Petition for Writ of Certiorari — Rosby v. United States (No. 06-521)

Supreme Court, U.S.

(D) reo

No.06 06-521 0CT 12 2006

OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

seicaahincenesieasinn lili aiibisitiaienbtemamianaiael

THOMAS J. ROSBY and JOHN M. FRANKLIN,

Petitioners,

v,

UNITED STATES OF AMERICA,

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

JosEPH P. FRANKLIN JAMES A. SHAPIRO

WINSTON & STRAWN LLP Counsel of Record

35 W. Wacker Drive SHAPIRO & SCHWARTZ

Chicago, IL 60601 222 North LaSalle Street

(312) 558-5600 Suite 200

Chicago, IL 60601

Attorney for Petitioner (312) 782-4615

John M. Franklin

Attorney for Petitioner

Thomas J. Rosby

203896 g

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

- a | ae .

QUESTIONS PRESENTED

1. Whether the United States Court of Appeals for the

Seventh Circuit erred in determining that a jury instruction

defining the required element of materiality under the federal

mail and wire fraud statutes was proper, even though the

instruction directed the jury to ignore what the alleged victims

knew about the accuracy of the alleged misrepresentations?

2. Whether this Court should resolve the circuit split as

to whether United States v. Booker, 543 U.S. 220 (2005),

rendered Federal Sentencing Guideline departure

methodology obsolete, and whether the United States Court

of Appeals for the Seventh Circuit was wrong in failing to

follow its own precedent by finding that the district court

did not plainly err in using departure methodology at

sentencing?

ii

TABLE OF CONTENTS

Page

RPRPEetre PAPI POINTED 6. ccc cc ccc ceees i

a 5 pr il

TASLe OF CIIED AUTHORITIES ...........- IV

PT Caw cece sere cc essvnceceess l

STATEMENT OF JURISDICTION ............. l

STATUTORY AUTHORITY INVOLVED ........ l

ee Se) rr

I. 180U.S.C. § 1343 Es i a's 69-0 #201 2

re 2

Depeeeeeeeeee se GPP EPR CAGE ..... 2... see c sees 5

oo wemeeee Of tee CASE ............... 5

m FACIUAL BACKGROUND ............ 9

A. The Materiality Instruction .......... 9

B. The District Court’s Use of Departure

ESE 13

lil

Contents

REASONS FOR GRANTING THE PETITION

L.

II.

THE MATERIALITY INSTRUCTION

GIVEN AT TRIAL IS FUNDAMENTALLY

AT ODDS WITH THE LEGALLY

APPLICABLE COMMON LAW

DEFINITION OF MATERIALITY ........

THE DISTRICT COURT’S USE OF

DEPARTURE METHODOLOGY AT

SENTENCING CONSTITUTES PLAIN

BRE csv eedccedecsceweeeceveeeuees

CORNET ATI vnc be hen ku ke hecsane nner tenses

APPENDIX — OPINION OF THE_UNITED

STATES COURT OF APPEALS FOR THE

SEVENTH CIRCUIT DECIDED JULY 19,

DOOD ak bik de 000d Fe obey enews cece ers

Page

14

$$

iv

TABLE OF CITED AUTHORITIES

CASES

Blakely v. Washington, 542 U.S. 961 (2004) ...... 25

Bundesen v. Lewis, 368 Ill. 623, 15 N.E.2d 520

SE ec ls ace cea vie een Keke 15

Cappiccioni v. Brennan Naperville, Inc., 339 Ul. App.

3d 927, 791 N.E.2d 553 (2? Dist. 2003) ........ 15

Central States Joint Board v. Continental Assurance

Co., 171 Ill. App. 3d 600, 458 N.E.2d 932

Se es Ce os 6 o-0 0 oo kere eas beets as 15

Dickinson v. Dickinson, 365 Il). 521, 137 N.E. 468

Se plea ade se ete eee we eee thoes 15-16

Federal Deposit Insurance Corp. v. Lauterbach,

COG OO B55 s OF a, TD vce evee canes 16

Jeffrey M. Goldberg Associates, Ltd. v. Collins &

Tuttle Co., Inc., 264 Ill. App. 3d 878, 637 N.E.2d

Se FEE nk oe uci ekaeeaawnn 8, 15

Lidecker v. Kendall College, 194 Ill. App. 3d 309,

550 N.E.2d 1121 (1% Dist. 1990) ......... ae

Mayer v. Spanel International, Ltd., 51 F.3d 670

PP: WO basso eas ek es SR 8, 17

Cited Authorities

Page

Miller v. Williams Chevrolet/GEO, Inc., 326 Ill.

App. 3d 642, 762 N.E. 2d 1 (1* Dist. 2001) .... 15

Morrill v. Madden, 35 Minn. 493, 29 N.W. 193

| Oe ree or or er ree iveuweg ne bates 16

Neder v. United States, 527 U.S. 1 (1999) ..... 7, 12, 14

Neptune Treuhand-Und Verwaltungsgesellschaft

Mbh v. Arbor, 295 Ill. App. 3d 567, 692 N.E.2d

yds 4 a, | eer eer re re 15

North American Financial Group, Ltd. v. S.M.R.

Enterprises, Inc., 583 F. Supp. 691 (N.D. Til.

Ls Se ere ay were ree Cees re oe 8,17

Peery v. Hansen, 120 Ariz. 266, 585 P.2d 574

‘Vge Re 0: | re ee ee Oey 16

Sado v. Ellis, 882 F. Supp. 1401 (S.D.N.Y. 1995) .... 16

Sass v. Andrew, 152 Md. App. 406, 832 A.2d 247

| Se emer ee ee ary eet ery 7-8, 16

Scott v. Fulton Nat. Bank of Atlanta, 92 Ga. App.

741, $9 $.E.2d $92 (1* Div. 1995) .......0+.. 16

State Security Insurance Co. v. Frank V. Hall & Co.,

258 Ill. App. 3d 558, 630 N.E.2d 940 (1* Dist.

| OR rn a Erm rr er Tre kee 15

vi

Cited Authorities -

Page

United States v. Arcadipane, 41 F.3d 1 (1* Cir.

i coda dae dba Bee ee Rw ON 12

United States v. Arnaout, 431 F.3d 994 (7" Cir.

Sav iyo hayt std R a he es ees 26

United States v. Azad, 809 F.2d 291 (6" Cir. 1987) ... 12

United States v. Booker, 543 U.S. 220 (2005) ....passim

United States v. Brown, 79 F.3d 1550 (11" Cir. 1996)

HACK FR Ee Pan pO aad PEN BER EE NNO eT ag e, i7

United States v. Coppola, 2006 WL 2460804 *5

a ee BOD 3 bv videdaceweunceedees 19-20

United States v. Crawford, 407 F.3d 1174 (11" Cir.

GAG me ines aaly aah ena ee we ON Reo 19

United States v. Crosby, 397 F.3d 103 (2¢ Cir.

eee Pac aa GU haa dial carbs ae ae CON 22

United States v. Cruz-Guevara, 209 F.3d 644 (7" Cir.

cL iin csi Gweh t cenwe sabes aC eawe ee 27

United States v. Goldfine, 538 F.2d 815 (9" Cir.

aia te asinine pa a ibaceslaw & wick Se owe 13

vil

Cited Authorities

Page

United States v. Grigg, 442 F.3d 560 (7" Cir.

|) rer rrr Pe ere 22, 23, 29

United States v. Hawk Wing, 433 F.3d.622 (8" Cir.

| rene rr er mr re rr. eso 19, 21

United States v. Hewlett, 453 F.3d 876 (7" Cir. 2006)

ce Og die gies Gres a es ia wath wa mle wNeN 26

United States v. Holmes, 93 F.3d 289 (7" Cir. 1996)

EE IO Re ner e re ry ey re Ee Le 14

United States v. Howard, 454 F.3d 700 (7" Cir. 2006)

ere ere ee ee per er ee ree ore 26

United States v. Hughes, 396 F.3d 374 (4" Cir. 2005)

PP Ee TET Pre ees ey 21

United States v. Johnson, 427 F.3d 423 (7" Cir. 2005)

ee ee Pre Peer Pe ere ee te ee ee passim

United States v. Julian, 427 F.3d 471 (7® Cir. 2005)

ee enn wor ers here rors Py se 25

United States v. Laufle, 433 F.3d 981 (7" Cir. 2006)

Oe a eral aye ae ae ea er ease tamrarie ls GNP eel 26

vill

Cited Authorities

Page

United States v. Mohamed, 459 F.3d 979 (9" Cir.

| RR ee ue rere ree 18, 19, 20, 21

United States v. Moreland, 437 F.3d 424 (4" Cir.

EE oh vw owe eee ews Rob bee 18-19

United States v. Olano, 507 U.S. 725 (1993) ... 14,25, 26, 27

United States v. Oliver, 129 Fed. Appx. 210 (6 Cir.

BEE occas a ederecnes aie ek eee bers 21

United States v. Paladino, 401 F.3d 471 (7™ Cir.

a TPCT Ce rer ee re ae 22, 23, 27, 28

United States v. Picket, 209 F. Supp. 2d 84 (D.D.C.

pe wt rr errr errr Pree 13

Pee re mr ee eT ee ee ee 21

Sd POTTER TOL TOC ET ee eee ore TES 19

United States v. Sierra-Castillo, 405 F.3d 932

CO Se Be na bd Gass eee ee earees 19

United States v. Smith, 2006 WL 2457462 *4 (7" Cir.

ae ie | ere mre Terrors yet 23

United States v. Walker, 447 F.3d 999 (7™ Cir.

