USA v. David Foley - Court of Appeals Docket 14-10055 Doc 22-1

No. 14-10055, 14-10056

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, Plaintiff-Appellee,

v.

DAVID FOLEY,

Defendant-Appellant. Appeal from the United States District Court

for the Northern District of CaliforniaDistrict Court Nos. 09-00670, 11-00554

APPELLANT’S OPENING BRIEF

DENNIS P. RIORDAN (SBN 69320)[email protected] M. HORGAN (SBN 121547)[email protected] & HORGAN523 Octavia StreetSan Francisco, CA 94102Telephone: (415) 431-3472Facsimile: (415) 552-2703

Ted Sampsell Jones William Mitchell College of Law875 Summit AvenueSt. Paul, MN 55105Telephone: (651) 290-6348

Attorneys for Defendant-AppellantDAVID FOLEY

Case: 14-10055 08/18/2014 ID: 9209244 DktEntry: 22-1 Page: 1 of 45

TABLE OF CONTENTS

INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

BAIL STATUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

A. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. The Mail Fraud Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

C. The Bank Fraud Indictment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

D. Plea Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1. Factual Admissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2. Sentencing Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

E. Sentencing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1. The Parties’ Arguments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. The District Court’s Ruling. . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SUMMARY OF ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Table of Contents continued

I. THE DISTRICT COURT ERRED BY IMPOSING A SENTENCEBASED ON LOSS TO A PARTY WHO WAS NOT A VICTIM OF THE OFFENSE TO WHICH THE DEFENDANT PLEADED GUILTY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

A. The Shifting Theories of Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

B. Convergence Doctrine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

C. Victims Under the Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

D. Implicit Admission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

II. THE DISTRICT COURT ERRED BY FINDING THE LOSSAMOUNT BASED ON A PREPONDERANCE OF EVIDENCE. . . . . . . 25

III. THE APPEAL WAIVER CONTAINED IN THE PLEA AGREEMENT DOES NOT PREVENT THIS COURT FROM HEARING THE DEFENDANT’S CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . 27

A. Enforcing the Terms of the Plea Agreement. . . . . . . . . . . . . . . . . . . 28

B. The Government’s Responsibility. . . . . . . . . . . . . . . . . . . . . . . . . . . 31

C. Lack of Notice.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

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TABLE OF AUTHORITIES

CASES

Cleveland v. United States, 531 U.S. 12 (2000).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Martin Trust v. United States, 739 F.3d 1204 (9th Cir. 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

McNally v. United States, 483 U.S. 350 (1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Monterey Plaza Hotel Limited v. Local 483,215 F.3d 923 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Santobello v. New York, 404 U.S. 257 (1971). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

United States v. Ali, 620 F.3d 1062 (9th Cir. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 18

United States v. Cope,527 F.3d 944 (9th Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 33, 34

United States v. De la Fuente,8 F.3d 1333 (9th Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 34

United States v. Evans, 844 F.2d 36 (2d Cir.1988). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

United States v. Fowler,794 F.2d 1446 (9th Cir. 1986). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

United States v. Garro,517 F.3d 1163 (9th Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

-iii-


Table of Authorities continued

United States v. Hicks, 217 F.3d 1038 (9th Cir. 2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

United States v. Kennedy, 554 F.3d 415 (3d Cir. 2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

United States v. Lew,875 F.2d 219 (9th Cir. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 18, 19

United States v. Milwitt, 475 F.3d 1150 (9th Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

United States v. Myers, 32 F.3d 411 (9th Cir. 1994). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

United States v. Navarro-Botello, 912 F.2d 318 (9th Cir.1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

United States v. Podde,105 F.3d 813 (2d Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

United States v. Riley, 335 F.3d 919 (9th Cir. 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

United States v. Salahmand, 651 F.3d 21 (D.C. Cir. 2011).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 22

United States v. Schuman, 127 F.3d 815 (9th Cir. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

United States v. Simpson, 538 F.3d 459 (6th Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

United States v. Staten, 466 F.3d 708 (9th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Table of Authorities continued

United States v. Transfiguracion, 442 F.3d 1222 (9th Cir. 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

United States v. Tsosie, 639 F.3d 1213 (9th Cir. 2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 34

United States v. Valdez, 726 F.3d 684 (5th Cir. 2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

United States v. Williams,510 F.3d 416 (3d Cir. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

United States v. Zolp,479 F.3d 715 (9th Cir.2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

STATUTES

18 U.S.C. § 3231. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

28 U.S.C. § 1291. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9, 11, 12

Fed. R. Crim. P. 11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

-v-


INTRODUCTION

This criminal prosecution arose out of a failed business venture and contract

dispute. Appellant David Foley sold some of the assets of his video game

business to another company called Global VR (GVR), but after the deal, he

continued to sell his own games. He maintained that he was entitled to do so

under the terms of the asset sale agreement, but GVR accused him of fraud. The

relationship became vitriolic. Federal prosecutors sided with GVR and brought

fraud charges against Mr. Foley.

Mr. Foley eventually entered into a plea agreement, in which he admitted to

a limited scope of criminal conduct in exchange for the government’s promise to

dismiss most of the charges against him. He admitted that he misled customers by

selling mislabeled video games, and he admitted that he misled a bank in a

tangentially related mortgage application. But he never admitted that he defrauded

his former business partners in GVR. Indeed, throughout the legal proceedings, he

adamantly and steadfastly denied any such allegations.

At sentencing, however, the government argued that the true victim of the

crime was GVR, and that Mr. Foley should receive a substantial prison sentence

because GVR lost profits as a result of Mr. Foley’s video game sales. The district

court agreed. The resulting sentence of imprisonment, however, was illegal. It

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violated this Circuit’s law defining victims in a fraud case; it violated the

Sentencing Guidelines; and, above all, it violated the terms of the plea agreement.

STATEMENT OF JURISDICTION

The district court had jurisdiction under 18 U.S.C. § 3231. This Court has

jurisdiction under 28 U.S.C. § 1291. This appeal is from a final judgment of

conviction, entered by the district court on January 23, 2014. (ER 363.) The notice

of appeal was filed on February 3, 2014. (ER 355, Dkt. 259.)

