United States v. Schaefer, Ronald T.

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 03-1189

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. IP 99-CR-109 D/F—Sarah Evans Barker, Judge.

____________

ARGUED JANUARY 5, 2004—DECIDED SEPTEMBER 13, 2004

____________

Before CUDAHY, POSNER and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

I.

This is a successive appeal. The facts underlying Ronald

Schaefer’s conviction are set forth in our prior opinion,

United States v. Schaefer, 291 F.3d 932 (7th Cir. 2002)

(Schaefer I), and since they are not directly relevant to this

appeal, we will not repeat them here. Suffice it to say that

Schaefer was convicted by a jury in April 2000 of five counts

of fraud in connection with the sale of Walt Disney anima-

2 No. 03-1189

tion cels, which are painted drawings of popular animated

characters on clear plastic or acetates. One count of convic-

tion was subsequently vacated by Judge S. Hugh Dillin,

who was presiding over the case at the time, because the

government improperly withheld potentially exculpatory

evidence in violation of Brady v. Maryland, 373 U.S. 83

(1963). (See 11/25/2002 Order at 4.) Judge Dillin sentenced

Schaefer to 37 months’ imprisonment in accordance with his

determination that the total loss stemming from Schaefer’s

fraudulent activities (both charged and uncharged) was

$231,000, resulting in an 8-level enhancement and a total

offense level of 20, with a corresponding 1997 Sentencing

Guidelines range of 33-41 months.

The $231,000 loss was calculated by applying the govern-

ment’s suggested multiplier of 55% to an estimate of the

value of the artwork purchased by Schaefer’s customers

between 1994 and 1999—$420,000. The 55% multiplier was

derived by determining the percentage of the total value of

animation art Schaefer sold to three representative cus-

tomers1 that was attributable to fraud. In other words, only

$38,500, or 45%, of the $84,249 that these three customers

paid Schaefer was attributable to the actual market value

of the artwork they purchased; the remainder of the price

was attributable to Schaefer’s fraudulent misrepresenta-

tions. (PSR at 33.2) The $420,000 figure is Schaefer’s total

income from the sale of animation art between 1994 and

1999 (id. at 30), which corresponds to the total amount pur-

chasers paid Schaefer for animation artwork during that

time. Judge Dillin, however, did not include specific factual

findings in making his loss determination for sentencing

purposes. On appeal, we held that conduct, to be relevant

1

Schaefer’s sales to these three customers represented more than

20% of Schaefer’s total income from the sales of animation art.

2

References to Schaefer’s Presentence Investigation Report will be

designated by “PSR at ___.”

No. 03-1189 3

conduct, had to be unlawful. Schaefer I, 291 F.3d at 939-40.

There were no findings that Schaefer’s conduct had met this

test. Id. at 945. However, we noted that the extrapola-

tion/multiplier methodology was not itself inherently

unreasonable. Id. at 944. We therefore vacated Schaefer’s

sentence and remanded the case, which was reassigned to

Judge Barker,3 for a determination of “how much of

Schaefer’s business was tainted by unlawfulness.” Id. at

945. We suggested that the simplest way for the govern-

ment to justify the $231,000 loss calculation would be by

pointing out “how the specific elements of mail and wire

fraud, which were the crimes specified in the fourteen-count

indictment, were an integral part of Schaefer’s artwork

business from 1994 to 1999.” Id. at 938. Alternatively,

Schaefer’s conduct could be shown to violate other criminal

statutes (e.g., state criminal fraud provisions). Id.

Judge Barker reviewed the record and the parties’ briefs

and submissions and heard oral argument from the parties.