SE cas btn ed eee te eee Peary a trae 26

ix

Cited Authorities

Page

United States v. Whitaker, 848 F.2d 914 (8" Cir.

|: Rn ee BOR re ie ee 8, 13, 14

Ward v. Luneen, 1887 WL 5753 (Ill. App. 1886) ... 16

Williams v. Bisson, 142 Me. 83, 46 A.2d 708

CN ee eens eR Vs sede ieee ecco reres 16

FEDERAL STATUTES

re $,7

OS 12

ST ei aicacw ieee ereserevevesce passim

i cceeeeveeeie: 1,5,7

SS ne 172, 5,7

See 5

Se 2,24, 27

Pee 0 56500GM1) .............5----a---- 22

SOU GO 6 35530DK2) ............-- 00-0 22

re 6

RU RITEMTY |... 5... eee eee eee

MN cee cece e eee 6

l

The Petitioners, Thomas J. Rosby and John M. Franklin,

respectfully submit this Petition for Writ of Certiorari to review

the judgment and opinion of the United States Court of Appeals

for the Seventh Circuit, entered in the above-entitled proceeding

on July 19, 2006.

OPINION BELOW

The opinion of the United States Court of Appeals for the

Seventh Circuit is published at 454 F.3d 670 (7th Cir. 2006)

and is reprinted in the Appendix hereto at page la.

STATEMENT OF JURISDICTION

The United States Court of Appeals for the Seventh Circuit

affirmed Petitioners’ convictions and sentences on July 19, 2006.

Petitioners did not seek a rehearing. This Court has

jurisdiction to review the Seventh Circuit’s decision under

28 U.S.C. § 1254(1).

STATUTORY AUTHORITY INVOLVED'

I. 18U.S.C. § 1341 (1994)

Whoever, having devised or intending to devise any scheme

or artifice to defraud, or for obtaining money or property by

means of false or fraudulent pretenses, representations, or

promises, or to sell, dispose of, loan, exchange, alter, give away,

distribute, supply, or furnish or procure for unlawful use any

counterfeit or spurious coin, obligation, security, or other article,

or anything represented to be or intimated or held out to be

such counterfeit or spurious article, for the purpose of executing

such scheme or artifice or attempting so to do, places in any

1. 18 U.S.C. §§ 1341 and 1343, quoted in this section, have been

amended. This section quotes the prior statutory language applied in

the present case, both for substantive law and sentencing purposes.

2

post office or authorized depository for mail matter, any matter

or thing whatever to be sent or delivered by the Postal Service,

or deposits or causes to be deposited any matter or thing

whatever to be sent or delivered by any private or commercial

interstate carrier, or takes or receives therefrom, any such matter

or thing, or knowingly causes to be delivered by mail or such

carrier according to the direction thereon, or at the place at which

it is directed to be delivered by the person to whom it is

addressed, any such matter or thing, shall be fined under this

title or imprisoned not more than five years, or both. If the

violation affects a financial institution, such person shall be fined

not more than $1,000,000 or imprisoned not more than 30 years,

or both.

Il. 18 U.S.C. § 1343 (1994)

Whoever, having devised or intending to devise any scheme

or artifice to defraud, or for obtaining money or property by

means of false or fraudulent pretenses, representations, or

promises, transmits or causes to be transmitted by means of

wire, radio, or television communication in interstate or foreign

commerce, any writings, signs, signals, pictures, or sounds for

the purpose of executing such scheme or artifice, shall be fined

under this title or imprisoned not more than five years, or both.

If the violation affects a financial institution, such person shall

be fined not more than $1,000,000 or imprisoned not more than

30 years, or both.

Ill. 18 U.S.C. § 3553(a)

The court shall impose a sentence sufficient, but not greater

than necessary, to comply with the purposes set forth in

paragraph (2) of this subsection. The court, in determining the

particular sentence to be imposed, shall consider—

(1) the nature and circumstances of the offense and

the history and characteristics of the defendant;

(2)

3

the need for the sentence imposed—

(A)

(B)

(C)

(D)

to reflect the seriousness of the

offense, to promote respect for the

law, and to provide just punishment

for the offense;

to afford adequate deterrence to

criminal conduct;

to protect the public from further

crimes of the defendant; and

to provide the defendant with

needed educational or vocational

training, medical care, or other

correctional treatment in the most

effective manner;

(3) the kinds of sentences available;

(4)

the kinds of sentence and the sentencing range

established for—

(A)

(i)

the applicable category of offense

committed by the applicable

category of defendant as set forth in

the guidelines—

issued by the Sentencing

Commission pursuant to

section 994(a)(1) of title 28,

United States Code, subject to

any amendments made to such

guidelines by act of Congress

(regardless of whether such

amendments have yet to be

4

incorporated by _ the

Sentencing Commission into

amendments issued under

section 994(p) of title 28); and

(ii) that, except as provided in

(B)

section 3742(g), are in effect

on the date the defendant is

sentenced; or

in the case of a violation of probation

or supervised released, the

applicable guidelines or policy

statements issued by the Sentencing

’ Commission pursuant to section

994(a)(3) of title 28, United States

Code, taking into account any

amendments made to. such

guidelines or policy statements by

act of Congress (regardless of

whether such amendments have yet

to be incorporated by the Sentencing

Commission into amendments

issued under section 994(p) of title

28);

(5S) any pertinent policy statement—

(A)

issued by the Sentencing

Commission pursuant to section

994(a)(2) of title 28, United States

Code, subject to any amendments

made to such policy statement by act

of Congress (regardless of whether

such amendments have yet to be

.

5

incorporated by the Sentencing

Commission into amendments

issued under sectic 1 994(p) of title

28); and

(B) that, except as provided in section

3742(g), is in effect on the date the

defendant is sentenced;

(6) the need to avoid unwarranted sentence

disparities among defendants with similar

records who have been found guilty of similar

conduct; and

(7) the need to provide restitution to any victims

of the offense.

STATEMENT OF THE CASE

I. NATURE OF THE CASE

On January 19, 2001, a grand_jury returned a ten-count

indictment charging Thomas J. Rosby (““Mr. Rosby”) and John

M. Franklin (“Mr. Franklin”) with one count of conspiracy under

18 U.S.C. § 371 (Count 1), six counts of wire fraud under

18 U.S.C. § 1343 (Counts 2-7), and three counts of mail fraud

under 18 U.S.C. § 1341 (Counts 8-10). Indictment at 5-22.

The government later dismissed Count 5 of the indictment.

District Court Docket at 15-16. Messrs. Rosby and Franklin

entered not guilty pleas. /d. at 18. On November 4, 2002, they

proceeded to trial on the remaining nine counts. /d. at 25-26.

The district court had jurisdiction pursuant to 18 U.S.C. § 3231.

On November 20, 2002, the jury returned a verdict of guilty

on all counts against Messrs. Rosby and Franklin. District Court

Docket at 29. The district court sentenced Mr. Rosby on April

6

21, 2005. Jd. at 42-43. The court entered its judgment and

commitment order concerning Mr. Rosby the same day, and an

amended judgment on August 5, 2005. District Court Judgment

(Rosby); Amended District Court Judgment (Rosby). The district

court sentenced Mr. Franklin on April 28, 2005. District Court

Docket at 45-46. The court entered its judgment concerning

Mr. Franklin the same day. District Court Judgment (Franklin).

Mr. Rosby filed a timely Notice of Appeal on April 26,

2005. District Court Docket at 44-45. Mr. Franklin filed a timely

Notice of Appeal on April 29, 2005. /d. at 46. The United States

Court of Appeals for the Seventh Circuit had jurisdiction

pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742.

Mr. Rosby was president, chief executive officer and a

director of Monon Corporation (“Monon”), a manufacturer of

over-the-road semi-trailers. Indictment at 1-2. Mr. Franklin was

executive vice-president, chief financial officer, and a director

of Monon. /d. at 2. The indictment alleged, first, that Messrs.

_ Rosby and Franklin devised a scheme to defraud two insurance

premium finance lenders, A.I. Credit Corp. (“A.I. Credit’) and

Anthem Premium Finance (“Anthem”), for the purpose of

inducing them to loan money to Monon. /d. at 2-4, 6.

The substance of the alleged misrepresentations pertained to

the existence and amount of workmen’s compensation insurance

premiums Monon was required to pay, and Monon’s intent to

use loan proceeds to finance annual insurance premiums.

Id. at 6.

Second, the indictment alleged that Messrs. Rosby and

Franklin devised a scheme to defraud Monon’s revolving credit

lender, Congress Financial Corporation (“Congress”), for the

purpose of inducing Congress to loan money to Monon.

Id. at 6-7. The substance of the alleged misrepresentations

7

concerned the amount of Monon’s accounts receivable. /d.

The indictment period ran from March through August of 1996.

Id.

As previously noted, on November 20, 2002, the jury

returned a verdict of guilty against Messrs. Rosby and Franklin

on one conspiracy count, 18 U.S.C. § 371, five wire fraud counts,

18 U.S.C. § 1343, and three mail fraud counts, 18 U.S.C.

§ 1341. The wire fraud counts pertained to the alleged scheme

concerning A.I. Credit and Anthem. The mail fraud

counts pertained to the alleged scheme concerning Congress.

Id. at 10-22. Messrs. Rosby and Franklin were both sentenced

to a total term of 87 months in prison. Amended District Court

Judgment (Rosby) at 2; District Court Judgment (Franklin)

at 2. They were both ordered to pay a total of $8,646,394 in

restitution, $1,979,893 to A.I. Credit, $4,866,501 to Anthem,

and $1,800,000 to Congress. Amended District Court Judgment

(Rosby) at 4; District Court Judgment (Franklin) at 4.