BAIL STATUS

Mr. Foley is not in custody. He was sentenced by the district court to a term

of imprisonment of 24 months. However, on May 12, 2014, this Court granted

Mr. Foley’s motion for release pending appeal. (ER 336.)

STATEMENT OF THE CASE

Mr. Foley was charged in two separate indictments. The first indictment,

returned in 2009, charged thirty-four counts of mail fraud and related offenses

including bank fraud and related offenses. (ER 436.) In 2011, the prosecution

amended the original indictment, and also filed a second indictment, charging

three counts of bank fraud and related offenses. (ER 414.) In 2012, Mr. Foley and

the government entered into a plea agreement intended to resolve both cases. Mr.

Foley pleaded guilty to one count of conspiracy to commit mail fraud and one

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count of conspiracy to commit bank fraud. The government agreed to dismiss all

remaining counts.

After the plea agreement, the parties proceeded to sentencing. The district

court held a two-day evidentiary hearing to determine loss amount in December of

2012. After receiving additional arguments from the parties, the district court

entered its judgment and imposed its sentence on January 23, 2014. (ER 363.)

The court imposed a sentence of twenty-four months.

Mr. Foley filed a notice of appeal and a motion for release pending appeal.

After the district court denied the motion, Mr. Foley renewed the motion before

this Court. The government opposed Mr. Foley’s motion for release and also filed

a motion to dismiss the appeal. On May 12, 2014, a motions panel of this Court

(Leavy, Callahan, and Hurwitz) denied the government’s motion to dismiss the

appeal and granted Mr. Foley’s motion for bail pending appeal.

STATEMENT OF FACTS

A. Background

Defendant-appellant David Foley owned and operated a video game

company called UltraCade. UltraCade sold video game software, primarily for use

in video arcades. In 2006, Foley entered into an asset sale agreement with Global

VR (GVR), another arcade video game company. Foley agreed to transfer the

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assets of UltraCade to GVR, and he also entered into an employment agreement

with GVR.

The relationship between Mr. Foley and GVR quickly soured, and GVR

terminated Foley’s employment only a few months after the purchase agreement.

The failed business relationship triggered accusations and counter-accusations of

bad faith. A civil lawsuit ensued, which eventually settled. GVR reported its

accusations to federal authorities, who eventually charged Mr. Foley with fraud.

B. The Mail Fraud Indictment

The government charged Mr. Foley under two separate indictments, one

focused on mail fraud and one focused on bank fraud. The first indictment was

filed in 2009. (ER 436.) It consisted of thirty-four charged counts of mail fraud,

conspiracy, and a variety of other offenses, including trafficking in counterfeit

goods and theft of trade secrets.

The core allegation of the first indictment was that Mr. Foley continued to

sell video game “game packs” for his own benefit even after GVR had acquired

the exclusive right to sell the game packs. It alleged that in 2006, Mr. Foley sold

all assets of UltraCade, including its licensing rights and intellectual property, to

GVR. It further alleged that under his employment and confidentiality agreement,

4


Mr. Foley was required to protect GVR’s proprietary interests and act in GVR’s

best interests.

According to the indictment, however, Mr. Foley failed to do so. The

indictment charged that he violated the purchase agreement and the employment

agreement by continuing to sell video game software on the side. It alleged that

Mr. Foley accomplished these sales secretly, and for his own benefit, using co-

defendant Michael Daddona as an intermediary. In sum, as the indictment

described it:

The gist of the conspiracy and scheme to and artifice todefraud was that FOLEY, after reaping the benefits fromthe sale of his company, ULTRACADE, whichultimately resulted in the transfer of all of the assets andintellectual property belonging to ULTRACADE andFOLEY to GLOBAL VR, secretly manufactured andsold game packs containing video arcade games withcounterfeit markings belonging to GLOBAL VR for hisown financial benefit.

(ER 440, Mail Fraud Indictment ¶ 16.)

The primary victim of the alleged offenses was GVR. The indictment

claimed that Mr. Foley had deceived GVR by selling games on the side, in

violation of his contractual agreements, and that the proceeds of the sales

rightfully belonged to GVR rather than Mr. Foley. It also alleged that, in order to

conceal the crime, Foley instructed Daddona to lie to GVR when GVR inquired

5


why Daddona had stopped purchasing GVR products. It thus alleged that Mr.

Foley defrauded GVR.

The indictment also alleged that Mr. Foley defrauded customers who

purchased the video games. It claimed that when Mr. Foley and Daddona sold

games, they falsely represented that the games were authentic and genuine GVR

products. (ER 443, Mail Fraud Indictment ¶¶ 23-24.) It thus alleged that Mr.

Foley defrauded customers by selling “counterfeit products.” In sum, the first

indictment alleged both that Mr. Foley defrauded his employer, GVR, and also

that he defrauded customers.

C. The Bank Fraud Indictment

The original indictment also contained allegations of bank fraud, which

were then moved to the second indictment in 2011. It consisted of three counts of

bank fraud and conspiracy to commit bank fraud. It alleged that, shortly after he

was terminated by GVR, Foley falsely represented in a home loan application to

Countrywide Mortgage that he was still employed by GVR. It further alleged that

Foley instructed a friend who still worked at GVR to confirm Foley’s employment,

even though the friend knew Foley was in fact no longer employed. It charged

that these material and false statements constituted bank fraud.

//

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D. Plea Agreement

Mr. Foley and the government entered into a plea agreement intended to

resolve both cases. (ER 405 Dkt #25.) As part of the deal, Mr. Foley pleaded

guilty to one count of conspiracy to commit mail fraud and one count of

conspiracy to commit bank fraud. In return, the government agreed to dismiss all

remaining counts from both indictments.

1. Factual Admissions

As the factual basis for the plea, Mr. Foley admitted some but not all of the

allegations that had been made in the indictments. Particularly with respect to the

mail fraud indictment, the scope of the admission was limited: Mr. Foley admitted

that he had deceived customers.

From approximately no later than June 2006 andcontinuing to on or about February 2008, MichaelDaddona (“Daddona”) and I conspired and agreed todevise a scheme to obtain money by making false orfraudulent representations by mail and wire and to sellthumb drives known as “game packs,” by mail and wire,containing video gaming software that could be loadedonto full arcade video game machines made for the homemarket. Daddona and I knew that such falserepresentations, that the manufacturer of the goods to bea company called UltraCade, were material to thecustomers of game packs. I became a member of thisconspiracy knowing that the object was to obtain moneyand I intended to help accomplish it.

