares varied according to their specific characteristics, Schaefer made it a habit to be purposefully ambiguous about the proper classification of his cels, often referring to publicity cels as "original hand-painted cels." He also boasted about the windfalls they would generate for their buyers as investments. On some occasions, he actually reduced to writing claims that certain publicity or counterfeit cels were production cels. Moreover, he often resorted to the ruse that he was selling art from his dead mother's estate at below-market prices that were mandated by her will, a story that was found to be a total fabrication at trial. Schaefer's deceptive business practices eventually included a scheme that involved an Indianapolis school teacher, Greg Shelton, who created cels depicting Mickey Mouse drawing a picture of Walt Disney. Schaefer portrayed Shelton to his customers as a former Disney animator and persuaded Shelton to author a letter that falsely touted the distribution and value of these paintings.

Eventually, Schaefer's sharp business practices attracted the attention of federal investigators, including the Federal Trade Commission (FTC) and the Indianapolis office of the FBI. Conversations recorded by undercover agents revealed additional lies and misrepresentations by Schaefer. Federal authorities subsequently seized Schaefer's art inventory. In turn, Schaefer sought relief through an action filed under the Federal Tort Claims Act. Although Schaefer has often presented himself as a private collector, or as a faithful son discharging duties for his dead mother's estate, he submitted documents to federal officials as evidence that selling art was his "business" and that he earned between $5,000 and $10,000 per month through this activity. These figures were relied on by the government in making the sec. 2F1.1(b)(1) loss calculation, which was included in the Pre-Sentence Report (PSR) and later adopted by the district court.

The present case is not Schaefer's first run-in with the law. In 1992, the FTC filed a complaint against Schaefer and others, alleging that they engaged in deceptive practices in the promotion and sale of collectibles. The Final Judgment and Order for Permanent Injunction arising out of those proceedings prohibited Schaefer from engaging in deceptive practices in the sale of "investment offerings," including animation art. See Federal Trade Commission v. World Wide Classics, Inc., Civ. No. 92-3363TJH (EEX), at 4-6 (C.D. Cal., Dec. 15, 1993) (hereinafter the "1993 Order"). The 1993 Order also required that Schaefer post a $200,000 bond before engaging in the "business of telemarketing," which was broadly defined as any business that employed telephone presentations, "either exclusively or in conjunction with the use of the mails or any commercial parcel delivery service."

In the current action, Schaefer was indicted on charges of federal mail and wire fraud. Although Schaefer was released on his own recognizance, his pretrial release stipulated that he could not travel outside the Southern District of Indiana. On December 22, 1999, the U.S. Parole and Probation Office filed a Notice of Violation of Order Setting Release Conditions, alleging that Schaefer had violated the terms of his release. In fact, Schaefer had traveled to Nashville, Tennessee and sold an animation cel for $27,000. In addition, Schaefer had also contacted other potential customers and advised them of the dates he planned to be in their area. On January 4, 2000, a federal magistrate judge ruled that Schaefer had violated the terms of his release and further restricted Schaefer's ability to travel. Schaefer then made a motion to the court requesting that the new pretrial terms be modified in order to permit him to make artwork sales though reputable gallery and auction houses. After another hearing on February 9, 2000, the magistrate judge denied Schaefer's motion. The magistrate judge also noted the likelihood that Schaefer had lied under oath during the earlier January 4, 2000 proceedings.

At the subsequent criminal trial, Schaefer was convicted on five counts of mail and wire fraud and acquitted on nine others. One count of conviction was eventually vacated by the district court for a possible retrial because there was some reason to believe that the government had improperly withheld exculpatory evidence in violation of Brady v. Maryland, 373 U.S. 83 (1963). Of the four remaining counts, both mail and wire fraud qualify as a six (6) Base Offense Level under U.S.S.G. sec. 2F1.1 (1997).*fn1 The PSR recommended a two (2) level increase for "more than minimal planning," see sec. 2F1.1(b)(2)(A); a two (2) level increase for violation of a judicial order, see sec. 2F1.1(b)(3)(B); a two (2) level increase for obstruction of justice, see sec. 3C1.1; and an eight (8) level increase for a total loss to victims in excess of $200,000, see sec. 2F1.1(b)(1)(I). The specific loss calculation provided in the PSR is $231,000, which was based on a purportedly representative sample of Schaefer's business activities that was then extrapolated over a five-year period. The district court adopted the PSR recommendations and sentenced Schaefer to thirty-seven months of incarceration. The court also ordered Schaefer to pay restitution in the amount of $41,574.

On a motion for reconsideration, Schaefer requested that the district court substantially reduce its loss calculation. Although Schaefer submitted a verified statement, which was offered to rebut the government claims that Schaefer knowingly deceived a large number of his customers, the district court ruled that Schaefer's past courtroom testimony demonstrated that he was not a credible witness. The district court's sentencing order did not, however, include any specific findings that Schaefer, under a more lenient preponderance of evidence standard, committed most or all of the crimes charged in the indictment, or was guilty of other uncharged criminal conduct. Schaefer now appeals only from the $231,000 calculation of loss.

Schaefer contends that the maximum loss stemming from the crimes of which he was convicted amounts to $1,875. This relatively small sum would not warrant any increase from the Base Offense Level. Under Schaefer's method of calculation, he would receive a six to twelve month sentence.

II.

The sole issue in this case is whether the district court erred in adopting the loss calculation of the PSR. The meaning of "loss" under sec. 2F1.1(b)(1) presents a question of law that is subject to de novo review. See United States v. Lopez, 222 F.3d 428, 436 (7th Cir. 2000). However, when analyzing the district court's calculation of loss caused by a defendant's fraudulent conduct, we review the calculations for clear error. See United States v. Vivit, 214 F.3d 908, 914 (7th Cir. 2000). Reversal is warranted only if the district court's loss calculation evokes a "definite and firm conviction that a mistake has been made." Id. (citing United States v. Strache, 202 F.3d 980, 984-85 (7th Cir. 2000)).

In order to support the calculation of a $231,000 loss from fraudulent activity, the PSR estimated that approximately 55 percent of Schaefer's $420,000 in business receipts from 1994 to 1999 was attributable to fraudulent sales practices. The 55 percent figure was derived from a sample of three sales made to customers in which 55 percent of the purchase price was attributable to false representations made by Schaefer. Since these sales provided approximately 20 percent of Schaefer's total receipts during this five-year period and were therefore asserted to be representative of the total, and since there was reason to believe that all of Schaefer's sales of animated art were shot through with deceptive business ...


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