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[2000-1 USTC ¶50,118] United States of America , Plaintiff-Appellee v. Anita L. Guidry, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-3287, 12/21/99, 199 F3d 1150. Affirming, reversing in part, and remanding for resentencing, an unreported District Court decision

[Code Sec. 7203 ]

False returns: U.S. Sentencing Commission Guidelines: Enhanced sentence: Abuse of position of trust: Victim of crime.--Under the U.S. Sentencing Commission Guidelines, the sentence of an accountant who was convicted of filing a false return in connection with her failure to report funds that she embezzled from her employer could not be enhanced for abuse of a position of trust. While she abused her employer's trust, the position of trust had to be found in relation to the victim of the offense; and she was not in a position of trust with respect to the government, which was considered to be the victim of her crime.

[Code Sec. 7203 ]

False returns: U.S. Sentencing Commission Guidelines: Enhanced sentence: Sophisticated means: Concealment of offense: Currency Transaction Reports.--Under the U.S. Sentencing Commission Guidelines, the sentence of an accountant who filed a false return was properly enhanced for her use of sophisticated means to conceal her unreported embezzlement income. By cashing checks that her employer made out to its bank, and then using the cash to purchase personal items, she made it difficult for the IRS to determine the amount of her embezzled income or of the tax loss she caused. Moreover, she structured the transactions so that the bank would not file Currency Transaction Reports with the IRS.

[Code Sec. 7203 ]

False returns: U.S. Sentencing Commission Guidelines: Downward departure: Discretion: Review: Race.--The trial court's discretionary refusal to make a downward departure from the sentencing guidelines for an accountant who filed a false return by failing to report embezzlement income was not subject to review. Although the judge improperly referred to the taxpayer's race when he explained his refusal to make the departure, he did so only in response to her claim that her public service to the minority community justified a reduced sentence.

[Code Sec. 7206 ]

False returns: Admissible evidence: Search warrant: Specificity: Good faith.--Evidence relating to willfulness that was uncovered pursuant to a search warrant authorizing the seizure of bank records was properly admitted against an accountant who was convicted of filing a false return. Although the warrant may have been insufficiently specific, it was executed by an IRS agent who acted on a good-faith belief that it was valid. Moreover, he was intimately involved in the investigation of the taxpayer prior to the execution of the warrant and in the preparation of an affidavit in support of the warrant, which gave him obvious knowledge of the crimes that were under investigation.

[Code Sec. 7206 ]

False returns: Evidence: Sufficiency.--An accountant was properly convicted of willfully filing a false return in connection with her failure to report as income funds that she embezzled from her employer. The evidence established that she was an educated and experienced accountant, she knew or had reason to know that embezzled income was taxable, and she attempted to conceal the embezzlement from the government, as well as from her employer.

[Code Sec. 7206 ]

False returns: Jury instruction: Willfulness: Negligence.--An accountant was properly convicted of willfully filing a false return in connection with her failure to report as income funds that she embezzled from her employer. A jury instruction defining willfulness as the voluntary and intentional violation of a known legal duty was correct. The taxpayer was not entitled to an additional instruction stating that negligent conduct was insufficient to establish willfulness.

[Code Sec. 7206 ]

False returns: U.S. Sentencing Commission Guidelines: Enhanced sentence: Sophisticated means: Abuse of position of trust: Victim of crime: Downward departure: Discretion: Review: Race.--Under the U.S. Sentencing Commission Guidelines, the sentence of an accountant who filed a false return was properly enhanced for her use of sophisticated means to conceal her failure to report embezzled income. However, since she was not in a position of trust with respect to the government, which was considered to be the victim of her crime, her sentence could not be enhanced for abuse of a position of trust. Finally, the trial court's discretionary refusal to make a downward departure from the sentencing guidelines was not subject to review. The judge's improper reference to the taxpayer's race when he explained his refusal to make the departure was made only in response to her claim that her public service to the minority community justified a reduced sentence.

Debra L. Barnett, United States Attorney, Jackie N. Williams, Assistant United States Attorney, Wichita, Kansas, for plaintiff-appellee. Daniel E. Monnat, Monnat & Spurrier, Wichita , Kansas , for defendant-appellant.