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Specifically, . . . I agreed and conspired to continue tomanufacture and sell game packs to Daddona at a time Iknew I was no longer associated with [UltraCade] or itssuccessor-in-interest. During all times between June2006 and continuing to on or about February 2008, Iknowingly manufactured game packs from my residencein Los Gatos, California. After I manufactured gamepacks, I sold them to Daddona, and I agreed that hewould then sell game packs to the public usingpackaging and advertisements that falsely representedthe goods to be UltraCade.

(Dkt. 25; ER 407, emphasis added.) Mr. Foley did not admit that he made false

statements to GVR or otherwise defrauded GVR.

With respect to the bank fraud allegations, Mr. Foley admitted that he

instructed another person to falsely verify his employment. Mr. Foley thus pleaded

guilty to two criminal counts, one in each case, and the government dropped all

remaining charges.

2. Sentencing Provisions

With respect to sentencing, the plea agreement was more open-ended. The

plea agreement described in standard language that the district court would

sentence in accordance with the Sentencing Guidelines and § 3553(a) factors.

The plea agreement did not contain any specific deal regarding a Guidelines

calculation. Most importantly, it did not contain any agreement regarding the loss

calculation.

8


For the mail fraud count, the plea agreement stated that Mr. Foley could

argue for a loss of $0, but the government could argue for a loss of up to $1.5

million, resulting in a 16-point offense characteristic adjustment under the

Guidelines. (ER 410.) For the bank fraud count, the plea agreement stated that

Mr. Foley could argue for a loss of $0, but the government could argue for a loss

of up to $2.5 million, resulting in an 18-point offense characteristic adjustment.

(Id.)

3. Waivers

In addition to waiving his right to trial as part of the plea agreement, Mr.

Foley agreed to “waive any right I may have to appeal any aspect of my sentence.”

(ER 409.) He further agreed that he would not move to withdraw his guilty plea,

regardless of the sentence imposed by the court. (Id.) He also agreed not to

collaterally attack his conviction or sentence. (Id.)

The plea agreement also stated that if Mr. Foley violated any term of the

plea agreement, the government would be released from all of its obligations

under the deal, but Mr. Foley would still be bound. (Id. at 7-8) The agreement did

not contain any provision specifying what would happen if the government

breached the agreement.

//

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E. Sentencing

Following the plea agreement, the parties proceeded to sentencing. With

respect to the bank fraud count, the district court determined that the loss amount

was zero because the value of the house as collateral was greater than the value of

the loan. Therefore, the lender had suffered no loss as a result of the false

statements made. Although the government initially maintained that the court

should calculate loss based on the entire value of the loan, it eventually conceded

that due to the value of the collateral, the lender suffered no loss. (ER 385; see

also ER 38-39.) The presentence investigation report thus recommended a loss

amount of zero for the bank fraud count. (ER 38-39.) Neither party objected, and

the district court agreed.

Because the loss amount was zero for the bank fraud count, the sentence

depended almost entirely on the loss amount for the mail fraud count.1 The parties

disputed the loss amount for the mail fraud count. Both sides presented various

written submissions to the court, and the court held an evidentiary hearing to

determine loss.

1 Paragraph 109 of the PSR stated: “since there is no loss associated with theBank Fraud count, the guideline range will be based solely on the loss for theMail/Wire Fraud.”

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1. The Parties’ Arguments

Prior to the hearing, the parties submitted a joint brief on loss outlining their

positions. The government argued for a loss amount of $1.5 million based on lost

profits to GVR. It argued that its proposed “loss amount represents the amount of

money that Global VR could have made if Foley had not flooded the market with

his cheap counterfeit UltraCade game packs.” (ER 391.) The defense, however,

argued and provided contracts showing that since GVR had only purchased non-

exclusive licenses from Foley and that UltraCade never owned the games, it was

improper to include any supposedly lost profits to GVR. (Id. at 6.) It contended

that the only misrepresentations made by Mr. Foley were those to customers, and

that the customers were not harmed by those misrepresentations, thus there was no

loss.

The district court held an evidentiary hearing on December 6, 2012. (ER

184.) As its primary witnesses, the government called former GVR executives.

They testified that they believed Mr. Foley had deceived them both in their

contract negotiations regarding the UltraCade sale and also while Mr. Foley was

employed by GVR. They testified that GVR suffered substantial financial loss

because Mr. Foley misled them about UltraCade’s financial prospects during

negotiations, and also that GVR lost profits as a result of Mr. Foley’s continued

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sales of video game packs. The government did not call any customers who

purchased products from Mr. Foley, nor did it at any point present evidence

regarding loss to customers.

After the evidentiary hearing, the parties presented additional submissions

and argument. The government continued to rely solely on loss to GVR, which it

claimed was “severely harmed” by Mr. Foley’s conduct. (ER 389.) As the

prosecutor put it, “I think we have a clear view of the defendant’s attempt to harm

Global VR. And they are the victim.” (ER 161.) The defense continued to

maintain, however, that the only victims of the offense admitted in the plea deal

were the customers. “[T]he only victim is the customers who bought the game

packs and that is what comes out of the facts allocute [sic] to in the plea deal.”

(ER 132; see also 133-34, 154, 169 [“It’s a fraud case against the customer, right,

not against Global VR.”].) Since there was no evidence of loss to customers, the

defense argued that the Guidelines loss amount should be zero.

2. The District Court’s Ruling

After hearing the parties’ arguments, the district court indicated that it

agreed with the government that GVR could be considered a victim of the fraud.

(Id. at 47-50.) It then found lost profits to GVR of $450,000. (Id. at 51.)

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The Guidelines range was calculated on that basis. The base offense level for the

offense was 7. The $450,000 loss figure resulted in a 14-point enhancement under

USSG § 2B1.1, resulting in an adjusted offense level of 21. The Guidelines

recommended range was thus 37 to 46 months. (ER 118-19.) The district court

imposed a sentence of 24 months. (ER 119.)