As discussed in greater detail below, at trial, Messrs. Rosby

and Franklin presented evidence that each of the recipients of

the alleged misrepresentations, A.I. Credit, Anthem, and

Congress, either knew the truth about the matters allegedly

misrepresented, or deliberately chose to ignore readily available

information concerning the accuracy of the alleged

misrepresentations. According to Neder v. United States,

527 U.S. 1, 25 (1999), materiality is an essential element of

mail fraud and wire fraud. Furthermore, under the mail and wire

fraud statutes, materiality is defined as it is defined by the

common law. Neder, 527 U.S. at 21-22. The common law

definition of materiality contemplates, in turn, that when the

recipient of a misrepresentation acts with knowledge of its

falsity, or deliberately disregards information concerning the

accuracy of the alleged misrepresentation, the misrepresentation

must be, and is, immaterial. See, e.g., Sass v. Andrew, 152 Md.

8

App. 406, 440, 832 A.2d 247, 266 (2003); Jeffrey M. Goldberg

& Associates, Ltd. v. Collins & Tuttle Co., Inc., 264 Ill. App. 3d

878, 855, 637 N.E.2d 1103, 1108 (1st Dist. 1994); see also

United States v. Brown, 79 F.3d 1550, 1559 (11th Cir. 1996);

Mayer v. Spanel International, Ltd., 51 F.3d 670, 676 (7th Cir.

1995); North American Financial Group, Ltd. v. S.M.R.

Enterprises, Inc., 583 F. Supp. 691, 698 (N.D. Ill. 1984).

In this case, the district court failed to instruct the jury

properly with respect to the required element of materiality.

The jury instruction defining materiality that the government

proposed, and the district court adopted, derives from

the definition of materiality under a federal statute, 18 U.S.C.

§ 1001, concerning false statements to the federal government.

It does not derive from the common law definition of materiality,

as Neder requires. 527 U.S. at 22-23. The distinction makes a

difference because, according to the 18 U.S.C. § 1001 definition

of materiality, in direct contrast to the applicable common law

definition of materiality, even a recipient’s actual knowledge of

the falsity of an alleged misrepresentation is entirely irrelevant

to the factual determination of whether the alleged

misrepresentation was material. See, e.g., United States v.

Whitaker, 848 F.2d 914, 916 (8th Cir. 1988).

Messrs. Rosby and Franklin challenged their convictions

on appeal by arguing, among other things, that the materiality

instruction was improper because it failed to direct the jury to

take into account what the recipients of the alleged

misrepresentations knew, and what information they deliberately

chose to disregard, about_the accuracy of the alleged

misrepresentations. Appellants’ Joint Opening Brief at 23-27.

The United States Court of Appeals for the Seventh Circuit

rejected this argument and others raised by Messrs. Rosby and

Franklin in an opinion issued on July 19, 2006. Appendix, 13a.

In so doing, and as explained more fully below, the Seventh

9

Circuit committed a fundamental error. This is because, under

the applicable common law definition of materiality, the

instruction defining materiality in a mail or wire fraud case must

direct the jury to consider what the recipients knew about the

alleged misrepresentations, and what information they

deliberately chose to ignore about the alleged

misrepresentations.

Moreover, in this case, the district court incorrectly

employed departure methodology when it sentenced Messrs.

Rosby and Franklin. On appeal, Messrs. Rosby and Franklin

argued that based on intervening Seventh Circuit case law, the

district court’s use of departure methodology was improper.

Appellants’ Joint Opening Brief at 38-40. The Seventh Circuit

rejected this argument. Appendix, 13a. As discussed in greater

detail below, the district court committed plain error by

employing departure methodology because, as the Seventh and

Ninth Circuits have repeatedly held, United States v. Booker,

543 U.S. 220 (2005), made departure methodology obsolete.

il. FACTUAL BACKGROUND

A. The Materiality Instruction

A.1. Credit and Anthem are premium finance lenders in the

business of loaning money for the purpose of financing

commercial insurance at premiums. Trial Transcript Vol. 8 at

186:3-10; Vol. 11 at 82:2-4, 82:24-83:10. As previously noted,

according to-the indictment, Messrs. Rosby and Franklin

misrepresented to A.I. Credit and Anthem the amount of

workmen’s compensation insurance premiums Monon was

required to pay, and Monon’s intent to use loan proceeds to

finance annual insurance premiums. Indictment at 6. At trial,

there was evidence that A.I. Credit and Anthem either were

aware of the truth, or deliberately disregarded information

10

bearing directly on the accuracy of the alleged

misrepresentations.

By way of example, before any of the loans that occurred

during the indictment period, A.I. Credit was specifically aware

that Monon was customarily using proceeds of other A.I. Credit

premium financing loans to cover operating expenses, and not

to finance insurance premiums. In fact, about one year before

the indictment period, A.I. Credit loaned Monon money

knowing, and having been clearly informed, that Monon would

retain $1.5 million of the loan, not to finance insurance

premiums, but to pay other operating expenses. Trial Transcript

Vol. 11 at 20:10-21:13, 49:19-50:12.

Cindy Carroll was the branch manager at A.I. Credit’s

Boston office in 1995, and also in 1996 when A.I. Credit made

loans to Monon during the indictment period. Trial Transcript

Vol. 11 at 113:11-14, 136:2-137:1. The two A.I. Credit loans

that occurred during the indictment period originated out of A.L.

Credit’s Boston office. Trial transcript Vol. 11 at 113:15-18.

In the spring of 1995, A.I. Credit loaned Monon $4,615,000

knowing that the loan constituted overfunding—i.e., funding

in excess of Monon’s insurance premium obligations—and

knowing that Monon intended to retain $1.5 million of the loan

proceeds for its own use, and not to pay insurance premiums.

Trial Transcript Vol. 11 at 20:10-21:13, 49:19-50:12. Not only

did A.I. Credit know it was overfunding Monon’s insurance

premium obligations, and that Monon would retain $1.5 million

in loan proceeds for its own use, but it actively enlisted the

assistance of Monon’s workmen’s compensation insurer, Mutual

Indemnity, Limited, to ensure that the portion of the loan

proceeds constituting overfunding would be disbursed to

Monon. Trial Transcript Vol. 11 at 21:14-22:25, 23:10-24, 24:24-

25:19.

11

In addition, one of the government’s own witnesses who

had entered into a plea agreement testified that he believed A.I. .

Credit knew Monon’s use of loan proceeds for purposes other

than insurance premium financing was an ongoing practice.

Trial Transcript Vol. 11 at 78:6-16. Thus, the evidence at trial

was that, in 1995, about one year before the indictment period,

A.I. Credit entered into a relationship with Monon pursuant to

which A.I. Credit (1) knowingly provided financing to Monon

in excess of Monon’s insurance premium obligations;

(2) knowingly consented to Monon’s use of loan proceeds for

purposes other than insurance premium financing;

and (3) enlisted the assistance of Monon’s workmen’s

compensation insurer, Mutual Indemnity, Limited, to provide

Monon with loan proceeds in excess of Monon’s insurance

premium obligations. In other words, prior to the indictment

period, A.I. Credit was aware of that which was allegedly

misrepresented.

Despite the evidence, the jury instruction defining

materiality that the government proposed and the district court

adopted was designed to direct the jury to disregard what the

recipients of the alleged misrepresentations knew, and what

information they deliberately disregarded, concerning the alleged

misrepresentations. Specifically, the jury instruction that was

given regarding materiality was as follows:

A statement is material if it had the effect of

influencing the action of a lender, or was capable or

had the potential to do so. It is not necessary that the

statement actually have that influence or be relied

on by the lender, so long as it had the potential or

capability to do so.

Government’s Proposed Instruction No. 28. According to the

government, this instruction derives from a Seventh Circuit

12

Pattern Jury Instruction covering 18 U.S.C. § 542 (Government’s

Proposed Instruction No. 28), a statutory provision which

criminalizes false statements in connection with the entry of

goods into United States commerce. The relevant pattern jury

instruction for 18 U.S.C. § 542 notes, in turn, that this instruction

is derived from the pattern jury instruction defining materiality

under 18 U.S.C. § 1001. Pattern Criminal Federal Jury

Instructions for the Seventh Circuit at 165. Indeed, the

instruction that the government offered and that the district court

adopted is substantially identical to the Seventh Circuit Pattern

Jury Instruction defining materiality under 18 U.S.C. § 1001.

Id. at 201.

This is significant because the instruction the district court

gave defining materiality derives from a federal statute,

18 U.S.C. § 1001, concerning false statements to the federal

government, and not from the common law of fraud, as this

Court required in Neder. See Neder, 527 U.S. at 22-23. This

distinction makes a difference. Title 18 U.S.C. § 1001 is intended

to promote the smooth functioning of government, and the

expeditious processing of government business, by establishing

a blanket proscription against the making of false statements to

federal agencies. United States v. Arcadipane, 41 F.3d 1, 4-5

(1st Cir. 1994). A mere false statement is at the foundation of a

violation of 18 U.S.C. § 1001, but a scheme to defraud is

essential for a conviction under the mail fraud statute. United

States v. Azad, 809 F.2d 291, 296 (6th Cir. 1987).

Furthermore, under 18 U.S.C. § 1001, a false statement is

material even if the recipient knew the statement was false:

The issue is whether the statements, viewed alone,

were capable of influencing the function of the FDIC.

It is irrelevant what the agent who heard the

statement knew at the time the statement was made

13

A false statement can be material even if the agent

to whom it is made knows that it is false.

United States v. Whitaker, 848 F.2d 914, 916 (8th Cir. 1988)

(discussing materiality requirement under 18 U.S.C. § 1001);

see also United States v. Goldfine, 538 F.2d 815, 820-21 (9th

Cir. 1976) (false statements in response to questions posed by

DEA agents were material under 18 U.S.C. § 1001 even though

agents knew the truth and were not deceived); United States v.