Before: BRORBY, HENRY and LUCERO, Circuit Judges.

BRORBY, Circuit Judge:

A jury found Appellant Anita L. Guidry guilty of three counts of knowingly and willfully filing a false tax return in violation of 26 U.S.C. §7206(1). The district court denied Mrs. Guidry's Motion for Judgment of Acquittal as to the three counts and sentenced her to sixty months imprisonment. Mrs. Guidry now appeals her conviction and sentence, challenging a search warrant as overbroad, jury instructions, the sufficiency of the evidence, and various applications of the sentencing guidelines. We exercise jurisdiction pursuant to 28 U.S.C. §1291 and 18 U.S.C. §3742. We affirm in part, reverse in part, and remand for resentencing.

BACKGROUND

Anita L. Guidry was the architect of an embezzlement scheme that allowed her to line her pockets with approximately $3 million belonging to her employer, Wichita Sheet Metal. ¹ While the embezzlement scheme itself is not directly in issue here, understanding the facts surrounding the scheme is a necessary predicate to resolving the issues before us. Accordingly, we begin with a cursory examination of Mrs. Guidry's background and her embezzlement.

Mrs. Guidry graduated from Wichita State University with a Bachelor's Degree in Business Administration. Her resume lists her major area of study as accounting, and she listed her occupation as accountant on several tax returns filed with the Internal Revenue Service. Wichita Sheet Metal hired Mrs. Guidry as an assistant to the controller of the company in 1986, and she subsequently became the controller in 1987, a position she held until she resigned in 1997. As controller, Mrs. Guidry not only supervised nearly every employee in the office, but she was an authorized signatory on the company checking account.

Mrs. Guidry's embezzlement scheme consisted of submitting checks, already signed by her and made payable to the company's bank, to Freda Moore or John Griffit, owners of Wichita Sheet Metal, for their signature. Mrs. Guidry wrote the checks in $10,000 or $9,000 increments, and she told Mrs. Moore and Mr. Griffit the checks were for federal tax payments. After collecting the proper signature, Mrs. Guidry cashed the checks at the company bank and pocketed the cash. Finally, to prevent discovery of her scheme, Mrs. Guidry altered the company's books to make it appear the money she had taken for personal pleasures was actually used to purchase inventory for the company. This created a discrepancy between the actual inventory and the inventory reflected on the company's books. The company's owners eventually asked for a detailed audit of the discrepancy, which ultimately led to the discovery of Mrs. Guidry's embezzlement.

Mrs. Guidry had financial responsibilities at home in addition to those at work. As the accountant in the family, Mrs. Guidry prepared the joint federal tax returns she filed on behalf of herself and her husband for 1993, 1994, and 1995. According to Mrs. Guidry's husband, these returns were prepared elaborately, which fact is buttressed by the returns themselves. The Guidrys painstakingly itemized their deductions, taking charitable deductions of $7,513 in 1993, $11,692 in 1994, and $13,102 in 1995. Not surprisingly, however, none of the returns reported the embezzled income. In 1993, Mrs. Guidry cashed forty checks through her embezzlement scheme for a total amount of $400,000. The Guidrys declared a total income, combined husband and wife, of $82,817 on their federal income tax return in 1993. In 1994, fifty-nine checks were cashed for a total of $563,000, and the Guidrys declared a total income of $88,547. In 1995, it was sixty-four checks cashed for $576,000, compared to a total declared income of $90,883.

While investigating Mrs. Guidry's embezzlement, Special Agent Martin McCormick of the Internal Revenue Service participated in the execution of a search warrant at the Guidry home. While searching for bank records, Special Agent McCormick opened a drawer in a file cabinet marked "taxes" and observed "tax booklets identical to those that are mailed to everyone by the Internal Revenue Service every year at the first of the year." The 1993 tax booklet the Internal Revenue Service provided with the Individual Income Tax Return listed embezzled income as taxable income that must be reported. The 1994 and 1995 tax booklets did not specifically contain this language, but instead referenced a publication the taxpayer could request which did specifically state embezzled income must be reported as taxable income.

