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United States v. Pollak

filed: April 21, 1988.


On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Criminal No. 85-00252-01.

Sloviter, Becker, and Cowen,*fn* Circuit Judges.

Author: Becker


BECKER, Circuit Judge.

Fred B. Pollak has appealed from a conviction for wire fraud, 18 U.S.C. §§ 2, 1343, mail fraud, 18 U.S.C. §§ 2, 1341, conspiracy to commit mail fraud, wire fraud and interstate transportation of stolen property, 18 U.S.C. § 371, and the interstate transportation of stolen property, 18 U.S.C. §§ 2, 2314. We have considered all the issues raised by appellant with regard to his conviction for these offenses, and conclude that none have merit and the conviction must be affirmed.*fn1 We do, however, have difficulty with three interesting questions regarding the district court's imposition of restitution pursuant to the Probation Act, 18 U.S.C. § 3651 (1982 & Supp. III 1985),*fn2 as part of the sentence in this case. First, we must decide whether the district court erred in imposing restitution for transactions enumerated in counts upon which appellant was acquitted. We conclude that it did err.

Second, we must determine whether the district court improperly ordered restitution under § 3651 for legal fees and transportation and storage costs incurred by some of the victims in an effort to recover their property. We conclude that the district court erred on this point as well.

Finally, we must determine whether the district court improperly ordered appellant to pay $250,000 in restitution in the face of appellant's contention that he cannot reasonably be expected to pay this amount, and whether the district court made adequate findings as to appellant's ability to pay. We conclude that the district court did not make adequate findings justifying the conclusion that appellant was able to pay restitution in the amount of $250,000.

Although we reject other attacks on the district court's restitution order, we will, for the reasons indicated, vacate the judgment of sentence and remand this matter to the district court for further proceedings consistent with this opinion.


William Loch was the sole proprietor of Loch Industries, a small tool and dye shop in Tullytown, Pennsylvania. In October, 1982, Loch sold Loch Industries to Richard Estrada, appellant's co-defendant in the district court. At the time of the sale, and on behalf of Loch Industries, Estrada executed a note in favor of a company controlled by appellant, Certified Machinery Co., to repay $343,000 plus interest by December 1982 for a line of equipment, production rights to the equipment, and consulting and marketing services that Certified Machinery ostensibly had sold to Loch Industries. Estrada gave Certified Machinery a security interest in all of Loch Industries's assets, including after-acquired property, as security for the note. Certified Machinery recorded the security agreement in accordance with the Uniform Commercial Code.

Loch Industries thereupon began to order, for immediate delivery, new machinery from other vendors on credit, ostensibly to expand the company's operations to meet production requirements under newly acquired contracts. During November and December, 1982, Estrada ordered on credit approximately $2,000,000 worth of equipment on behalf of Loch Industries. In support of the credit purchases, Estrada provided as credit references appellant's company as well as various companies, operated by some of appellant's friends, which had never extended credit to Loch Industries. Several vendors requested security interests for the machinery they sold to Loch Industries, and Estrada, when placing the orders, promised to convey such an interest to each vendor. However, when the machinery was actually delivered, Estrada somehow managed in each instance to take possession of the equipment without ever signing away any security interests. All subsequent pleas from the defrauded vendors fell on deaf ears.

By December 1982, it was apparent that Loch Industries' newly acquired contracts, which had justified the rapid expansion of the company, were actually worthless. On December 16, 1982, appellant wrote to Estrada demanding payment in full on Loch Industries' note to Certified Machinery no later than December 21, 1982. According to appellant, the balance due on the note had risen to $557,884. The evidence at trial in this case showed, however, that the dollar value of the Loch Industries note to Certified Machinery, which was the basis for appellant's eventual claim to the machinery, had been artificially inflated, as explained in the margin.*fn3

In response to appellant's demand for payment on the note, Estrada informed appellant that Loch Industries had to default on its obligation to Certified Machinery. Meanwhile, employees of Loch Industries began shipping some of the newly purchased machinery from the company's Pennsylvania facilities to Illinois and Texas.

Appellant, acting as a secured creditor of Loch Industries, announced a U.C.C. sale of the company's assets, including its valuable new machinery, and then sent one of his employees to display and then to auction the items. At the public sale on December 29, 1982, his own employee declared appellant the high bidder for the machinery and equipment. After the sale, appellant personally oversaw the removal of more machinery from the Loch Industries warehouse in Huntingdon Valley, Pennsylvania, and one fully loaded trailer left for Chicago. Before other trucks could depart, however, the defrauded vendors (now angry creditors of Loch Industries), fearful of losing the machinery that they sold to Estrada but had not yet been paid for, arrived on the scene and blocked the exits. During the ensuing commotion, appellant identified himself to the creditors as "John Williamson." Ultimately the creditors obtained a restraining order to prohibit the removal of additional machinery.

After the sale, despite promises to return to Huntingdon Valley to make recompense, Estrada in effect disappeared and defaulted in the civil litigation that followed. Appellant unsuccessfully defended the civil litigation on the grounds that he was a secured creditor and therefore had priority over the unsecured machinery dealers. In January, 1983 the Pennsylvania court that had issued the restraining order on the day of appellant's U.C.C. sale also issued a recision order, allowing the unsecured creditors to reclaim their machinery which remained at the Huntingdon Valley warehouse. The evidence showed that even after the recision order, appellant tried to seize a grinder which Estrada had ordered on credit and delivered to ...

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