She then found, by a preponderance of the evidence, that all

of the charged conduct was criminal because it constituted

mail or wire fraud; that all of Schaefer’s uncharged conduct

was equally criminal because Schaefer used the same

methods and means throughout his dealings in animation

art as he did with respect to the conduct charged; and that

Schaefer’s intentions and methods in dealing in animation

art were part of an overall scheme to defraud. But despite

concluding that all of Schaefer’s conduct was unlawful, and

in the face of our suggestion in Schaefer I that the 55%

multiplier and extrapolation were reasonable ways to

estimate the loss stemming from Schaefer’s fraudulent

conduct, Judge Barker found that the 55% multiplier was

too speculative to allow losses to be calculated with particu-

larity. (11/25/2002 Order at 9.) Therefore, she declined to

3

Judge Dillin had relinquished his docket since imposing

Schaefer’s sentence.

4 No. 03-1189

use it in determining loss for the purpose of sentencing.

(Id.) Instead, Judge Barker determined that the total loss

from sales to the three representative victims that could be

identified with particularity was $81,801. She then used

$81,801 as the relevant conduct amount “because it is the

calculation that the Court can most straightforwardly and

accurately perform and document from the evidence and

about which we have the most confidence in terms of a sum

certain.” (Id. at 8-9.) She then sua sponte added a 3-level

upward departure to Schaefer’s sentencing level because “the

identifiable losses grossly and substantially understate the

actual monetary losses resulting from Defendant’s criminal

behavior”: one level because Schaefer’s overall earnings of

$420,000 during the period 1994-1999 were virtually all

fraudulently generated; one level because of the extent of the

intended loss as evidenced by the seizure of $500,000 in

inventory; and one level because of the loss to purchasers

from unrealized appreciation4 in value. (Id. at 11-12.) The

resulting sentencing range included the sentence of 37

months that Judge Dillin had ordered, and Judge Barker

reimposed that sentence.

However, Judge Barker’s sentencing methodology also

gives Schaefer a whole new set of issues to appeal. He chips

away at Judge Barker’s determination that his victims

suffered $81,801 in identifiable losses by arguing that that

amount incorrectly includes uncharged transactions (half of

which he alleges involved no fraud, despite the district

court’s conclusion to the contrary) as well as the loss

attributable to Count Two, which had been vacated on

4

In Schaefer I, we noted that Judge Dillin’s loss calculation may

have been conservative because it “did not include any adjustment

for the appreciation in value that Schaefer told his consumers

they would enjoy because he was selling his artwork at below

market prices under the requirements of his dead mother’s

estate.” 291 F.3d at 945.

No. 03-1189 5

Brady grounds. He also argues that the district court erred

in departing upward three levels given Judge Barker’s

finding that it is “speculative” to claim that Schaefer’s cus-

tomers suffered more than $81,801 in losses, and because

the Guidelines already took into account the circumstances

cited for the departures. In the wake of the Supreme Court’s

decision in Blakely v. Washington, 124 S.Ct. 2531 (2004)

and our application of its principles to the federal sentenc-

ing guidelines in United States v. Booker, 375 F.3d 508 (7th

Cir. 2004), cert. granted 2004 WL 1713654 (U.S. Aug. 2,

2004), Schaefer filed a supplemental brief arguing that

resentencing is required because in calculating his sen-

tence, the district court relied on facts not found by a jury.

II.

These days it should come as no surprise that our discus-

sion commences with the Supreme Court’s recent decision

in Blakely and our reading of Blakely in Booker. As we

recently observed, “the constitutional validity of the

Guidelines is in doubt.” United States v. Shearer, 2004 WL

1795085, at *3 (7th Cir. August 12, 2004). We continued:

Under Blakely as interpreted in Booker, a defendant has

the right to have a jury decide factual issues that will

increase the defendant’s sentence. As Booker holds, the

Guidelines’ contrary assertion that a district judge may

make such factual determinations based upon the

preponderance of the evidence runs afoul of the Sixth

Amendment.

Id. In accordance with both Booker and Shearer, we must

remand the present case to the district court for resentencing.

III.

6 No. 03-1189

Although Blakely and Booker necessitate our remand of

this case to the district court for resentencing, we will none-

theless address Schaefer’s arguments under the Guidelines

relating to the loss calculations and upward departures

employed by the district court. We do so in the interest of

judicial economy in the event that the Supreme Court may

subsequently decide some other fate for the federal Guide-

lines than that indicated in Booker.