SUMMARY OF ARGUMENT

Mr. Foley pleaded guilty to conspiring to defraud customers who purchased

his video games, and also to conspiring to defraud a bank who gave him a

mortgage. Neither victim suffered any loss as a result of the fraud. The district

court, however, imposed a sentence of imprisonment based on a finding that Mr.

Foley’s former employer had lost profits.

That sentence was illegal. The plea agreement did not contain any

admissions that Mr. Foley defrauded his employer, and it did not contemplate that

he could be sentenced based on lost profits to his employer. Because Mr. Foley’s

employer was not a victim of the offense that was admitted in the plea agreement,

it was impermissible to sentence him based on the employer’s lost profits. This

case should be remanded for resentencing.

//

//

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ARGUMENT

I. THE DISTRICT COURT ERRED BY IMPOSING A SENTENCEBASED ON LOSS TO A PARTY WHO WAS NOT A VICTIM OFTHE OFFENSE TO WHICH THE DEFENDANT PLEADED GUILTY

The government initially charged Mr. Foley with defrauding his employer,

GVR. But Mr. Foley did not plead guilty to that offense. Instead, he pleaded

guilty to defrauding customers. At sentencing, however, in computing the loss

amount, the district court relied entirely on perceived loss to GVR.2 In effect, the

government obtained a plea based on the customer-fraud theory, but then obtained

a much more serious sentence based on the employer-fraud theory. The district

court’s decision to sentence based on loss to GVR violated the terms of the plea

agreement. It also violated the Guidelines and this Circuit’s law on convergence

in mail fraud cases.3

2 As noted above, the district court found and the government eventuallyagreed that there was no loss with respect to the bank fraud count. The claims oferror raised by Mr. Foley in this appeal relate solely to the mail fraud count.

3 The standard of review of an interpretation of a contract is de novo. Martin Trust v. United States, 739 F.3d 1204, 1210 (9th Cir. 2014). Whether thegovernment violated the terms of a plea agreement is also reviewed de novo. United States v. Myers, 32 F.3d 411, 413 (9th Cir. 1994). A district court’sinterpretation of the Guidelines is reviewed de novo, and its application of theGuidelines to the facts of a particular case is reviewed for abuse of discretion. United States v. Staten, 466 F.3d 708, 713 (9th Cir. 2006).

14


A. The Shifting Theories of Fraud

The government initially charged Mr. Foley with a fairly wide-ranging

fraud. The mail fraud indictment consisted of over thirty counts, covering a broad

range of conduct. It alleged that he defrauded both GVR and customers.

But Mr. Foley did not plead guilty to all of the counts, all of the conduct, or all the

theories of guilt in the indictment. Indeed, as is common in plea agreements, he

admitted to a narrower course of criminal conduct than that alleged in the

indictment. He pleaded guilty to a narrower theory of guilt, consisting of a single

count, in exchange for the government dropping all remaining charges.

The plain text of the plea agreement makes this clear. Mr. Foley admitted

that he “falsely represented” to customers that the goods he was selling them were

manufactured by UltraCade, and that those “false representations . . . were material

to the customers of game packs.” (ER 406.) He did not admit that he defrauded

GVR. He did not admit that he made any false statements to GVR.

He did not admit that he violated his contractual agreements with GVR. He did

not admit that he sold any goods that were the sole intellectual property of GVR.

Rather, he admitted that he had sold video games that were falsely labeled as being

UltraCade products, and that he had thereby deceived the customers who

purchased the games.

15


In sum, the sole factual admission was that he defrauded customers. There

was no admission that he defrauded his employer, GVR. Indeed, the fact that the

theory of fraud as to GVR was contained within the indictment but deleted from

the written plea agreement establishes that the parties agreed that GVR was not a

victim of the offense which Foley was admitting. And yet, at sentencing, the

government argued and the district court accepted that GVR was a victim of the

fraud, and therefore that Mr. Foley’s sentence could be based on loss to GVR. In

effect, in order to obtain a greater sentence, the government shifted theories of the

offense after it obtained a plea agreement back to a theory it had dropped as part of

the plea agreement. The district court’s ruling endorsing that tactic was error. The

resulting sentence violated the plea contract, and the sentence was therefore

illegal.

B. Convergence Doctrine

Even aside from the terms of the plea agreement, the district court’s

sentence also violated this Circuit’s law governing mail fraud cases. Mail fraud is

a broad crime, but its reach is not limitless. It does not cover every act of

deception, or even every act of deception that results in financial gain. Both this

Court and the Supreme Court have placed several important limits on the reach of

the federal fraud statutes. One of those limitations is the convergence doctrine.

16


Under that doctrine, there must be “some level of convergence between the fraud

and the loss.” United States v. Ali, 620 F.3d 1062, 1070 (9th Cir. 2010). What

this means is that the person who is the object of the defendant’s deception must

also be the person who suffers a loss (actual or intended).

As this Court has stated, a defendant is not guilty of mail or wire fraud

unless he intends “to obtain money or property from the one who is deceived.”

United States v. Lew, 875 F.2d 219, 221 (9th Cir. 1989) (emphasis added). Where

“money was not received from the party deceived,” the defendant’s conduct is not

covered by the federal fraud statutes. Id. The Supreme Court has endorsed similar

principles. It has stated that “for purposes of the mail fraud statute, the thing

obtained must be property in the hands of the victim.” Cleveland v. United States,

531 U.S. 12, 15 (2000). Other circuits have reached similar conclusions, as a

simple matter of logic. “If a scheme to defraud must involve the deceptive

obtaining of property, the conclusion seems logical that the deceived party must

lose some money or property.” United States v. Evans, 844 F.2d 36, 39 (2d

Cir.1988).

Lew is particularly instructive. The defendant in Lew was an immigration

attorney who, according to the government, engaged in a scheme to defraud. He

falsified immigrant employment forms that he submitted to the Department of

17


Labor, on behalf of his paying clients. 875 F.2d at 220. The government argued

that because the defendant made money as a result of his lies, he was guilty of

fraud. But this Court reversed his conviction.

The Lew Court relied on the Supreme Court’s holding in McNally v. United

States, 483 U.S. 350 (1987), that fundamentally, mail fraud requires proof that the

defendant intended to defraud and victimize some identifiable person.