DISCUSSION

I. The Warrant

The search warrant executed at Mrs. Guidry's home authorized officers to seize "[a]ny and all bank records, including but not limited to checks, statements, deposits, or investment records, or records of bank or money transfers." Mrs. Guidry contends the warrant suffered from three deficiencies: (1) the warrant failed to provide any meaningful limitations on items to be seized; (2) the warrant simply authorized the seizure of all files, regardless of their relevance to a specified crime; and (3) the warrant authorized the search and seizure of evidence not supported by probable cause, meaning the scope of the warrant exceeded the probable cause supporting it.

"When reviewing a district court's denial of a motion to suppress, we consider the evidence in the light most favorable to the government, and accept the court's findings of fact unless they are clearly erroneous.' " United States v. Vazquez-Pulido, 155 F.3d 1213, 1216 (10th Cir.), cert. denied, 119 S. Ct. 437 (1998). However, "[w]e review de novo whether the warrant was overbroad or insufficiently particular under the Fourth Amendment." United States v. Hargus, 128 F.3d 1358, 1362 (10th Cir. 1997), cert. denied, 118 S. Ct. 1526 (1998). The Fourth Amendment requires warrants "particularly describing the place to be searched, and the persons or things to be seized." U.S. Const. amend. IV. A sufficiently particular warrant "allows the searcher to reasonably ascertain and identify the things authorized to be seized," leaving "nothing to the officer's discretion as to what is to be seized, so that the officer is prevented from generally rummaging through a person's belongings." Hargus, 128 F.3d at 1362. A warrant describing "items to be seized in broad and generic terms may be valid when the description is as specific as the circumstances and the nature of the activity under investigation permit.' " United States v. Leary, 846 F.2d 592, 600 (10th Cir. 1988) (quoting United States v. Santarelli, 778 F.2d 609, 614 (11th Cir. 1985)); see also Hargus, 128 F.3d at 1363.

The district court focused on the affidavit in support of the warrant to examine the context in which the warrant was requested. The court pointed out the affidavit detailed what was known about the embezzlement scheme at the time, including information about the closing of several bank accounts in Kansas proximate to the time the scheme was discovered and the subsequent opening of other accounts in Oklahoma, and the inability of agents to find either the vast majority of the money Mrs. Guidry had embezzled, or all the money she withdrew from her Kansas banks. Considering the type and extent of Mrs. Guidry's criminal activity, the district court reasoned the warrant was as specific as circumstances allowed: "Absent omniscience, the government could provide no greater specificity." We find this a much closer call, but need not address the Fourth Amendment issue because we exercise our discretion to turn "immediately to a consideration of the officers' good faith" as allowed under United States v. Leon, 468 U.S. 897, 925 (1984).

"Even if the warrant was not specific enough, [a] court should not suppress the evidence [if] the agents seized it in objectively reasonable reliance on the warrant." United States v. Rob ertson, 21 F.3d 1030, 1034 (10th Cir. 1994) (citing Leon, 468 U.S. at 920-22). "Our good-faith inquiry is confined to the objectively ascertainable question whether a reasonably well trained officer would have known that the search was illegal despite the magistrate's authorization. In making this determination, all of the circumstances . . . may be considered." Leon, 468 U.S. at 922 n.23. Given the circumstances surrounding the warrant at issue here, we hold the officers acted on a good-faith belief the warrant was sufficiently particular in regard to the items to be seized.

The government executed this warrant nearly two months after the initial indictment was filed against Mrs. Guidry. The initial indictment charged Mrs. Guidry with violations of 18 U.S.C. §§1956 (money laundering) and 1344 (bank fraud). Special Agent McCormack was intimately involved in the investigation of Mrs. Guidry's embezzlement prior to the execution of the warrant at Mrs. Guidry's home. By the time he executed the warrant, Special Agent McCormack had analyzed numerous bank records connected to the case, served federal grand jury subpoenas on two banks, and served seizure warrants at three banks. The affidavit in support of the warrant limited the search to bank records related to violations of 18 U.S.C. §§982 (criminal forfeiture) and 1957 (engaging in monetary transactions in property derived from specified unlawful activity), in addition to the code sections listed in the initial indictment. ² While Special Agent McCormack did not personally prepare the affidavit, he did help collect the information used by the preparing officer.