A. Loss calculations

We review the district court’s calculation of loss caused by

a defendant’s fraudulent conduct for clear error. United

States v. Sykes, 357 F.3d 672, 675 (7th Cir. 2004); Schaefer

I, 291 F.3d at 936-37. “To find clear error we must be per-

suaded that the sentencing court made a fundamental error

which resulted in a complete miscarriage of justice.” United

States v. Hatchett, 31 F.3d 1411, 1423-24 (7th Cir. 1994).

“Reversal is warranted only if the district court’s loss

calculation evokes a ‘definite and firm conviction that a

mistake has been made.’ ” Schaefer I, 291 F.3d at 937

(citations omitted).

On remand, Judge Barker reviewed the record and the

parties’ briefs and submissions and heard oral argument

from the parties. She found, by a preponderance of the evi-

dence, that all of the charged conduct (both counts of con-

viction and counts of acquittal) was criminal because it

constituted mail or wire fraud. (11/25/2002 Order at 6-7.)

She then found that all of Schaefer’s uncharged conduct was

also criminal because Schaefer used the same methods that

he used with respect to the charged conduct. (Id. at 7.) She

concluded that “the whole of Defendant’s art selling busi-

ness activities during the years 1994 through 1999 com-

prised a fraudulent scheme perpetrated by him against

numerous customers/purchasers, virtually all of whom be-

No. 03-1189 7

came victims through Defendant’s acts of mail and wire

fraud.” (Id. at 2.)

Judge Barker also noted that relevant conduct, to qualify

as such, must be within the scope of the scheme to defraud. In

that regard, she stated that “[t]he record leaves us entirely

convinced that Defendant’s intentions and methods in

dealing in animation art were all of one fraudulent piece,

advanced as part of an over-arching, all-inclusive scheme

that affected every transaction he conducted.” (Id. at 3.) The

evidence supporting this conclusion was said to “evinc[e] a

well-established, on-going, consistent pattern of misrepre-

sentations and deceits told or written to customers that

permeated and influenced virtually every transaction he

conducted.” (Id.) Thus, we find that Judge Barker correctly

determined that all of Schaefer’s conduct, including counts

of conviction, counts of acquittal and uncharged conduct,

was criminal in nature and properly constituted relevant

conduct.

Judge Barker identified three categories of losses that she

could calculate with particularity: (1) losses stemming from

the counts of conviction; (2) losses stemming from the

counts of acquittal; and (3) losses stemming from uncharged

conduct related to the three representative victims. The

total of these losses amounts to $81,801.

1. Counts of conviction

The conduct of which Schaefer was convicted generated

$1,875 in loss. Schaefer does not dispute this amount.

2. Counts of acquittal

With respect to the counts of acquittal, excluding Count

Two, which will be separately discussed, Judge Barker

found that the essential elements of mail fraud and wire

8 No. 03-1189

fraud were satisfied by a preponderance of the evidence,

and that there were no failures of proof as to any of these

counts. (11/25/2002 Order at 7.) Specifically, the only

feature distinguishing the mail fraud counts of conviction

from the mail fraud counts of acquittal was the evidence, in

the counts of conviction, of written misrepresentations

corroborating the three representative victims’ testimony of

oral misrepresentations. (Id. at 7 n.1.) Since oral mis-

representations are sufficient, and since the standard for

sentencing under the Guidelines is a preponderance rather

than beyond a reasonable doubt, Judge Barker’s inclusion

of acquitted conduct was not clearly erroneous. Moreover,

Schaefer does not dispute the inclusion of the counts of

acquittal (except for Count Two). Adding the conduct of

which Schaefer was acquitted (except for Count Two) brings

the total amount of loss up to $37,914.