Necessarily, then, lying to one person but obtaining money from someone else

does not constitute mail fraud. This Court therefore held that although the

defendant in Lew deceived the DOL, and obtained money from his clients, the

evidence was insufficient to prove fraud. The fact that it was all part of the same

course of conduct, or same overall scheme, was irrelevant. Because the defendant

did not deceive his clients, and there was “no evidence that [the defendant]

obtained the money from his clients by defrauding them,” he was not guilty of

mail fraud. 875 F.2d at 221.

Since Lew, this Court has clarified that it is not necessary that property “ be

taken directly from the victim,” or that underlying misrepresentation must be made

“directly” to the victim. Ali, 620 F.3d at 1070. Nonetheless, it has repeatedly re-

affirmed the basic principle of convergence: “the intent must be to obtain money

or property from the one who is deceived.” Id. (quoting Lew, 875 F.2d at 221);

18


accord United States v. Milwitt, 475 F.3d 1150, 1156 (9th Cir. 2007); Monterey

Plaza Hotel Ltd. v. Local 483, 215 F.3d 923, 926 (9th Cir. 2000).

In this case, by basing its sentence on loss to GVR, the district court’s

sentence violated the well-established principle of convergence in fraud cases.

Mr. Foley is not arguing that he is not guilty of conspiracy to commit mail fraud,

or that he did not plead guilty to a valid theory of mail fraud. He did plead guilty

to conspiracy to commit mail fraud—by making false representations to

customers, in order to obtain money from them. But that was an offense for which

there was no loss, because the victims of that offense suffered no loss. Indeed, the

government conceded as much, making no effort at all to present evidence of

customers’ loss. Mr. Foley therefore should have received the base offense level,

without an adjustment for the victims’ loss.

Mr. Foley admitted to making misstatements to customers. That was the

sole factual basis for the offense of conviction. GVR was not the object (directly

or indirectly) of that deception, and therefore, under this Circuit’s law, GVR was

not a victim of the fraudulent conduct. The fact that GVR paid money to purchase

some of the assets of Mr. Foley’s company, and that it could have suffered some

loss as part of Mr. Foley’s entire course of conduct, is legally immaterial, just as it

was in Lew. Under the convergence doctrine, GVR cannot be considered a victim

19


of the offense of conviction.

C. Victims Under the Guidelines

The Sentencing Guidelines must be interpreted in light of this Court’s

doctrine limiting the underlying crime of mail fraud. As described above, the

convergence doctrine limits the definition of the underlying offense, and must

therefore also limit the loss attributable to the offense. In addition, the district

court’s loss calculation was erroneous under the Guidelines definitions of “loss”

and “victim” themselves. As two other circuits have recently explained, loss

under Chapter 2 of the Guidelines only includes loss that resulted from the offense

conduct itself—it does not include the broader category of loss resulting from any

related relevant conduct.

Under § 2B1.1, loss is defined as actual or intended loss to victims. The

loss that may be counted is the loss “that resulted from the offense.” USSG §

2B1.1, application note 3(A)(I) (emphasis added). The loss, in other words, must

be causally related to the offense of conviction. United States v. Hicks, 217 F.3d

1038, 1048 (9th Cir. 2000); see United States v. Simpson, 538 F.3d 459, 464 (6th

Cir. 2008) (“The term ‘loss’ in § 2B1.1(b) does not encompass every harm

resulting from a crime, no matter how attenuated the causal link.”). Moreover,

“victim” is defined as “any person who sustained any part of the actual loss . . . as

20


a result of the offense.” USSG § 2B1.1, application note 1. Both definitions refer

to “the offense.”

In sentencing proceedings below, the government and the district court

relied heavily on the “relevant conduct” principles of the Guidelines. In essence,

the district court ruled that even if GVR was not a victim of the offense of

conviction, it was nonetheless a victim of Mr. Foley’s entire course of relevant

conduct. That ruling misunderstood the meaning of the relevant conduct

provisions, and ignored the definition of “victim” that applies to § 2B1.1.

The Guidelines define “victim” differently in different provisions. For § 3A1.1,

the Guidelines define “vulnerable victim” as a person “who is a victim of the

offense of conviction and any conduct for which the defendant is accountable

under § 1B1.3 (Relevant Conduct).” USSG § 3A1.1, application note 2 (emphasis

added). By contrast, the definition of “victim” under § 2B1.1 applies only to a

person who was harmed as a result of the offense. Thus, the Guidelines define

“victim” more broadly in § 3A1.1, and more narrowly in § 2B1.1.

Other circuits have recognized this critical distinction. The D.C. Circuit, for

example, recently explained the difference between the two definitions. See

United States v. Salahmand, 651 F.3d 21 (D.C. Cir. 2011). It noted that in 1997,

the Sentencing Commission amended the § 3A1.1 definition of victim precisely to

21


broaden that definition to cover not just victims of the offense itself. Id. at 27.

Thus, the D.C. Circuit explained the apparent “non sequitur” that a person could

be a “vulnerable victim” without being a “victim” at all.

The problem that Salahmand has pointed out is not that hisminor patients were not victims, but that they were not victimsas defined by § 2B1.1. They are, however, victims as definedby § 3A1.1, and there is nothing illogical about the SentencingCommission providing different definitions for differentguidelines.

Id.

The Third Circuit has likewise explained that the difference between the

two definitions of “victim” makes perfect sense in light of the difference between

the overall purpose of Chapters 2 and 3 of the Guidelines.

Chapter 2 of the Guidelines is entitled “Offense Conduct” andcontrols the base offense level of the crime, whereas Chapter 3,entitled “Adjustments,” contains a list of adjustments thatincrease the number of Guidelines points for aggravatingfactors such as the age of the victim or the use of a minor tocommit a crime. Because these two chapters serve differentpurposes, the Sentencing Commission was free to define“victim” differently in each.

United States v. Kennedy, 554 F.3d 415, 423 (3d Cir. 2009); see also United States

v. Valdez, 726 F.3d 684, 692-93 (5th Cir. 2013).

The Sentencing Commission is indeed free to define “victim” differently in

different provisions, and it has chosen to do so. In § 3A1.1, it defined victim to

22


include anyone harmed either by the defendant’s offense conduct or by any other

relevant conduct. In § 2B1.1, by contrast, it defined victim to include only those

harmed by the defendant’s offense conduct. In this case, the district court applied

the § 3A1.1 definition to its loss calculation under § 2B1.1. That ruling was

legally erroneous. Even if GVR was a victim of the broader course of relevant

conduct, it was not a victim of the offense of conviction. The district court

therefore erred by basing its loss calculation on GVR’s lost profits.