Picket, 209 F. Supp. 2d 84, 87-88 (D.D.C. 2002) (false

statements material under 18 U.S.C. § 1001 despite abundant

evidence that no government actor was deceived).

Thus, the instruction given at trial improperly conveyed to

the jury the 18 U.S.C. § 1001 definition of materiality, which,

in contrast to the applicable common law definition of

materiality, contemplates a finding of materiality regardless of

the recipient’s knowledge, even if the recipient knew the

statement was false. Whitaker, 848 F.2d at 916; Goldfine, 538

F.2d at 820-21; Picket, 209. F. Supp. 2d at 87-88.

B. The District Court’s Use of Departure Methodology

When it sentenced Messrs. Rosby and Franklin, the district

court employed the old Federal Sentencing Guideline departure

methodology, which was in force before United States v. Booker,

543 U.S. 220 (2005), when the Guidelines were still mandatory.

For example, when it sentenced Mr. Rosby the district court

stated:

Even though departure is authorized in this case, in

the exercise of its direction, the court will not depart,

because, I believe, departure is not warranted under

the facts and circumstances of this case.

14

Rosby Sentencing Transcript at 119:15-20. Although

Petitioners did not challenge the district court’s use of departure

methodology at sentencing (since the Seventh Circuit had not

yet interpreted Booker to have rendered departure methodology

obsolete),-it constitutes plain error in light of United States v.

Johnson, 427 F.3d 423, 426 (7th Cir. 2005), according to which

departure methodology no longer applies.

REASONS FOR GRANTING THE PETITION

I. THE MATERIALITY INSTRUCTION GIVEN AT

TRIAL IS FUNDAMENTALLY AT ODDS WITH THE

LEGALLY APPLICABLE COMMON LAW

DEFINITION OF MATERIALITY

Although no objection was raised to the materiality

instruction at trial, it is clear that the Seventh Circuit committed

a fundamental error by rejecting Petitioners’ challenge on appeal.

When no objection was raised at trial as to a disputed jury

instruction, a plain error standard of review applies. United

States v. Oleao, 507 U.S. 725, 732-34 (1993). The error must

be clear under current law. Oland, 507 U.S. at 734. Furthermore,

the error must affect substantial rights; for example, when the

clear possibility exists that a defendant might have been found

not guilty had the jury been instructed properly. United States v.

Holmes, 93 F.3d 289, 294 (7th Cir. 1996).

The error regarding the materiality instruction was clear

under current law. In a mail or wire fraud case, the common

law defines the required element of materiality. Neder, 527 U.S.

21-22. The materiality instruction given in the present case was

based on 18 U.S.C. § 1001, according to which the recipient’s

knowledge concerning the alleged misrepresentations makes no

difference. See, e.g., Whitaker, 848 F.2d at 916. By contrast,

‘according to the legally applicable common law definition of

15

materiality, the recipient’s knowledge concerning the alleged

misrepresentations is determinative. For example, according to

the common law of fraud, an alleged misrepresentation is

material only if the alleged victim could reasonably have relied

on it. Jeffrey M. Goldberg & Associates, Ltd. v. Collins & Tuttle

Co., Inc., 264 Ill. App. 3d 878, 885, 637 N.E.2d 1103, 1108 (1st

Dist. 1994); State Security Insurance Co. v. Frank V. Hall &

Co., 258 Ill. App. 3d 558, 592, 630 N.E.2d 940, 943 (1st Dist.

1994).

Furthermore, materiality, at common law, can only be

defined in the context of the transaction between the parties.

Lidecker v. Kendall College, 194 Ill. App. 3d 399, 316, 550

N.E.2d 1121, 1125 (1st Dist. 1990). In determining whether

there could have been reasonable reliance, and therefore whether

any material misrepresentation could have been made, it is

necessary to consider all of the facts within the alleged victim’s

actual knowledge, as well as those which could have been

discovered by the exercise of ordinary prudence. Neptune

Treuhand-Und Verwaltungsgesellschaft Mbh v. Arbor, 295 Ill.

App. 3d 567, 575, 692 N.E.2d 812, 818 (1st Dist. 1998).

When ample opportunity existed to discover the truth of

the matters allegedly misrepresented, there can be no reasonable

reliance on the alleged misrepresentation and, consequently, the

matters allegedly misrepresented are not material. Cappiccioni

v. Brennan Naperville, Inc., 339 Ill. App. 3d 927, 939, 791

N.E.2d 553, 563 (2d Dist. 2003); Miller v. Williams Chevrolet/

GEO, Inc., 326 Ill. App. 3d 642, 651, 762 N.E.2d 1, 9 (1st Dist.

2001); Central States Joint Board v. Continental Assurance Co.,

171 Ill. App. 3d 600, 607, 458 N.E.2d 932, 937 (1st Dist. 1983);

see also Bundesen v. Lewis, 368 Ill. 623, 636, 15 N.E.2d 520,

526 (1938) (no reasonable reliance when alleged victim “has

ample opportunity to ascertain the truth of the representations

before he acts.”); Dickinson v. Dickinson, 305 Ill. 521, 527,

16

137 N.E. 468, 470 (1922) (same); Ward v. Luneen, 1887 WL

5753, *3 (Ill. App. 1886) (no reasonable reliance concerning

any matter which, by ordinary care, could have been detected).’

The federal courts have similarly determined that if the

recipient of an alleged misrepresentation was aware that it was

false, or deliberately ignored information bearing on the veracity

of an alleged misrepresentation, the alleged misrepresentation

cannot be material. For example:

[A]n investor cannot close his eyes to a known risk.

If the investor possesses sufficient information to

call the representation into question, he cannot claim

2. Cases from other jurisdictions across time confirm that

according to the common law definition of fraud, there can be no fraud

if the recipient of the alleged misrepresentation either knew the true

facts or reasonably could have ascertained them. See, e.g., Sass v.

Andrew, 152 Md. App. 406, 440, 832 A.2d 247, 266 (2003) (under

Maryland law misrepresentation “is generally immaterial if the party to

whom it is made reasonably could have ascertained the true facts.”);

Sado v. Ellis, 882 F. Supp. 1401, 1407 (S.D.N.Y. 1995) (under New

York law, no fraud where party could have discovered truth with ordinary

diligence); Federal Deposit Insurance Corp. v. Lauterbach, 626 F.2d

1327, 1334 (7th Cir. 1980) (under Wisconsin law, no fraud where truth

could have been discovered through exercise of ordinary care); Peery

v. Hansen, 120 Ariz. 266, 269, 585 P.2d 574, 577 (2d Div. 1978) (under

Arizona law, no fraud where recipient of alleged misrepresentation knew

or reasonably should have known truth); Scott v. Fulton Nat. Bank of

Atlanta, 92 Ga. App. 741, 744, 89 S.E.2d 892, 894 (Ist Div. 1955) (under

Georgia law, no fraud where reasonable diligence would have revealed

truth); Williams v. Bisson, 142 Me. 83, 84, 46 A.2d 708, 709 (1946)

(under Maine law, no fraud where plaintiff knew alleged

misrepresentations were false or could have discovered truth by exercise

of reasonable care); Morrill v. Madden, 35 Minn. 493, 495, 29 N.W.

193, 194 (1886) (under Minnesota law, no fraud where ordinary prudence

would have revealed truth).

17

later that he relied on or was deceived by the lie.

This is not because he has a duty to investigate lies

or prevent intentional torts, though; it is, rather,

because the false statement is not material under the

circumstances.

Mayer v. Spanel International, Ltd., 51 F.3d 670, 676 (7th Cir.

1995); see also United States v. Brown, 79 F.3d 1550, 1559

(11th Cir. 1996) (no reasonable juror could find that “scheme

to defraud” under federal mail fraud statute was proved when

falsity of alleged misrepresentations could have been discovered

by consulting readily available information); North American

Financial Group, Ltd. v. S.M.R. Enterprises, Inc. , 583 F. Supp.

691, 698 (N.D. Ill. 1984) (when recipient of alleged

misrepresentation was aware of truth, alleged misrepresentation

makes no difference, and materiality cannot be shown).

In this case, the materiality instruction, based on 18 U.S.C.

§ 1001, was calculated to direct the jury to ignore what A.I.

Credit, Anthem, and Congress knew, and what information

they deliberately disregarded, concerning the alleged

misrepresentations. The materiality instruction thus directly

contradicted the legally applicable common law definition of

materiality, according to which the recipient’s knowledge

concerning the alleged misrepresentations is determinative.

The materiality instruction was therefore clearly erroneous under

current law.

Moreover, the error affects substantial rights, for there is a

clear possibility that Petitioners might have been found not guilty

nad the jury been instructed properly. For example, A.I. Credit

knew prior to the indictment period that it was loaning Monon

money in excess of Monon’s insurance pretnium financing

obligations, and that Monon was using A.1. Credit loan proceeds

for purposes other than ‘insurance premium financing. Trial

18

Transcript Vol. 11 at 20:10-21:13, 49:19-50:12. These are the

very same matters about which A.I. Credit was allegedly

deceived. Indictment at 6. Had the jury been instructed to take

into account what A.I. Credit knew about the alleged

misrepresentations under the legally applicable common law

definition of materiality, rather than to ignore what A.I. Credit

knew under the incorrect 18 U.S.C. § 1001 definition of

materiality, it is likely that Messrs. Rosby and Franklin would

have been found not guilty.