Count Two, on which Schaefer was convicted at trial, was

later vacated by Judge Dillin because a description of the

cel at issue had been removed by the Government from the

envelope attached to the back of the cel and was not

supplied to the defense. The purchaser of the cel could not

remember his conversations with Schaefer about the cel but

insisted, based on the price he paid, that the cel must have

been represented as an original production cel.5 The cel,

however, was an original hand-painted cel, which had a

lower value.6 The “Official Description” in the envelope on

5

An original production cel is a one-of-a-kind cel, the physical

artwork actually used in the animation process, though it may not

appear in the finished film. See http://www.mcguirefinearts.com/

animationdefs.html (last visited August 23, 2004). Each hand-

painted cel represents a slight change in position of the charac-

ters.

6

A “hand-painted cel” may refer to a limited edition, hand-painted

reproduction of an image from actual production cels used in

(continued...)

No. 03-1189 9

the back of the cel confirmed that the cel was an “original

hand-painted cel,” not an original production cel. Defense

counsel was unable to impeach the purchaser’s testimony

because the “Official Description” had been removed, so

Judge Dillin vacated the conviction on that count.

In resentencing Schaefer, Judge Barker nonetheless in-

cluded the loss of $2,700 attributable to Count Two because

she determined that Schaefer’s conduct with respect to

Count Two was fraudulent, being part of his overall fraud-

ulent scheme. Thus, she concluded that, even if Count Two

should not be included with the charged conduct, it would

still qualify on the same grounds as the uncharged conduct.

Also, the Government had characterized Schaefer’s certifi-

cates of authenticity as misleading in themselves, and the

Government’s expert James Lentz testified that he had

never seen a legitimate certificate of authenticity in the

guise of an “Official Description” like the one attached to

the back of the cel in Count Two. There is thus sufficient

evidence in the record to support Judge Barker’s determina-

tion that Schaefer’s conduct with respect to Count Two

was—“Official Description” notwithstanding—fraudulent.

The inclusion of Count Two brings the total up to $40,614.7

6

(...continued)

animations. See http://www.mcguirefinearts.com/animationdefs.html

(last visited August 23, 2004). Less commonly, a “hand-painted

cel” may be created for publicity purposes, usually depicting a

character in an “ideal” pose. See http://

www.animationartcollecting.com/ collectables7definitions.html (last

visited August 23, 2004).

7

With respect to Schaefer’s sentence, whether Count Two is in-

cluded or not matters only if we also accept Schaefer’s argument

that the loss stemming from the uncharged conduct was over-

stated and/or unsupported. Otherwise, excluding the relatively

small loss amount attributable to Count II would not affect

(continued...)

10 No. 03-1189

3. Uncharged conduct related to three representa-

tive victims

The final category of loss relates to uncharged conduct

involving the three representative victims, which is dis-

cussed in the Government’s sentencing materials (i.e., the

animation art sales to the three representative victims that

were reviewed by the expert and discussed in detail by FBI

Special Agent Robert Brouwer). Schaefer disputes the

unlawfulness of some of the conduct as well as the loss

calculations made by the government’s expert Lentz and

relied upon by the government and Judge Barker.

Schaefer argues that the district court erred in finding

that all of his uncharged conduct with respect to these

transactions was criminal, when on approximately half of

the occasions, the government’s expert stated that the art-

work had been correctly described (though in some instances,

the appraised fair market value was lower than the price

paid). Schaefer asserts that “there is nothing fraudulent,

and certainly nothing criminal, about describing a piece

accurately but charging a different price” than that found

by the government’s expert to represent the market value

of the piece. (Schaefer’s Br. at 27 n.12.)

We first reiterate our finding in Schaefer I, now law of the

case, that both Special Agent Brouwer and the govern-

ment’s expert Lentz were credible witnesses, whose testi-

mony and affidavits we specifically suggested the district

court could rely upon in making its loss calculation. Schaefer I,

291 F.3d at 943, 944. Thus, charging a higher price than

that found by the expert, particularly after misrepresenting

to his victims that he was selling art at below market value

7

(...continued)

Schaefer’s sentencing range, because the total loss amount would

still be above $70,000, which represents the bottom of the loss

amount range used by Judge Barker in sentencing him.

No. 03-1189 11

from his dead mother’s estate, was criminally fraudulent.