D. Implicit Admission

The government has also argued that even if Mr. Foley did not explicitly

admit in the plea agreement that he defrauded GVR, he implicitly admitted to that

fraud. In other words, it has argued that although the customer-fraud theory was

the only theory specified, the employer-fraud theory was also “implicit” in the plea

agreement. That argument is faulty for two reasons, one legal and one factual.

First, as a legal matter, the government cannot claim the benefit of

“implicit” terms in plea agreements. This Court has recognized that in plea

negotiations, the government is the party with greater bargaining power and also

the party who drafts the agreement. As a result, this Court has “steadfastly applied

the rule that any lack of clarity in a plea agreement should be construed against the

government as drafter.” United States v. Cope, 527 F.3d 944, 951 (9th Cir. 2008).

23


The government could have sought to insert an admission to the employer-fraud

theory into the agreement, but it failed to do so. As a matter of law, it cannot

claim that such an admission was implicit in the deal.

Second, as a factual matter, Mr. Foley never admitted that he defrauded

GVR. To the contrary, both before and after the plea agreement, Mr. Foley

adamantly maintained that he had not committed any crime with respect to GVR.

(ER 23-24, 99-102.) As the PSR detailed, even after the plea agreement, Mr.

Foley maintained that he had only provided GVR a non-exclusive license to sell

video game packs, and that he therefore retained the legal right to sell the game

packs as a competitor product as well. (PSR at ¶¶ 49-61.)4 Mr. Foley provided

evidence that clearly showed that GVR acknowledged this by paying him royalty

checks, even after terminating his employment, for their sales of his games. When

questioned by the trial judge at the final sentencing hearing, Mr. Foley persisted:

“I never transferred those rights in full to Global VR.” (ER 111.) While he did

admit some amount of wrongdoing —namely, misleading customers and his

mortgage company—the record of proceedings below makes clear that he

consistently denied defrauding GVR.

4 Indeed, it was largely because Mr. Foley refused to admit fault in thissense that the district court denied him an acceptance-of-responsibility reduction.(ER 115-19.)

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The government, of course, disagrees with Mr. Foley. It believes that Mr.

Foley did not have a legal right to continue selling game packs for his own benefit,

and therefore that he defrauded GVR. Whatever the factual merits of that dispute,

the fact remains that Mr. Foley never admitted anything of the sort. Indeed, it is

fair to say that Mr. Foley would not have accepted a plea agreement at all if he had

been required to admit that he defrauded GVR. The government’s contention that

Mr. Foley implicitly conceded that point is not supported by the text of the plea

agreement itself, and it is utterly belied by the record as a whole.

II. THE DISTRICT COURT ERRED BY FINDING THE LOSSAMOUNT BASED ON A PREPONDERANCE OF EVIDENCE

As described above, Mr. Foley’s primary contention on appeal is that GVR

was not a victim of the offense of conviction, and therefore that losses to GVR

cannot be used to enhance his sentence. But even assuming arguendo that losses

to GVR can be counted, the district court erred by employing the preponderance

standard rather than the clear and convincing standard.

In general, findings under the Sentencing Guidelines must be supported by a

preponderance of the evidence.5 However, when sentencing enhancements under

5 In its opposition to Mr. Foley’s bail motion, the government argued thatMr. Foley waived any objection to the standard because the parties’ initial jointsentencing filing contained a statement that loss amounts must be supported by thepreponderance of evidence. (Ninth Cir. Dkt. 13-1 at 19-20; see also ER 388.)

25


the Guidelines have a disproportionate impact on a defendant’s sentence, a trial

court must find the enhancements by clear and convincing evidence. United

States v. Riley, 335 F.3d 919, 925–26 (9th Cir. 2003). That rule applies to loss

calculations under § 2B1.1. United States v. Zolp, 479 F.3d 715, 718 (9th

Cir.2007). Moreover, this Court has also held that it is particularly important to

apply the clear and convincing standard when enhancements are based on

“relevant conduct” that was not found by a jury or admitted in a plea agreement.

See United States v. Garro, 517 F.3d 1163, 1169 (9th Cir. 2008). The loss

calculation proposed by the government and accepted by the court in this case was

based on “relevant conduct” rather than the offense described in the plea

agreement itself.

The loss calculation also had a disproportionate impact on Mr. Foley’s

sentence. As the probation officer stated in the PSR, “the offense level is

determined largely on the basis of the total amount of loss.” (PSR ¶ 109.) The

base offense level—i.e., the offense level that would have resulted based on the

guilty plea alone—was 7, which would have resulted in a recommended sentence

This boilerplate statement of the general standard, contained in a filing drafted bythe government, hardly constitutes waiver. Regardless, given this Court’s long-established and well-known case law governing the evidentiary standards underthe Guidelines, the district court’s reliance on the wrong standard constituted plainerror.

26


of probation. The district court’s loss calculation resulted in a 14-point

enhancement, which increased the recommended sentencing range from probation

to 37 to 46 months incarceration.

Because the loss was based on relevant conduct rather than the offense of

conviction, and also because the loss figure had a disproportionate impact on the

recommended sentence, the district court was required by this Circuit’s law to

employ the clear and convincing standard. Even if this Court determines that it

was appropriate to treat GVR as a victim for determining loss amount, it should

remand for re-sentencing with the proper standard.

III. THE APPEAL WAIVER CONTAINED IN THE PLEA AGREEMENTDOES NOT PREVENT THIS COURT FROM HEARING THEDEFENDANT’S CLAIMS

The plea agreement entered into by the defendant and the government

contained a broad appeal waiver. It stated:

I agree to give up my right to appeal my convictions, thejudgment, and orders of the Court. I also agree to waive anyright I may have to appeal any aspect of my sentence, includingany orders relating to forfeiture and/or restitution.

(ER 409 [Plea Agreement at 5].)