Il. THE DISTRICT COURT’S USE OF DEPARTURE

METHODOLOGY AT SENTENCING CONSTI-

TUTES PLAIN ERROR

The circuits are split as to whether United States v. Booker,

543 U.S. 220 (2005), made Federal Sentencing Guideline

departure methodology obsolete. In Booker, this Court held the

Federal Sentencing Guidelines (“the Guidelines”) to be advisory.

Id. at 226-27. Since that decision, “[a]chieving agreement

between the circuit courts and within each circuit on post-Booker

issues has, unfortunately, been like trying to herd bullfrogs into

a wheelbarrow.” United States v. McBride, 434 F.3d 470, 474

(6" Cir. 2006). Specifically, two circuits have determined that

Booker effectively rendered traditional departure analysis

obsolete, while six others have found that it remains intact.

Such inconsistency in federal sentencing should not continue.

This Court needs to clarify the law and resolve the dispute.

The Seventh and Ninth Circuits correctly hold that Booker

rendered Guideline departures in federal sentencing obsolete.

See United States v. Johnson, 427 F.3d 423, 426 (7th Cir. 2005);

see also United States v. Mohamed, 459 F.3d 979, 977 (9® Cir.

2006). However, a majority of circuits incorrectly conclude that

sentencing courts must still consider departures. See McBride,

434 F.3d at 477; United States v. Moreland, 437 F.3d 424, 433

19

(4* Cir. 2006); United States v. Hawk Wing, 433 F.3d 622, 631

(8 Cir. 2006); United States v. Selioutsky, 409 F.3d 114, 118

(2° Cir. 2005); United States v. Crawford, 407 F.3d 1174, 1178

(11" Cir. 2005); United States v. Sierra-Castillo, 405 F.3d 932,

939 n.5 (10% Cir. 2005). These circuits reason that as part of a

Guideline structure that still requires consultation, departures

remain “a relevant consideration for determining the appropriate

Guideline sentence.” McBride, 434 F.3d at 477. The majority

of circuits, however, fail to appreciate the distinction between a

relevant consideration and controlling authority.

In Booker, 543 U.S. at 226, this Court invalidated two

provisions of the Guidelines that had the effect of making them

mandatory. It nonetheless instructed district courts that while

they were no longer bound to apply the Guidelines, they were

still required to “consult [them] and take them into account when

sentencing.” /d. at 264. The Court explained that instead of using

traditional analysis, courts of appeals should now review

“sentencing decisions for unreasonableness.” /d. Essentially, this

Court transformed once dispositive sentencing rules into relevant

recommendations.

Consequently, while departures once permitted deviation

from the formerly mandatory guidelines, they are no longer

necessary in a post-Booker regime. Mohamed, 459 F.3d at 986.

Previously, departures were used “to define narrowly the limits

within which the district courts could impose sentences outside

[the] mandatory guidelines.” /d. But now post-Booker “district

courts enjoy authority, within the bounds of reason, to impose

sentences that fall inside or outside the now-advisory

guidelines.” Jd. Therefore, district courts need not formally

“depart” from Guidelines they need not actually follow.

Rather, Booker’s command to issue reasonable sentences

has replaced the previous departure system. United States v.

20 .

Coppola, 2006 WL 2460804, *5 (9" Cir. Aug. 24, 2006) (citing

Mohamed, 459 F.3d at 986). Post-Booker departures should be

understood as simply “an exercise of . . . discretion to sentence

a defendant outside the applicable guidelines range” that is

uniformly reviewed for reasonableness. Jd. This approach

properly avoids two practical ramifications that the majority of

circuits ignore.

First, finding an appropriate sentence using both pre-Booker

departure methodology and the post-Booker reasonableness

standard is unduly repetitious. In arriving at a reasonable

sentence, district courts will “necessarily take into consideration

many of the factors enumerated in Section 5K of the Sentencing

Guidelines.”” Mohammed, 459 F.3d at 986. But “to require two

exercises—one to calculate what departure would be allowable

~ under the old mandatory scheme and then to go through much

the same exercise to arrive at a reasonable sentence—is

redundant.” Jd.

Second, post-Booker departures create an abundance of

unnecessary remands and largely insignificant appeals. For

instance, if a district court misapplies a post-Booker departure,

the sentencing judge may nonetheless impose exactly the same

sentence on remand by exercising his discretion under the

now-advisory Guidelines. Mohammed, 459 F.3d at 987.

While that sentence may still be appealed, it will be the review

for reasonableness, and not the validity of the departure that

governs. Id. ali

Moreover, any preserved mistake in departing remains

subject to harmless error review. Jd. If a mistaken departure

were made, so long as the ultimate sentence were reasonable,

it would presumably be harmless. /d. But if 1t were not

reasonable, a reviewing court would strike it down as both

unreasonable and fraught with error. /d. In any event, the “review

21

of the so-called departure would have little or no independent

value.” Id.; see also Hawk Wing, 433 F.3d at 633 (Loken, C.J.,

concurring) (“[T]his approach unduly complicates our appellate

task and may compel a significant number of essentially

meaningless remands.”). Accordingly, the Seventh and Ninth

Circuits correctly hold that departures in federal sentencing have

been rendered obsolete.

The Seventh Circuit committed error by ignoring the district

court’s use of departure methodology and failing to order a

limited remand. Its mistake was simple, but the chronology

detailed. The district court sentenced the Petitioners at the low

end of the guideline range while denying them any “departure”

from that range. Rosby Sentencing Transcript at 119:15-20.

Before hearing the Petitioners’ appeal, the Seventh Circuit

decided Johnson, which made clear that the use of departures

in federal sentencing was “obsolete.” 427 F.3d at 426.

Eight months after it decided Johnson, the Seventh Circuit heard

the Petitioners’ appeal. Appendix, |{a). Surprisingly,

however, it essentially ignored Johnson and dismissively found

no error in the district court’s use of departure methodology.

Id. at 11a-12a. This decision was fundamental error.

Since Booker, some confusion exists over how to apply

plain error doctrine to appeals from sentences rendered when

the Guidelines were mandatory. Compare United States v.

Hughes, 396 F.3d 374, 381 (4" Cir. 2005) (pre-Booker sentences

are now “no doubt” plain error); United States v. Oliver, 129

Fed. Appx. 210, 212-13 (6" Cir. 2005) (categorically remanding

every sentence imposed before Booker) with United States v.

Rodriguez, 398 F.3d 1219, 1301 (11" Cir. 2005) (“where the

effect of an error in the district court is uncertain or indeterminate

the appellant has not met his burden of showing” plain error).

22

The Seventh Circuit has opted for the “middle way” and

concluded that the best method for determining whether the

kind of plain error argued in such cases has actually occurred is

to simply ask the district judge. United States v. Paladino, 401

F.3d 471, 484 (7 Cir. 2005). The Seventh Circuit does this by

retaining jurisdiction over a limited remand that allows the

sentencing judge to determine whether he would (if required to

resentence) reimpose the original sentence. /d.; cf, United States

v. Crosby, 397 F.3d 103, 119 (2d Cir. 2005) (adopting limited

remand but relinquishing jurisdiction to district court to vacate

if necessary). In other words, when dealing with citizens’ lives,

the Seventh Circuit prefers certainty to conjecture.

Indeed, the Seventh Circuit has extended its disdain for

speculation to its review of sentences rendered after as well as

before Booker. See United States v. Grigg, 442 F.3d 560, 566

(7" Cir. 2006). In Grigg, the defendant pled guilty before Booker

but was sentenced after that decision. Jd. at 562. Given the nature

of his crime (child pornography), 18 U.S.C. § 3553(b)(2)—the

section immediately following the one that Booker nullified

(§ 3553(b)(1)}—controlled the relevant sentencing provisions

(the PROTECT Act and the Feeney Amendment). Jd. Booker,

however, did not address whether the sentencing restrictions

governed by § 3553(b)(2) were equally unconstitutional. /d. at

563. Thus, the Seventh Circuit initially examined “whether

Booker’s rationale for excising § 3553(b)(1) also extend[ed] to

§ 3553(b)(2).” Id. at 564. The court said it did. See id. (holding

that § 3553(b)(2) “violates the Sixth Amendment by mandating

a sentence within the range recommended by the Sentencing

Guidelines. It was precisely this requirement that the Supreme

_ Court found constitutionally objectionable in Booker.”).

23

Next, the court turned its attention to the sentencing judge’s

remarks. Grigg, 442 F.3d at 565. It found those remarks

“inconsistent”:

[A]lthough the court stated at the hearing’s outset

that it would ‘consult’ the Sentencing Guidelines

when fashioning a sentence under 18 U.S.C.

§ 3553(a)(2) . . . it later stated that ‘Congress has

seen fit ... basically, to prohibit departures from

Sentencing Guidelines.’ . . . [And] the court seemed

to indicate the Feeney Amendment’s provisions are

mandatory, noting that they ‘virtually prohibit judges

from departing from the otherwise applicable

Sentencing Guidelines.’ [For example,] the court

indicated in [an] explicit manner that it considered

itself bound to apply the Guidelines [by stating that

it was]. . . obliged to impose the minimum sentence

under the Guidelines.

Id. (emphasis in original). The Seventh Circuit concluded “that

the district court may have plainly erred in treating the Guidelines

as binding authority.” Jd. (emphasis in original). It was concerned

that while the district court acknowledged the Guidelines were

advisory, it was nonetheless unclear because it also asserted

that the Feeney Amendment prohibits discretionary sentences

outside the Guideline range. /d. Accordingly, the Seventh Circuit

ordered a “limited remand” pursuant to Paladino. Id. at 566;

see also United States v. Smith, 2006 WL 2457462 *4-6

(7" Cir. Aug. 10, 2006) (as in Grigg, sentencing court’s

inconsistent statements required remand because comments at

sentencing suggested it may not have understood it was able to

sentence defendant below Guidelines minimum).