(See 11/25/2002 Order at 3.) Judge Barker moreover found

that “the Defendant utilized the same methods and means

to perpetrate his fraudulent course of conduct as he used in

the counts of conviction” and that his sales to the represen-

tative victims were similar “in terms of subject matter,

content and timing, and were thus part of the common

scheme to defraud.” (Id. at 7-8.) Thus, even if Schaefer’s

victims paid precisely market value (or less than market

value) for a particular piece, the transaction could still have

been criminally fraudulent. To cite an analogy, a fraudulent

misrepresentation that a mutual fund is a “green” fund

with a portfolio of stocks only from environmentally friendly

corporations when the portfolio actually includes known

polluters might induce environmentally conscious investors

to purchase shares of the fund. Even if the fund’s rate of

return turns out to be the same or higher than it would

have been if the composition of the portfolio had actually

been “green,” so that there is no monetary “loss,” the

misrepresentation may still be fraudulent even though the

victims suffered no monetary loss. Thus, the district court did

not err in finding that Schaefer’s uncharged conduct with

respect to the representative victims was fraudulent,

whether or not the fraud resulted in monetary loss. Fur-

ther, the district court correctly characterized any excess

charges above market value (as determined by the govern-

ment’s expert) as monetary losses stemming from Schaefer’s

fraudulent conduct.

Schaefer also argues that the loss calculations were not

reliable. However, not only could Schaefer have raised this

issue on his first appeal, he also chose not to present alter-

native expert appraisals of his work. Since we already found

in Schaefer’s first appeal that Special Agent Brouwer and

the government’s expert Lentz were credible witnesses upon

whose testimony the district court could rely in making loss

calculations, Schaefer does not get a second bite at this

12 No. 03-1189

particular apple. Moreover, as we also noted in Schaefer I,

the Guidelines require that “[t]he court need only make a

reasonable estimate of the loss” which can be done by

calculating “[t]he approximate number of victims multiplied

by the average loss to each victim” or even more generally,

by basing it on such factors as “the nature and duration of

the fraud and the revenues generated by similar operations.”

U.S.S.G. § 2B1.1, cmt. n.3(C).8 Thus, according to the

Guidelines, in order to pass muster, loss calculations only

need to be a reasonable estimate. We conclude that Judge

Barker did not err in implementing her chosen methodology

for calculating the losses attributable to Schaefer’s fraudu-

lent conduct.

B. Upward departures

Moreover, although the usual standard of review applica-

ble to a district court’s decision to depart from the presump-

tive sentencing guidelines range is de novo, 18 U.S.C.

§ 3742(e), Schaefer waived his objections to the district

court’s decision to depart upward by failing to raise them

prior to or in conjunction with his resentencing. See United

States v. Marvin, 135 F.3d 1129, 1135 (7th Cir. 1998);

United States v. Heilprin, 910 F.2d 471, 474 (7th Cir. 1990).

Thus, the standard of review applicable to the upward de-

partures here is plain error. United States v. DeAngelo, 167

F.3d 1167, 1168 (7th Cir. 1999). We may reverse the district

court’s decision to depart upward by 3 sentencing levels

only if there were “conspicuous” and “particularly egregious

errors” causing a “miscarriage of justice.” Marvin, 135 F.3d at

1135.

8

The United States Sentencing Guidelines Manual will be cited

as “U.S.S.G.” The 1997 version of the Guidelines Manual was used

in calculating Schaefer’s sentence, and our citations are to this

version unless otherwise noted.

No. 03-1189 13

The Sentencing Guidelines allow upward departures if

the court finds “that there exists an aggravating . . . cir-

cumstance of a kind, or to a degree, not adequately taken

into consideration by the Sentencing Commission in formu-

lating the Guidelines that should result in a sentence

different from that described.” 18 U.S.C. § 3553(b). Our

review of upward departures involves a three-step analysis:

(1) the sentencing court must state adequate grounds to

support the departure; (2) the facts cited to support the

departure must exist in the record; and (3) the degree of

departure must be linked to the structure of the Guidelines.