After Mr. Foley filed his notice of appeal, the government filed a motion to

dismiss the appeal based on the appeal waiver. (ER 338.) This Court denied the

27


motion without prejudice to renewing the same arguments in the answering brief

on appeal. (ER 336.) Should the government choose to renew those arguments

again, this Court should not accept them. The sentence imposed in this case did

not comport with the terms of the plea agreement, and any ambiguity in that

respect must be resolved against the government. Under this Court’s law

regarding the validity of appeal waivers, Mr. Foley is therefore entitled to appeal.6

A. Enforcing the Terms of the Plea Agreement

The appeal waiver in the plea agreement states in unconditional terms that

Mr. Foley may not appeal any aspect of his sentence, no matter what sentence was

imposed. Such an appeal waiver, if read literally, would prevent a defendant from

appealing a death sentence imposed after a mail fraud conviction. Happily, this

Court’s case law does not countenance such a result. While appeal waivers are

generally valid, they are not binding if:

(1) a defendant's guilty plea failed to comply with Fed. R.Crim. P. 11; (2) the sentencing judge informs a defendant thatshe retains the right to appeal; (3) the sentence does notcomport with the terms of the plea agreement; or (4) thesentence violates the law.

United States v. Tsosie, 639 F.3d 1213, 1217 (9th Cir. 2011) (internal quotation

6 Whether a defendant waived his right to appeal is reviewed de novo. United States v. Schuman, 127 F.3d 815, 817 (9th Cir. 1997).

28


marks omitted).

In this case, the third exception applies because the sentence imposed did

not comport with the terms of the plea agreement. See United States v.

Navarro-Botello, 912 F.2d 318, 321 (9th Cir.1990) (“We note, however, that a

waiver of the right to appeal would not prevent an appeal where the sentence

imposed is not in accordance with the negotiated agreement.”). As described in

Argument I above, Mr. Foley pleaded guilty to a crime of defrauding his

customers. The plea agreement, by its terms, contemplated that he would be

sentenced on the basis of that admitted conduct. The plea agreement contemplated,

in other words, that he would be sentenced based on the admission that he

defrauded customers, not that he defrauded GVR. The district court’s sentence did

not comport with that agreement, and therefore, the appeal waiver does not apply.

In short, if this Court accepts the merits of Mr. Foley’s argument regarding his

sentence, then the appeal waiver is necessarily inoperative as well.

The fourth exception also applies. This Court has held that the fourth

exception applies in several circumstances, including when a sentence violates the

Constitution and when it exceeds the statutory maximum. The fourth exception

also applies when a sentence “is not authorized by the judgment of conviction.”

United States v. Fowler, 794 F.2d 1446, 1449 (9th Cir. 1986). In this case, the

29


sentence was not authorized by the judgment of conviction because the sentence

was imposed based on a different offense than that to which the defendant pleaded

guilty.

Put differently, appeal waivers should not be enforced in circumstances like

this where the government goes outside the terms of the plea agreement to obtain a

stiffer sentence. In this case, the government violated the plea agreement by

seeking and obtaining a sentence for conduct not covered by the agreement. The

government initially charged Mr. Foley with dozens of counts covering a wide

variety of criminal conduct, including defrauding GVR. But the parties then

agreed to a deal whereby Mr. Foley would admit to a much narrower admitted

course of criminal conduct, conspiring to defraud customers and his bank, in

exchange for dropping all remaining counts. The government then illegally

sought a sentence based on conduct not covered by the agreement—indeed, based

on allegations that were dropped as part of the agreement.

The government is required to honor its commitments in plea bargaining.

This is true both as a matter of contract law and also as a matter of due process.

Santobello v. New York, 404 U.S. 257, 262 (1971); United States v.

Transfiguracion, 442 F.3d 1222, 1228 (9th Cir. 2006). In this case, the

government sought and received a sentence that did not comport with the bargain

30


contained in the plea agreement. Because the sentence did not comport with the

agreement, Mr. Foley is entitled to appeal the sentence notwithstanding the appeal

waiver provision.

B. The Government’s Responsibility

The government will no doubt argue that it upheld its end of the bargain,

and that Mr. Foley has violated the deal by appealing the sentence. For the

reasons given above, Mr. Foley submits that the plain terms of the plea agreement

contemplated that he be sentenced for conspiring to defraud customers, not for

defrauding GVR. Looking outside the four corners of the plea agreement and

examining the record of proceedings below, however, suggests that from the

outset, the parties in this case had vastly different views of the meaning of the plea

agreement.

After the parties signed the plea agreement, Mr. Foley made a variety of

statements—to the probation officer, to the district judge, and elsewhere—that he

had not defrauded GVR, and that in fact GVR had violated its contractual

commitments to him. For his part, while Mr. Foley apologized for his criminal

conduct, he offered no apology to GVR—and indeed he continued to maintain that

he had been wronged by GVR. (See, e.g., 1-21-14 Tr. at 98-99.)

The government responded fairly angrily to these statements. It argued that

31


Mr. Foley had contradicted the statements made in the plea agreement, and that he

had failed to accept responsibility for the admitted offense. (ER at 10-12.) As the

prosecutor stated at the sentencing hearing:

He denies that Global VR was a victim of the offense and evenblames his criminal conduct on Global VR stating were it notfor the continued deliberate actions of Global VR tosystematically dismantle UltraCade . . . I would not have foundmyself in the circumstances that led me to break the law.

(ER 11.)

The government thus argued that Mr. Foley was not entitled to any

sentencing reduction for acceptance of responsibility, because he continued to

deny his culpable conduct in defrauding GVR. By contrast, Mr. Foley believed

that the entire point of the plea agreement was that he was never required to admit

that he defrauded GVR.7 He admitted to some criminal conduct, but he

maintained—absolutely, persistently, and (to the government) annoyingly—that he

had not committed any criminal offense with respect to GVR.

In sum, the parties disagreed about exactly what crime and what sentence

the plea agreement contemplated. From the outset, the language of the plea

7 The Commentary to USSG §3E1.1, the guideline providing a downwardadjustment for “Acceptance of Responsibility,” notes that “a defendant is notrequired to volunteer, or affirmatively admit, relevant conduct beyond the offenseof conviction in order to obtain a reduction under subsection (a).”

32


contract was not sufficiently clear to settle the parties’ expectations in these

matters.

