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United States v. Hartz

July 16, 2002

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
TRACEY HARTZ, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 CR 9--George W. Lindberg, Judge.

Before Posner, Kanne and Rovner, Circuit Judges.

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

ARGUED FEBRUARY 22, 2002

Tracey Hartz pled guilty to mail fraud in violation of 18 U.S.C. § 1341, and insurance fraud in violation of 18 U.S.C. § 1033. In his plea agreement, he retained the right to appeal his sentence and now argues that the district court erred in applying an increase to his offense level under United States Sentencing Guideline § 2F1.1(b)(8)(B). We affirm.

I.

Tracey Hartz was licensed as both an attorney and a real estate broker in the State of Illinois. He was a "member attorney" of Attorney Title Guarantee Fund, an organization in the business of providing title insurance in connection with real estate transactions. As a member attorney, Hartz signed an agreement to act as an agent of Attorney Title at real estate closings. In the course of its business, Attorney Title issued checks to be distributed at real estate closings to the parties involved in the transaction. In a typical transaction, an attorney conducting a closing would distribute the checks to the appropriate parties and place into the attorney's own escrow account any funds received from the buyer or the lender that financed the purchase.

Hartz devised a scheme to defraud Attorney Title by fabricating real estate transactions and generating paperwork with the names of real and fictitious buyers, sellers, and financiers as well as real and fictitious properties. Using these phony deals, Hartz caused Attorney Title to generate and deliver to him checks payable to himself and other entities supposedly involved in the transaction. No actual exchange of properties or refinancing ever occurred, however, and Hartz deposited many of the checks in his personal account at Bank One. *fn1 Hartz forged endorsements on a number of these checks in order to deposit them at Bank One. Some checks were accepted by Bank One without endorsements. Hartz also induced Attorney Title to issue checks to third parties to pay off Hartz's personal debts. He kept the scheme going for a number of years by using subsequent phony transactions to repay some of the money he received from earlier transactions. All in all, he completed approximately 240 fake real estate deals and caused Attorney Title to provide him with checks in excess of $67 million. Hartz netted about $1.5 million from the scheme, and all of that money came from the coffers of Attorney Title.

In April 1998, Attorney Title discovered that Hartz had failed to send title insurance policies on his real estate closings. Attorney Title therefore stopped providing Hartz with title commitment letters for his real estate closings. A few months later, Attorney Title realized Hartz was using improper commitment numbers, confronted Hartz and decided to stop doing business with him until they could conduct an audit. When they told Hartz about the audit, he composed a 24-page document that was part confession and part suicide note, and attempted to kill himself. When his attempt failed, he confessed fully and took steps to make restitution.

After the scheme was discovered, Attorney Title brought suit against Bank One in the Circuit Court of Cook County. The suit alleged breach of contract claims based on Bank One's acceptance of checks drawn on Attorney Title's bank over improper endorsements. Although Bank One denied liability, it eventually paid Attorney Title $150,000 to settle the claims. At the same time, Bank One agreed to release all claims it had against Hartz. With the aid of his parents, Hartz repaid Attorney Title all of the money he had taken in his fraudulent scheme.

Hartz pled guilty to two counts of a seven-count indictment in exchange for the government's offer to dismiss the remaining five counts. In particular, he admitted he had engaged in mail fraud in violation of 18 U.S.C. § 1341, and insurance fraud in violation of 18 U.S.C. § 1033. In the plea agreement, the parties disagreed about the application of a number of sentencing provisions, and Hartz retained his right to appeal his sentence. The main source of disagreement, and the one that Hartz now raises on appeal, was the applicability of USSG § 2F1.1(b)(8)(B). *fn2 This section provides, in relevant part:

If the offense . . . affected a financial institution and the defendant derived more than $1,000,000 in gross receipts from the offense, increase by 4 levels. If the resulting offense level is less than level 24, increase to level 24.

Originally, the government claimed that Attorney Title was an affected financial institution and that because Hartz derived more than $1 million from Attorney Title, the enhancement should apply. Hartz objected to the characterization of Attorney Title as a financial institution, and eventually the government shifted its argument. In the end, the government maintained that the enhancement was applicable because Bank One was affected by Hartz's offense, and that Hartz derived more than $1,000,000 from his offense. In response to this refashioned argument, Hartz maintained that the enhancement did not apply unless the $1,000,000 was derived from the financial institution; because Bank One paid out only $150,000 to extract itself from Hartz's fraud, he contended the enhancement could not apply. Ultimately, the district court found that the plain language of the guideline did not require a link between the effect on the financial institution and the amount of the fraud. Although a proposed amendment to the guideline (a proposal that was subsequently enacted) did require such a link, the court found that the proposed change merely reinforced its reading of the then-current guideline. The court found that Bank One was affected by Hartz's fraud because Hartz used the bank to commit the fraud and because the bank was forced to settle claims brought against it by Attorney Title. The court also found that Hartz derived more than $1 million from the offense, and therefore satisfied both prongs of the guideline, raising his offense level to 24 before additional enhancements and reductions were calculated. Ultimately, the district court sentenced Hartz to a term of 46 months' imprisonment. Hartz appeals.

II.

Guidelines interpretations are questions of law, and we therefore review the district court's ruling de novo. United States v. Parolin, 239 F.3d 922, 928 (7th Cir. 2001), cert. denied, 533 U.S. 923 (2001); United States v. Gee, 226 F.3d 885, 899 (7th Cir. 2000). On appeal, Hartz argues that Section 2F1.1(b)(8)(B) should not apply unless a defendant derives more than $1 million from a financial institution. In effect, Hartz maintains that the two prongs of the guideline should be linked together. He contends that a proposed (and subsequently enacted) amendment to Section 2F1.1 clarified that a defendant must have taken $1 million from a financial institution in order to have "affected" that financial institution. He also argues that the literal interpretation of the guideline applied by the district court contravenes the guideline's context, purpose and legislative history. The government responds that the bank was affected because Hartz used the bank to commit his fraud and, in doing so, exposed the bank to enormous liability, including the ...


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