United States v. Peterson, 256 F.3d 612, 614 (7th Cir. 2001).

With respect to the third factor, Schaefer argues that Judge

Barker was required, at minimum, to “draw an analogy

between the defendant’s actions and the conduct discussed

in the Guidelines.” United States v. Raimondi, 159 F.3d

1095, 1102 (7th Cir. 1998). However, although we have

approved of the analogy method, it is not a necessary

recourse in showing that the degree of departure is linked

to the Guidelines’ structure. See, e.g., United States v. Leahy,

169 F.3d 433, 445 (7th Cir. 1999) (finding that “there are no

hard and fast rules for determining the extent of an upward

departure,” but noting that we have approved the analogy

method); United States v. Scott, 145 F.3d 878, 886 (7th Cir.

1998) (“No rigid rule exists for computing an upward

departure.”).

Although Judge Barker departed upward by one level for

each of three stated reasons, the general grounds support-

ing each departure are the same: that actual losses are

present to a degree substantially in excess of those determi-

nable with specificity, and the unquantifiable losses “fall

outside the ‘heartland’ of conduct” embodied in the loss

tables. (11/25/2002 Order at 10.) She found the present case

to be atypical because the loss was present in an excep-

tional way, citing United States v. King, 150 F.3d 644, 650

(7th Cir. 1998).

14 No. 03-1189

While it is true that the evidence supports a finding that

losses were substantially greater than the amount Judge

Barker felt able to calculate “with the particularity required

under the loss tables in U.S.S.G. § 2F1.1(b)(1)” (11/25/2002

Order at 11), this does not necessarily translate into

support for using upward departures rather than attempt-

ing to estimate losses, particularly given the deferential

standard under which sentencing judges are allowed to

determine the amount of loss.9 We acknowledge that there

may be circumstances in which the use of an upward

departure in lieu of an estimate of losses attributable to

fraud might be appropriate, and that an inability to esti-

mate the loss caused by the fraud may be one such circum-

stances. For example, the Fifth Circuit has found that in

circumstances where the loss is not capable of determina-

tion, an upward departure is indeed appropriate. See United

States v. Garcia, 900 F.2d 45, 48 (5th Cir. 1990). But Garcia

is factually distinguishable from the situation at bar. In

Garcia, the defendant had taken and destroyed a large

volume of mail, and he made the same arguments that

Schaefer makes here: that the Guidelines accounted for the

amount of the loss—whether it be large or small—in the

loss tables, and that therefore a loss of any amount within

the range of the loss tables is within the contemplation of

the Guidelines. Like Schaefer, “Garcia argue[d] that the

incalculability of the loss resulting from his offense did not

involve a circumstance that the Sentencing Commission

failed to adequately consider, but rather resulted from

9

The Guidelines allow the amount of an offender’s gain to be

used as an alternative estimate of the harm caused by the fraud

if the loss sustained by victims cannot be readily estimated. See

United States v. Serpico, 320 F.3d 691, 698 (7th Cir. 2003) (quot-

ing U.S.S.G. § 2B1.1, cmt. n.2(B) (2001) (“The court shall use the

gain that resulted from the offense as an alternative measure of

loss only if there is a loss but it reasonably cannot be deter-

mined.’ ”)).

No. 03-1189 15

inaction on the part of the [prosecuting authority].” Id. But

Garcia’s destruction of the stolen mail made it impossible to

quantify the monetary loss resulting from his crime.10 Here,

on the other hand, we approved of a methodology for

making a reasonable estimate of losses in Schaefer

I—namely, the 55% multiplier— and the district court

chose not to use it. While the district court is correct that

the losses caused by Schaefer’s criminal conduct cannot be

determined with particularity, the Guidelines do not

require that the losses be determined with precision, only

that a reasonable estimate be made. See U.S.S.G. § 2B1.1,

cmt. n.8. Judge Barker did not attempt to make such an

estimate. This leaves us in a bit of a bind. For while the law

may support using Judge Barker’s three reasons in making

loss calculations, we have been pointed to no case law

supporting the use of these reasons in making upward

departures. Our analysis of each of these reasons follows.