Plea agreements are strictly construed against the government, which is the

drafting party and the party with disproportionate bargaining power. United States

v. Williams, 510 F.3d 416, 422 (3d Cir. 2007); United States v. Podde, 105 F.3d

813, 820 (2d Cir. 1997). Consequently, “any lack of clarity” in the agreement is

construed against the government. United States v. Cope, 527 F.3d 944, 951 (9th

Cir. 2008). Ambiguities in plea agreements must be construed in the defendant’s

favor. Id. In short, it is government who “must bear responsibility” for any

ambiguities or gaps in a plea agreement. United States v. De la Fuente, 8 F.3d

1333, 1337 (9th Cir. 1993) (internal quotation marks omitted).

If the government believed that the essential crime in this case was

defrauding GVR, it could have sought to include explicit admissions to that effect

in the plea agreement. It failed to do so. If the government believed that GVR

was a victim of the offense in this case, and that the sentence should be determined

based on lost profits to GVR, it could have included provisions to that effect in the

plea agreement. It failed to do so. The government maintains that these terms

were implicit in the plea agreement, but even if the government’s interpretation of

the agreement were “equally plausible”—which it is not—the ambiguity must be

33


resolved in Mr. Foley’s favor. De la Fuente, 8 F.3d at 1338.

These principles apply to the substantive bargain itself and also to the

appeal waiver. Like any other provision of a plea agreement, an appeal waiver

must be strictly construed against the government. Cope, 527 F.3d at 951. In

Cope, the trial court imposed a sentence including terms not contemplated by the

plea agreement, and the defendant sought to appeal that sentence notwithstanding

an appeal waiver. This Court held that because there was an ambiguity in the

agreement, the defendant could appeal. Id. at 950-51. The same is true here.

Because the government bears responsibility for any lack of clarity about the

permissible sentence and the basis of the loss calculation, the government should

not be able to preclude review of this case by virtue of the appeal waiver.

C. Lack of Notice

Similarly, this Court has also held that lack of notice regarding a plea

agreement’s terms renders an appeal waiver invalid. A defendant’s decision to

enter into a plea bargain, including his waiver of constitutional and statutory

rights, must be knowingly, intelligently, and voluntarily made. This fundamental

principle applies to appeal waivers. See Tsosie, 639 F.3d at 1217 (“We have also

stated that we will not give effect to an appeal waiver if it is not made knowingly

and voluntarily.”). A defendant cannot validly waive his right to appeal a sentence

34


if he does not have sufficient notice of the sentence that may be imposed.

This Court has re-affirmed that principle repeatedly. In United States v.

Phillips, this Court declined to enforce an appeal waiver because the plea

agreement was “ambiguous” regarding the amount of restitution that might be

imposed. 174 F.3d 1074, 1076 (9th Cir. 1999). In United States v. Gordon, this

Court again declined to enforce a waiver because the plea agreement was

“unclear” regarding the damages calculation and therefore the defendant “lacked

sufficient notice” regarding the sentence that might be imposed. 393 F.3d 1044,

1050 (9th Cir. 2004).

In this case, the plea agreement failed to provide fair warning or any

indication to Mr. Foley that he could be sentenced based on lost profits to GVR.

Indeed, the record makes clear that Mr. Foley believed his acceptance of the

agreement did not involve any admission of wrongdoing regarding GVR. He

reasonably believed that he could not be sentenced based on loss to GVR, in large

part because the plea agreement itself failed to specify anything to the contrary.

Because he lacked notice that he could be sentenced on that basis, the appeal

waiver was not knowing and voluntary. It therefore should not be enforced.

//

//

35


CONCLUSION

Mr. Foley sought to resolve this case without admitting that he defrauded

GVR. He was willing to admit some criminal conduct, but he was not willing to

admit wronging GVR—because he sincerely believes that he did no such thing. If

Mr. Foley had known that his plea agreement, in addition to the very detailed

explicit admissions, involved some “implicit” admission that he defrauded GVR,

and thus that he could receive a substantial prison sentence based on lost profits to

GVR, he would not have accepted the deal. Indeed, Mr. Foley accepted the

bargain precisely because he believed that in exchange for his specific and explicit

admissions, the government was dropping allegations of wrongdoing against

GVR.

The plea agreement should be enforced as it was written, and Mr. Foley

should be sentenced solely based on loss to victims of the conduct constituting the

admitted offense.

Dated: August 18, 2014 Respectfully submitted,

RIORDAN & HORGAN

/s/ Dennis P. Riordan DENNIS P. RIORDAN

Attorney for AppellantDAVID FOLEY

36


STATEMENT OF RELATED CASES

Appellant, pursuant to L.R. 28-2.6, states that he knows of no related cases

pending in this Court.


CERTIFICATION REGARDING BRIEF FORM

I, Donald M. Horgan, hereby certify that the foregoing brief is

proportionately spaced, has a typeface of 14 points, and contains 8,084 words.

Dated: August 18, 2014

/s/ Donald M. Horgan DONALD M. HORGAN


CERTIFICATE OF SERVICEWhen All Case Participants are Registered for the

Appellate CM/ECF System

I hereby certify that on August 18, 2014 I electronically filed the foregoing withthe Clerk of the Court for the United States Court of Appeals for the Ninth Circuitby using the appellate CM/ECF system.

I certify that all participants in the case are registered CM/ECF users and thatservice will be accomplished by the appellate CM/ECF system.

Signature: /s/ Jocilene Yue Jocilene Yue

******************************************************************

CERTIFICATE OF SERVICEWhen Not All Case Participants are Registered for the

Appellate CM/ECF System

I hereby certify that on , I electronically filed the foregoing with theClerk of the Court for the United States Court of Appeals for the Ninth Circuit byusing the appellate CM/ECF system.

Participants in the case who are registered CM/ECF users will be served by theappellate CM/ECF system.

I further certify that some of the participants in the case are not registeredCM/ECF users. I have mailed the foregoing document by First-Class Mail,postage prepaid, or have dispatched it to a third party commercial carrier fordelivery within 3 calendar days to the following non-CM/ECF participants:

Signature: Jocilene Yue


USA v. David Foley - Court of Appeals Docket 14-10055 Doc 22-1

Documents

Transcript of USA v. David Foley - Court of Appeals Docket 14-10055 Doc 22-1