For all the more reason here, the Seventh Circuit should

have ordered a limited remand. At the outset of its sentencing

24

decision, the district court stated it “will save the departure ruling

until later.” Rosby Sentencing Transcript at 111:19-20, 22-25;

see also Franklin Sentencing Transcript at 11:17-19. It then

proceeded to calculate an advisory guideline range of 87-108

months. Rosby Sentencing Transcript at 112-13, 114:16-17;

Franklin Sentencing Transcript at 13:4-10.

In so doing, the court accorded “considerable weight” to

the advisory guideline range. Rosby Sentencing Transcript at

118:13-14; Franklin Sentencing Transcript at 15:18-21. Then it

articulated several of the factors from 18 U.S.C. § 3553(a).

Rosby Sentencing Transcript at 118:16-119:5; Franklin

Sentencing Transcript at 15:22-16:7. Finally, after reiterating

that it would give “considerable weight” to the Guidelines in

determining an appropriate sentence (Rosby Sentencing

Transcript at 119:13-14), the district court stated:

Even though departure is authorized in this case, in

the exercise of its discretion, the Court will not

depart, because, I believe, departure is not warranted

under the facts and circumstances of this case.

Rosby Sentencing Transcript at 119:15-20 (emphasis added);

see also Franklin Sentencing Transcript at 16:15-18.

On appeal, the Seventh Circuit essentially disregarded this

use of the prohibited methodology. Instead, it equated the judge’s

use of the now-obsolete system to a matter of semantics:

Since 1987 judges have been explaining their

sentences in terms of departures (or decisions not to

depart) from the Guidelines. Habits take time to

shake off; it is inevitable that some of the old

terminology will linger for a few years. Unless there

is reason to think that the choice of words made a

25

substantive difference, there is no error at ai!, let

alone a ‘plain’ error.

Appendix, lla. Then it characterized the judge’s actions as

merely responsive: “The judge used the word ‘departure’ to

explain why he was denying a motion for a departure.”

Id. at 12a.

This decision, however, was wrong. Error is plain when

the petitioner demonstrates that an error has occurred, plain in

nature, and so seriously affecting his substantial rights that the

Court’s discretion is needed to protect the fairness, integrity, or

public reputation of judicial proceedings. United States v. Olano,

507 U.S. 725, 723-35 (1993); United States v. Julian, 427 F.3d

471, 481 (7" Cir. 2005).

First, an error occurs when, as here, the court strays from a

legal rule that has not been waived. Olano, 507 U.S. at 732-33.

While Booker had been decided three months before sentencing,

the Seventh Circuit did not rule departure methodology obsolete

until Johnson, six months after sentencing, which was during

the pendency of Petitioners’ appeal. 427 F.3d at 426. Contrary

to the Seventh Circuit’s assertion, by the date of Petitioners’

appeal “it was... error for the judge to talk (and perhaps to think)

in terms of departures.” Appendix, | 1a (emphasis added).

Second, an error is considered “plain” when, as here, it is

“clear” or “obvious” in the record. Olano, 507 U.S. at 734. The

3. The only reason there was a departure motion at all was because

departure methodology was very much in force in 2003, when the

Petitioners filed their departure motions. The Petitioners filed those

motions not only before Booker, but even before Blakely v. Washington,

542 U.S. 961 (2004), the ideological underpinning for Booker. In fact,

it was not at all clear that departure methodology was obsolete in the

Seventh Circuit until it decided Johnson, about six months after

sentencing in this case.

26

Seventh Circuit itself recognized that the district court’s ruling

was issued after Booker and before Johnson. Appendix, | la.

Yet despite its continuing practice of clarifying the obsolescence

of departure methodology,’ the Seventh Circuit expected

clairvoyance from the district court and Petitioners literally

‘months before it decided Johnson. See id. (“Although sentence

was imposed after United States v. Booker, which made the

departure terminology obsolete, defendants did not object to

the judge’s explanation.”’).

As explained above, there is still a split of authority

regarding whether post-Booker departures are valid. “It is hardly

sporting” for a reviewing court to fault a litigant for failing to

anticipate an interpretation that remains disputed over a year

after its birth. See id. at 12a (““The defendants own motions had

asked the judge to ‘depart’ from the Guideline range!”).

“An invited error,” as Judge Easterbrook called it, is no less

clear than an accidental one; especially when requested and

reached in good faith and in accordance with then-current

law. Id.

Third, when the Petitioners, as here, establish that the error

was not only prejudicial, but would result in a miscarriage of

justice if not remedied, then the court’s discretion should be

employed to grant relief. Olano, 507 U.S. at 734. The “first

element merely requires prejudice, in the sense that the

[outcome] may have been different, whereas the second requires

confidence that if the error is not corrected the result will be

intolerable, such as . . . subjecting a guilty person to an illegally

4. See, e.g., United States v. Howard, 454 F.3d 700, 703 (7" Cir.

2006); United States v. Hewlett, 453 F.3d 876, 881 (7" Cir. 2006); United

States v. Walker, 447 F.3d 999, 1006 (7" Cir. 2006); United States v.

Laufle, 433 F.3d 981, 986 (7" Cir. 2006); United States v. Arnaout, 431

F.3d 994, 1003 (7th Cir. 2005).

27

_ long sentence.” Paladino, 401 F.3d at 481 (citing Olano,

507 U.S. at 734-35).

Here, the Petitioners’ rights were prejudiced because the

district court’s sentence may have been different after Johnson.

The Seventh Circuit acknowledged this possibility when it

qualified its holding by stating, “Unless there is reason to think

that the choice of words made a substantive difference.”

Appendix, 11a. The district court’s choice of words easily could

have made a substantive difference because it analyzed

Mr. Rosby’s diminished capacity and Mr. Franklin’s family

circumstances in terms of the far more rigorous departure

methodology, rather than the far more fluid § 3553(a) factors.°

Although those were not “forbidden” factors under the

traditional guideline departure methodology, see U.S.S.G.

5K2.0(d), they were very difficult departures to get. See, e.g.,

United States v. Ferron, 357 F.3d 722, 725 (7" Cir. 2004)

(affirming denial of downward departure based on diminished

capacity); United States v. Cruz-Guevara, 209 F.3d 644, 648

(7" Cir. 2000) (vacating and remanding district court’s

downward departure based on family circumstances).

Thus, even if those considerations might not have been

enough to constitute grounds for a downward departure under

guideline policy statement § 5K2.13, they might very well have

constituted the “history and characteristics” justifying a sentence

below the advisory guideline range under § 3553(a). In any event,

the Seventh Circuit could not have been confident that the district

court would have given the same sentence with the benefit of

knowing that departures were “obsolete.”

5. Arguments concerning Mr. Rosby’s diminished capacity were

presented to the district court before and during sentencing. See, e.g.,

Rosby Sentencing Transcript at 94:4-97:2. Mr. Franklin submitted a

motion for downward departure based, among other things, on family

circumstances. Franklin Downward Departure Motion.

28

In fact, this uncertain result is precisely the “miscarriage of

justice” that the Seventh Circuit sought to avoid when reviewing

pre-Booker sentences under the now advisory Guidelines in

Paladino: ~

[U]nless any of the judges in the cases before us

had said in sentencing a defendant pre-Booker that

he would have given the same sentence even if the

guidelines were merely advisory . . . , itis impossible

for a reviewing court to determine without consulting

the sentencing judge . .. whether the judge would

have done that.

401 F.3d at 482-83 (emphasis in original). In Paladino, a

significant legal rule had changed between the time of sentencing

and appeal: Once mandatory guidelines had become advisory.

In the Seventh Circuit’s view, this left in doubt sentences

imposed before the rule change. To ensure the propriety of those

sentences, it ordered limited remands to see if the district courts

would have imposed the same sentences had they known the

Guidelines were advisory rather than mandatory.

That same logic applies here. Between sentencing and

appeal a significant legal rule had changed (at least in the Seventh

Circuit): the obsolescence of departures. In the absence of aa

express indication that the district court would have given the

same sentence without departure analysis, it was impossible

for the Seventh Circuit “to determine without consulting the

sentencing judge . . . whether [he] would have” reached the same

result. Paladino, 401 F.3d at 482. This uncertainty is intolerable

because if the district judge would have imposed a lesser

sentence on Petitioners “had he not thought himself bound” by

29

departure analysis, “this error in having thought himself bound

may have precipitated a miscarriage of justice.” Jd. Indeed:

[t]o tell [the] defendant[s] we know your sentence

would have been . . . shorter had the district judge

known [departures were obsolete] .. . , but that is

your tough luck and you’ ll just have to stew in prison

for... . additional months . . . would undermine the

fairness, the integrity, and the public repute of the

federal judicial process.

Id. Simply put, it is just as much “a miscarriage of justice to

give a person an illegal sentence that increases punishment, . . .

as it is to convict an innocent person.” Jd. In Grigg, the Seventh

Circuit applied this fundamental principle to uncertainty in post-

Booker sentencing. 442 F.3d at 565. The Seventh Circuit was

wrong not to apply it here. Therefore, the Seventh Circuit erred

by ignoring the district court’s use of departure methodology

and failing to order a limited remand.

30

CONCLUSION

For the reasons set forth above, Petitioners Thomas J.

Rosby and John M. Franklin respectfully request that this

Court grant certiorari.