Judge Barker departed upward by one level because of

the losses Schaefer intended to cause in the future, which

were not accounted for by her loss calculations. These in-

tended losses were evidenced by Schaefer’s $500,000 inventory

of animation art that was seized by government officials,

thereby preventing him from making additional fraudulent

sales. The size of Schaefer’s art inventory is factually sup-

ported by the record, as we noted in Schaefer I. And as we

also stated in Schaefer I, a defendant’s intended loss to vic-

tims is an appropriate consideration in making loss calcu-

lations. See United States v. Strozier, 981 F.2d 281, 284-85

(7th Cir. 1992). Since Judge Dillin’s loss calculation of

$231,000 “did not include any ‘intended loss’ that might be

10

United States v. Archambault is distinguishable because the

losses in that case were quantifiable, and they merely could not be

included in the loss calculations due to the timing of the un-

derlying criminal conduct. See Archambault, 62 F.3d 995, 1001

(7th Cir. 1995).

16 No. 03-1189

ascribed to Schaefer’s entire $500,000 art inventory that

was seized by government officials,” it could on this basis be

characterized as conservative. Schaefer I, 291 F.3d at 945.

Judge Barker’s loss calculation of $81,801 is likewise

conservative. Although no effort has been made to quantify

the intended loss attributable to this “well of future fraud”

(Gov’t Br. at 38), applying the 55% multiplier to the value

of Schaefer’s inventory (which, as the district court found,

would eventually have been sold, despite Schaefer’s protes-

tations that it was merely being used to decorate his children’s

bedrooms) would indicate intended future losses of

$275,000. This amount is more than enough to justify the

size of the upward departure attributable to intended

losses, since including this amount in the loss calculations

would have brought Schaefer’s Guidelines range up far more

than the one level allocated by Judge Barker. The size of

the departure is thus firmly linked to the Guidelines.

Although attempting to reasonably estimate losses caused

by fraud may be more in the spirit of the Guidelines than is

the use of upward departures, we cannot in these cir-

cumstances say that Judge Barker’s use of intended losses

to justify a one-level upward departure rises to the level of

a “conspicuous” and “particularly egregious” error causing

a “miscarriage of justice.” Marvin, 135 F.3d at 1135.

Judge Barker’s second one-level upward departure is

based on her finding that the size of the actual losses at-

tributable to Schaefer’s criminally fraudulent conduct was

substantially greater than the amount she felt able to calc-

ulate with particularity, namely $81,801. Schaefer argues

that this upward departure is erroneous, given Judge

Barker’s finding that it is “speculative” to claim that

Schaefer’s customers suffered more than $81,801 in losses.

This argument, however, involves a mischaracterization of

the district court’s findings. Judge Barker merely found

that it would have been speculative to try to come up with

a precise amount based on the multiplier methodology, but

No. 03-1189 17

she knew (and the record supports her finding) that the loss

amount would be much larger than $81,801. In fact, we

would have approved use of the government’s 55% multiplier,

given Judge Barker’s finding that all of Schaefer’s fraudu-

lent conduct was criminal, and this methodology would

have validated Judge Dillin’s loss calculation of $231,000.

Hence, Judge Barker’s use of a one-level upward departure

to account for the difference between $81,801 and $231,000

is more than supported by the Guidelines’ structure. While

an attempt to estimate the amount would again have been

preferable to resorting to an upward departure, we believe,

under the circumstances of this case, that the district

court’s decision to depart upward by one level to account for

the size of the actual losses is not an especially egregious

error, and it does not rise to the level of a miscarriage of

justice.

Judge Barker’s third one-level departure is based on the

unrealized appreciation promised to Schaefer’s victims. Al-

though, as we noted in Schaefer I, misrepresentations of a

rate of return made in furtherance of a fraudulent scheme

may in some circumstances be included in a loss calcula-

tion, see United States v. Porter, 145 F.3d 897, 901 (7th Cir.