We have previously stated "the knowledge of the executing officer can be considered in determining the sufficiency of the description [of a place to be searched]." United States v. Occhipinti, 998 F.2d 791, 799 (10th Cir. 1993). We have also applied the good-faith exception when the officer who swore out the affidavit helped execute the warrant. See United States v. Simpson, 152 F.3d 1241, 1248 (10th Cir. 1998). We find these cases instructive, and hold Special Agent McCormack acted in good-faith reliance on the warrant because he was so intimately involved in the investigation prior to the execution of the warrant, and the preparation of the affidavit in support of the warrant. This level of involvement in the case gave him obvious knowledge of the crimes that were the subject of the investigation. ³

II. The Jury Instructions

Mrs. Guidry next assigns error to the district court's jury instructions, claiming the instructions inadequately defined the term "willfully" as it pertains to the crime of filing a false tax return. (Apt. Br. at 19-22.) "We review de novo a timely challenge to a jury instruction to determine whether, considering the instructions as a whole, the jury was misled." United States v. Winchell [97-2 USTC ¶50,890 ], 129 F.3d 1093, 1096 (10th Cir. 1997). We will not reverse "unless we have substantial doubt that the jury was fairly guided.' " Id. (quoting United States v. Mullins, 4 F.3d 898, 900 (10th Cir. 1993)).

The Supreme Court addressed the statutory definition of "willful" as it is applied in the tax code in Cheek v. United States [91-1 USTC ¶50,012 ], 498 U.S. 192 (1991). The Court held its cases "conclusively establish that the standard for the statutory willfulness requirement is the voluntary, intentional violation of a known legal duty.' " Id. at 200-01 (quoting United States v. Bishop [73-1 USTC ¶9459 ], 412 U.S. 346, 360 (1973)); see also Winchell [97-2 USTC ¶50,890 ], 129 F.3d at 1096. The district court's instructions in the current case tracked the Cheek language almost verbatim: "For the purpose of this instruction, the term wilfully' means to voluntarily and intentionally violate a known legal duty." Mrs. Guidry requested an additional sentence at the end of the instruction stating "[n]egligent conduct is not sufficient to constitute willfulness." Mrs. Guidry argues she was entitled to the requested language. As support for her position, she contends we have endorsed such an instruction in Winchell, and the additional language is crucial for a proper definition of the willfulness element. This argument has no merit. First, Mrs. Guidry misconstrues our holding in Winchell. In Winchell, we held the defendant in a §7206(1) case was not entitled to a separate instruction on "specific intent" because the "willfulness" instruction given was adequate standing alone. ⁴ Winchell [97-2 USTC ¶50,890 ], 129 F.3d at 1096-97. Concluding the language at issue in Winchell was adequate is a far cry from deeming it necessary. Second, nothing in Cheek requires an additional reference to negligent conduct. The instructions in this case did not mislead the jury. To the contrary, the instructions clearly stated the correct legal standard.

III. Sufficiency of the Evidence

Mrs. Guidry next complains the evidence at trial was insufficient to sustain the jury's verdict. This argument presents a high hurdle, and one Mrs. Guidry fails to surmount.

"[I]n reviewing the sufficiency of the evidence to support a jury verdict, this court must review the record de novo and ask only whether, taking the evidence--both direct and circumstantial, together with reasonable inferences to be drawn therefrom--in the light most favorable to the government, a reasonable jury could find the defendant guilty beyond a reasonable doubt."

United States v. Beers, 189 F.3d 1297, 1301(10th Cir. 1999) (quoting United States v. Voss, 82 F.3d 1521, 1524-25 (10th Cir.), cert. denied, 519 U.S. 889 (1996)). We will not second-guess the jury's credibility determinations or conclusions concerning the weight of the evidence presented. Id.