Respectfully submitted,

JOSEPH P. FRANKLIN James A. SHAPIRO

Winston & StRAwN LLP Counsel of Record

35 W. Wacker Drive SHAPIRO & SCHWARTZ

Chicago, IL 60601 222 North LaSalle Street

(312) 558-5600 Suite 200

Attorney for Petitioner Chicago, IL 60601

John M. Franklin (312) 782-4615

Attorney for Petitioner

Thomas J. Rosby

—

APPENDIX

la

APPENDIX — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

DECIDED JULY 19, 2006

In the

UNITED STATES COURT OF APPEALS

for the Seventh Circuit

Nos. 05-2270 & 05-2483

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v,

THOMAS J. ROSBY and JOHN M. FRANKLIN,

Defendants-Appellants.

Argued June 2, 2006—Decided July 19, 2006

Before POSNER, EASTERBROOK, and ROVNER,

Circuit Judges. ;

EASTERBROOK, Circuit Judge. Monon Corporation

once was among the largest manufacturers of over-the-road

semi-trailers, containers, and container chassis, producing

about 150 units a day. Early in 1996, however, Monon’s

principal customer cut back on orders and the lost business

could not be replaced. Production fell to about 100 units a

day in January 1996, dropping to 60 in April and 50 in August.

This decline in sales produced a liquidity crisis, as the firm’s

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Appendix

fixed obligations and payroll could not be cut as fast as the

order book shriveled. Thomas Rosby, Monon’s CEO and

holder of 72% of its equity, and John Franklin, its CFO and

holder of 14%, watched the finances closely.

Much of Monon’s working capital came from Congress

Financial Corporation, a factor that advanced credit on the

security of Monon’s inventory and receivables. Monon could

draw on the credit as soon as it started production of each

new unit. During 1996 Monon began a bill-ahead fraud. It

’ would, for example, report starting 60 units on a day when

only 50 actually entered production. As sales continued to

decrease, however, Monon had to report more and more early

starts, so that it could retire older advances. Congress was

left unsecured for the difference between actual and reported

production. The unsecured draw against the revolving credit

increased from about $2 million in March 1996 to $5.9

million in August, when Congress discovered the fraud. After

Monon filed for bankruptcy on September 1996, Congress

completed many of the falsely reported units at its own

expense and risk. Its net loss was about $1.8 million.

Monon also borrowed from A.{. Credit Corporation and

Anthem Premium Finance. These firms made loans that

Monon was supposed to use to prepay insurance policies;

Monon agreed to retire the loans with monthly payments

roughly equal to the cost of insurance for that month, and

the balance was secured by the policies’ cash value. (For

simplicity we refer to all of this as “insurance” even though

some workers’ compensation coverage was arranged through

other devices.) If, for example, Monon secured workers’

compensation coverage for $5 million a year, the premium

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finance company would advance that money; the unearned

portion of the premium (that is, the premium attributable to

future months) would be returned if Monon should cancel

the policy and thus could be used as security for the loans.

During 1996 Monon reported making larger prepayments

than it actually had done. This left A.I. Credit and Anthem

unsecured for the difference, and after Monon’s bankruptcy

Anthem was saddled with net losses of about $4.9 million

and A.I. Credit about $2 million.

A grand jury charged Rosby and Franklin with mail and

wire fraud for making (or causing to be made) the

misrepresentations that persuaded the lenders to advance

funds without the promised security. Michael Peterson,

Monon’s insurance broker, was indicted at the same time

and pleaded guilty; he testified for the prosecution. Following

the jury’s guilty verdict, both Rosby and Frankliz. were

sentenced to 87 months in prison plus restitution of about

$8.7 million (the sum of the three lenders’ net losses).

Defendants’ principal arguments in this court collapse

to a single contention: that the false representations were

not material because, by making prudent inquiries, the lenders

could have figured out what Monon was doing. (To the extent

defendants maintain that they did not know what the lenders

were being told, the jury’s contrary conclusion is

unimpeachable.) They do not contend that the jury was bound

to find that the lenders actually understood the truth, and

they did not ask for an instruction presenting the knowledge

question to the jury, but they do say that even taken in the

light most favorable to the prosecution the evidence compels

a conclusion that cautious lenders ought to have done more,

Ba

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or better, checking, and that these inquiries would have turned

up the truth.

This line of argument starts with Neder v. United States,

527 U.S. 1, 20-25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999),

which held that materiality is an element of the mail-fraud

offense under 18 U.S.C. § 1341. The Court observed that

“fraud” is a staple term of the common law and should be

read to include its common-law constituents, including

materiality, unless Congress provides otherwise (which it did

not in § 1341). See also, e.g., Ernst & Ernst v. Hochfelder,

425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)

(securities fraud entails proof of scienter, because this is

required at common law); TSC Industries, Inc. v. Northway,

Inc., 426 U.S. 438,-96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)

(discussing the materiality requirement); Dirks v. SEC, 463

U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983) (drawing

on common law to conclude that securities fraud entails proof

of duty to disclose). Having eriablished that materiality is

essential, defendants maintaii that at common law a party

cannot close his eyes to a known risk or act with indifference

to that risk but must make reasonable attempts at self-

protection. (For this proposition defendants cite only cases

in the Illinois state courts; the significance of that choice

will become clear later.) According to defendants, some of

the lenders’ employees had their suspicions yet failed to

follow up. This means, defendants insist, that the

representations were not material.

Defendants recognize that under other federal statutes a

representation may be material even though the hearer

strongly suspects that it is false. A witness commits the crime

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Appendix

of perjury, for example, if he lies under oath about a subject

important to the proceeding, even though the grand jury

believes that it knows the truth. United States v. Kross, 14

F.3d 751, 755 (2d Cir.1994); United States v. Goguen, 723

F.2d 1012, 1019 (1st Cir.1983); United States v. Richardson,

596 F.2d 157, 165 (6th Cir.1979). See also, e.g., United States

v. R. Enterprises, Inc., 498 U.S. 292, 111 S.Ct. 722, 112

L.Ed.2d 795 (1991) (that grand jury already thinks it knows

the truth is no defense to a subpoena, for evidence may be

material if it can corroborate or refute existing beliefs);

Kungys v. United States, 485 U.S. 759, 776-80, 108 S.Ct.

1537, 99 L.Ed.2d 839 (1988) (false statement to immigration

officials violates 8 U.S.C. § 1451(a) even if agency readily

could have discovered the truth); United States v. Whitaker,

848 F.2d 914, 918 (8th Cir.1988) (material false statement

to investigating agency violates 18 U.S.C. § 1001 even if

agency knows the truth). A representation is material if it

has a tendency to influence the decision of the audience to

which it is addressed. See Neder, 527 U.S. at 22-23, 119

S.Ct. 1827, citing Restatement (2d) of Torts § 538 (1977);

Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978,

99 L.Ed.2d 194 (1988). By referring to the common law,

however, Neder departed from the approach of perjury and

other false-statement statutes by imposing on the audience a

duty to investigate for its self-protection-or so defendants

maintain.

This confuses materiality with reliance. At common law,

both materiality (in the sense of tendency to influence) and-

reliance (in the sense of actual influence) are essential in

private civil suits for damages. That’s why, if the issuer of

securities furnishes an investor with the truth in writing, the

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investor cannot claim to have been defrauded by an oral

misrepresentation: whether the writing actually conveys the

truth or just calls the oral statement into question, the investor

is on notice. See, e.g., Acme Propane, Inc. v. Tenexco, Inc.,

844 F.2d 1317 (7th Cir.1988). It is also why an investor’s

disclaimer of reliance on certain representations, as part of a

declaration that the investor has done and is relying on his

Own investigation, defeats a private damages action for

securities fraud. See, e.g., Rissman v. Rissman, 213 F.3d381

(7th Cir.2000); Jackvony v. RIHT Financial Corp., 873 F.2d

411, 415-17 (ist Cir.1989) (Breyer, J.); One-O-One

Enterprises, Inc. v. Caruso, 848 F.2d 1283, 1286-87

(D.C.Cir.1988) (R.B. Ginsburg, J.).

Reliance is not, however, an ordinary element of federal

criminal statutes dealing with fraud. Neder so holds for §

1341 in particular. “[T]he Government is correct that the

fraud statutes did not incorporate a// the elements of

common-law fraud. The common-law requirements of

‘justifiable reliance’ and ‘damages,’ for example, plainly have

no place in the federal fraud statutes.” 527 U.S. at 24-25,

119 S.Ct. 1827 (emphasis in original). Once the Supreme

Court excludes reliance as a separate element of the mail-

fraud offense, it will not do for appellate judges to roll

reliance into materiality; that would add through the back

door an element barred from the front. Reliance is not an

aspect of the materiality element in mail-fraud prosecutions.

Accord, United States v. Fernandez, 282 F.3d 500, 508 (7th

Cir.2002); United States v. Gee, 226 F.3d 885, 891 (7th

Cir.2000).

7a

Appendix

Defendants do not argue that by extending credit, despite

Monon’s noncompliance with some of the contracts’ written

terms, the lenders agreed to modify their arrangements and

forego the promised security. Maybe such an argument has

been withheld because those employees of the lenders who

suspected (or should have suspected) what was afoot lacked

authority to change the deal. Episodes modeled on Potemkin

villages suggest as much: whenever lenders’ senior personnel

or auditors called to check on their collateral, Monon scurried

to convey the appearance (though not the reality) of extra

production starts or insurance with cash value. That Monon

continued making misrepresentations demonstrates its belief

that truth would have altered its creditors’ behavior. Low-

level employees’ interests may not have been aligned with

those of the lenders’ investors; employees paid by the hour,

or by the amount of credit under their purview, may be

inclined to avert their gaze lest they learn of problems, for

the costs fall elsewhere. At all events, defendants do not argue

that any employee of the lenders with actual authority to

approve a change in the contracts’ terms by reducing the

amount of collateral ever had actual knowledge of what

Monon was doing. (Cindy Carroll, a branch manager who

knew that A.I. Credit had advanced too much against

Monon’s 1995 insurance premiums-the principal event that

defendants say should have alerted lenders not to trust what

Monon was saying in 1996-never told John Rago, A.I.