1998), we do not believe that the circumstances here

support the use of this rationale as the underpinning for an

upward departure. We have never allowed unrealized ap-

preciation to be used in a loss calculation without a guar-

anteed rate of return or other indication of a specific degree

of appreciation. See Porter, 145 F.3d at 901 (allowing

“unrealized appreciation” in loss calculation when a spe-

cified rate of return was guaranteed, and the victim was

told in false account statements that his account had

attained specific values); United States v. Allender, 62 F.3d

909, 917 (7th Cir. 1995) (explaining that future appreciation

can be considered where there is “an enforceable agreement to

pay a calculable sum”). This is because the Guidelines indicate

that “loss” refers to “the value of the money, property, or

18 No. 03-1189

services unlawfully taken; it does not, for example, include

interest the victim could have earned on such funds had the

offense not occurred.” U.S.S.G. § 2F1.1, cmt. n.7.

Here, although Schaefer’s victims were admittedly unable

to realize the “appreciation in value Schaefer told his

consumers they would enjoy because he was selling his art-

work at below-market prices,” Schaefer I, 291 F.3d at 945,

neither did Schaefer make specific representations as to the

actual market value of those pieces. Thus, while Schaefer’s

victims may have had some indeterminate expectations of

profit (either immediately or in the future), there was no

enforceable agreement or guaranteed rate of return result-

ing in a determinable amount of loss . The government

argues that because this additional loss amount cannot be

calculated, an upward departure is appropriate to “prevent

the defendant from receiving no punishment for this real

and substantial additional loss.” (Gov’t Br. at 33.) But, un-

like the upward departures for Schaefer’s intended future

losses and for the larger-than-determinable actual losses,

we have no way of determining whether this one-level

upward departure is in any way linked to the structure of

the Guidelines. The government’s assertions that the size

of this loss is “substantial” do not provide us with any means

of determining whether one additional level is appropriate,

or whether the amount of loss represented by “unrealized

appreciation” is already accounted for by the existing loss

calculations and upward departures. For this reason, we

decline to extend our holdings in Porter and Allender with

respect to loss calculations to support an upward departure

based on indeterminate losses that may be attributable to

“unrealized appreciation.” Because the upward departure for

“unrealized appreciation” is not supported under the Guide-

lines as interpreted by our case law, we disallow it.

No. 03-1189 19

IV.

In light of Blakely and Booker, this case is remanded for

resentencing. However, in the event that the Supreme

Court decides that Blakely does not invalidate the federal

sentencing Guidelines, we affirm Judge Barker’s loss

calculation of $81,801 and two of Judge Barker’s three one-

level upward departures, and we reverse with respect to the

third one-level upward departure for unrealized appre-

ciation. Since the Guidelines level Judge Barker arrived at

was 21, whereas Judge Dillin’s was 20, this would place

Schaefer in the same sentencing range as Judge Dillin em-

ployed. Since we believe that Judge Barker would likely

reimpose Schaefer’s sentence of 37 months for the same

reason she (and Judge Dillin) have previously imposed that

sentence, a remand for resentencing in light of the lower

applicable Guidelines range is unnecessary. Cf. United

States v. Emezuo, 357 F.3d 703, 710-11 (7th Cir. 2003);

United States v. Wallace, 32 F.3d 1171, 1174-75 (7th Cir.

1994).11

REVERSED and REMANDED for resentencing.

11

Schaefer has also requested immediate release under bond from

incarceration, since he has already served what would presumably

be his sentence if the Guidelines are invalid. Based on the present

state of the law in this circuit, this seems to be a meritorious

request, but we leave this decision to the district court on remand.

In this regard, the district court might wish to take note of

Schaefer’s earlier positions in this case with respect to unchal-

lenged aspects of his sentence. See Booker, 375 F.3d at 510

(interpreting Blakely to allow sentences to be imposed based on

“what the jury found or the defendant admitted or, as here, did

not contest”) (emphasis added).

20 No. 03-1189

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—9-13-04