Credit’s vice president of credit and the only person

authorized to make lending decisions on its behalf.)

As for defendants’ argument that the prosecutor violated

the due process clause by withholding exculpatory evidence,

see Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10

8a

Appendix

L.Ed.2d 215 (1963): the evidence was not even relevant, let

alone exculpatory. Before we take this up, however, there is

a jurisdictional detour. Before their sentencing both Rosby

and Franklin filed motions seeking new trials because of the

non-disclosures. The sentencing occurred as scheduled in

April 2005; the district court entered final judgments without

mentioning the motions. Some months later, however, while

the appeals were pending, the district judge entered an order

denying the motions. Defendants did not file new notices of

appeal, and the United States contends that this lapse deprives

us of jurisdiction.

A district court’s action on a Rule 33 motion for a new

trial filed after sentencing is.a new final decision that requires

a new notice of appeal. See, e.g., United States v. Hocking,

841 F.2d 735, 736 (7th Cir.1988). But a new-trial motion

filed before sentencing must be resolved before sentencing

as well. Under the Sentencing Reform Act of 1984 and

Fed.R.Crim.P. 35, a district judge lacks authority to retain

control of a criminal case for more than seven days after

imposing sentence. See United States v. Smith, 438 F.3d 796

(7th Cir.2006). Any pre-sentencing motions must be resolved

at or before sentence is imposed-for otherwise the sentence

is not a final judgment and the defendants will be frustrated

in their attempts to appeal it, at the same time as the district

judge retains an unauthorized measure of control over events

after sentencing. If the district judge neglects to rule on

pending motions, we treat all as denied automatically by the

imposition of sentence. See United States v. Van Wyhe, 965

F.2d 528, 530 n. 2 (7th Cir.1992). That understanding ends

the district judge’s role when sentencing occurs, as the

Sentencing Reform Act demands, and ensures that the

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Appendix

judgment is final so that defendants may press their

contentions in a new forum. It also means that there is never

a need for an additional notice of appeal to contest rulings

(or inaction) on pre-sentencing motions. The district court

lost its authority over these cases when the sentences were

imposed, and the defendants’ notices of appeal brought up

all issues-including those that the district court failed to

address before sentencing.

Brady offers the defendants no assistance, however. They

complain that the prosecutor withheld two tidbits that did

not come out until shortly before sentencing: first, Anthem

Insurance Company had insured the loans that Anthem

Premium Finance, its subsidiary, had made to Monon; second,

in July 1996 the parent corporation sold its stock in the

premium-finance subsidiary to Newcourt Credit Group USA,

Inc. How either of these facts could assist the defendants

eludes us. That the victim was insured does not make the

loss any less; who ultimately bears a loss does not matter in

a fraud prosecution. A bank executive who embezzled from

his employer could not defend by noting that the bank had

been reimbursed by an insurer; no more does reimbursement

matter here.

Defendants tell us that the impending sale gave Anthem

(the parent) a reason to want its subsidiary to build up its

book of business, to make the subsidiary more attractive,

and that the subsidiary therefore ignored the risks of

nonpayment. But the insurance issued by the parent

corporation makes hash of this contention; why would a

parent want a subsidiary to throw away money that the parent

would have to repay in order to make the subsidiary (and

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Appendix

thus Newcourt) whole? Anyway, the possibility that Anthem

may have been trying to bamboozle Newcourt does_not

provide a defense for fraud committed against Anthem. Nor

does this explain why Congress and A.I. Credit were taken

in. Anthem behaved no differently from the other victims.

To return to our theme: Defendants do not contend that the

record demonstrates Anthem’s actual knowledge that

Monon’s representations were false; arguments pro and con

about how attentive the lenders’ staff may have been to the

possibility that Monon was lying are not relevant, because

reliance is not an element of the mail-fraud offense.

Defendants’ remaining arguments about the convictions

do not require discussion, so we arrive at sentencing. The

loss calculation was correct-in particular, the district judge

rightly concluded that the loss Congress suffered was $5.9

million (the unsecured advances outstanding when the fraud

-came to light) rather than $1.8 million (Congress’s net loss

after it took over Monon’s production in bankruptcy in order

to minimize its injury). As a result the total loss exceeded

$10 million and defendants received the increase provided

by U.S.S.G. § 2Fi.1(b)(1)(P) (1995). (By the parties’

agreement the district court used the 1995 Guidelines.

Whether this was appropriate is a question that the parties

have not addressed. See United States v. Roche, 415 F.3d

614, 619 (7th Cir.2005).) When the intended loss exceeds

the realized loss, the former prevails under the. Guidelines.

See § 2F1.1 Application Note 7(b). Congress took an

economic risk after Monon’s bankruptcy by producing

additional units, and it made a profit; there’s no reason why

Rosby and Franklin should benefit by Congress’s

-entrepreneurial activity, which does not diminish the

seriousness of their offense.

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Appendix

After calculating a sentencing range according to the

Guidelines, the district judge stated: “Even though departure

is authorized in this case, in the exercise of its discretion,

the Court will not depart, because, I believe, departure is not

warranted under the facts and circumstances of this case.”

Although sentence was imposed after United States v. Booker,

543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005), which

made the departure terminology obsolete, see United States

v. Laufle, 433 F.3d 981, 986-87 (7th Cir.2006);, United States

v. Johnson, 427 F.3d 423, 426 (7th Cir.2005), defendants did

not object to the judge’s explanation. Now, however, they

contend that it was plain error for the judge to talk (and

perhaps to think) in terms of departures. Booker gives district

judges more discretion than the old departure framework did;

to ensure that the district judge knows about and uses this

discretion, defendants insist, they must be resentenced.

Yet there is no doubt that the district judge knew about

Booker (which had been decided more than three months

before sentencing) and its significance. The judge discussed

not only the Guidelines but also the sentencing criteria in

18 U.S.C. § 3553(a). Since 1987 judges have been explaining

their sentences in terms of departures (or decisions not to

depart) from the Guidelines. Habits take time to shake off; it

is inevitable that some of the old terminology will linger for

a few years. Unless there is reason to think that the choice of

words made a substantive difference, there is no error at all,

let alone a “plain” error-which entails a serious risk that an

injustice has been done. See United States v. Olano, 507 USS.

725, 734-37, 113 S.Ct. 1770, 123 L.Ed.2d 508 (1993); United

States v. Dominguez Benitez, 542 U.S. 74, 80-84, 124 S.Ct.

2333, 159 L.Ed.2d 157 (2004). It is hard to see how the

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terminology mattered-and easy to see why the district judge

discussed departures. The defendants’ own motions had asked

the judge to “depart” from the Guideline range! The judge

used the word “departure” to explain why he was denying a

motion for a departure. It is hardly sporting for someone who

invites a judge to use a word to complain after he does so.

An invited error does not work to the benefit of the litigant

who issued the invitation. The 87-month sentences are

reasonable, so there is no basis for resentencing.

Restitution is the final issue. The judge ordered

defendants to reimburse the lenders for their net losses. Here,

at last, reliance could be important-for restitution is

fundamentally a civil remedy administered for convenience

in the criminal case, see United States v. George, 403 F.3d

470, 473 (7th Cir.2005), and as we have mentioned reliance

is essential to damages for fraud in private litigation. For

one last time, therefore, we reiterate that defendants have

not even argued that the people who made business decisions

on behalf of the lenders had actual knowledge that Monon

was lying about its production starts or insurance purchases.

Lenders and other investors need not look behind

representations made to them. See, e.g., Teamsters Local 282

Pension Trust Fund v. Angelos, 762 F.2d 522 (7th Cir.1985);

Astor Chauffeured Limousine Co. v. Runnfeldt Investment

Corp., 910 F.2d 1540 (7th Cir.1990); In re Mayer, 51 F.3d

670 (7th Cir.1995). Fraud is an intentional tort, and the

common law does not require victims of intentional torts to

take precautions. See Restatement (2d) of Torts § 481 (1965).

Telling the truth is cheap, while nosing out deceit is

expensive. Requiring all lenders, investors, and so on to

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investigate every representation made to them would be

extravagantly wasteful, compared with a legal regime that

unconditionally requires speakers to tell the truth on every

material topic if they speak at all. Thus investors’ gullibility

and carelessness do not excuse wilfully false statements or

reduce the damages available to the victims. “The recipient of a

fraudulent misrepresentation of fact is justified in relying upon

its truth, although he might have ascertained the falsity of the

representation had he made an investigation.” Restatement (2d)

of Torts § 540 (1977): That rule makes promises credible by

making it costly for liars to escape liability later. This gives

truth-tellers a commercial advantage, for their costs of doing

business are lower than the liars’ costs.

A reliance requirement prevents recovery when the truth is

known or the risk of an investment (or loan) is apparent; a risky

investment that goes bad differs from fraud. See Mayer, 51 F.3d

at 676. Our opinion in Angelos discusses several decisions in

Illinois that appear to treat the reliance requirement as obliging

investors to investigate the veracity of representations made to

them, as a condition of obtaining damages for fraud. This, we

assume, is why defendants concentrate on Illinois law when

discussing what “the” common law requires in fraud actions.

Yet Angelos concluded that Illinois appears to be an outlier

(if investigation really is essential in Illinois, whose case law is

not uniform on the issue); we held that such a requirement would

not be incorporated into federal law. It would be no more

appropriate to do so in a mail-fraud action than in a securities-

fraud action. So the restitution award is appropriate under civil-

fraud principles.

Affirmed.