Mrs. Guidry contends the "only" evidence supporting willfulness consists of her background and experience in accounting, the testimony to the effect Internal Revenue Service documents listed embezzled income as taxable income, and Agent McCormick's testimony he observed some Internal Revenue Service tax booklets in Mrs. Guidry's files at her home. Seeing a lack of evidence, Mrs. Guidry then goes on to cite our decision in McCarty v. United States [69-1 USTC ¶9322 ], 409 F.2d 793 (10th Cir.), cert. denied, 396 U.S. 836 (1969), for the proposition that "willfulness cannot be inferred from a mere understatement of income." Id. at 795 (citing Spies v. United States [43-1 USTC ¶9243 ], 317 U.S. 492 (1943)). This analysis suffers from two fatal flaws: it fails to view all the evidence in the light most favorable to the Government, and it provides an incomplete view of the Supreme Court's guidance in Spies.

While it is well established willfulness cannot be inferred solely from an understatement of income, willfulness can be inferred from

making false entries of alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal."

Spies [43-1 USTC ¶9243 ], 317 U.S. at 499; see also United States v. Samara [81-1 USTC ¶9220 ], 643 F.2d 701, 704 (10th Cir. 1981). This conduct can be used to prove willfulness "even though the conduct may also serve other purposes such as concealment of other crime." Spies [43-1 USTC ¶9243 ], 317 U.S. at 499. The jury heard sufficient evidence to support its finding of willfulness in this case.

First, the jury heard evidence of Mrs. Guidry's expertise in accounting via her degree in business and her work experience as the controller of a company. The evidence showed Mrs. Guidry prepared the family taxes, and did so "elaborately" according to her husband. An investigator observed tax booklets from unknown years in Mrs. Guidry's files, and the jury learned the tax booklets specific to the years in question in this case either stated embezzled income should be reported, or referenced a second Internal Revenue Service document where taxpayers might receive that information. The evidence also showed: an ever-burgeoning disparity between the Guidrys' reported income and their actual income as complemented by the embezzlement scheme; the embezzled cash was used to purchase goods, making the money more difficult to detect; the Guidrys took significant charitable deductions on their taxes while not reporting the embezzled income; and the money was embezzled in increments of $9,000 or $10,000. Mrs. Guidry argues the jury should not have been allowed to take evidence of the embezzlement scheme itself into account, but such an argument defies logic.

Concealment of income can have more than one purpose. Such activity can show a desire to conceal the theft from the employer, and it can tend to show a purposeful attempt to conceal such income from the Internal Revenue Service. In addition, an inference of willfulness can be supported by a "consistent pattern of underreporting large amounts of income." Holland v. United States [54-2 USTC ¶9714 ], 348 U.S. 121, 139 (1954); see also United States v. Frank [71-1 USTC ¶9208 ], 437 F.2d 452 (9th Cir.), cert. denied, 402 U.S. 974 (1971). "Criminal willfulness can be inferred when a defendant does not supply her tax preparer with evidence of substantial items of income." United States v. Stokes [93-2 USTC ¶50,545 ], 998 F.2d 279, 281 (5th Cir. 1993). In Stokes, the Ninth Circuit upheld a conviction under §7206(1) when the defendant did not disclose illegal income to her tax preparer. It makes little sense to apply one standard to a person who withholds information from a tax preparer, and another standard to a self-preparer who withholds similar information from the Internal Revenue Service directly. The jury was free to conclude Mrs. Guidry had accounting expertise, that information stating embezzled income was to be reported as income on the tax return was available to her, and that she would have availed herself of the information. The jury was also free to examine the way the embezzlement scheme was designed to conceal assets, and infer Mrs. Guidry's intent was to avoid paying a known tax liability. As in Spies, Mrs. Guidry "claims other motives animated [her] in these matters. We intimate no opinion. Such inferences are for the jury." Spies [43-1 USTC ¶9243 ], 317 U.S. at 500. Our holding is limited to the unique facts of this case. Given the combination of Mrs. Guidry's background and training, the details of her embezzlement scheme and attempts to conceal her income, and the testimony concerning the presence and contents of federal tax booklets, the evidence was sufficient to support the jury's verdict in this case.

IV. Application of the Sentencing Guidelines

Finally, Mrs. Guidry argues the district court erred in imposing sentencing enhancements for sophisticated means and abuse of position of trust, and improperly considered race when denying a downward departure. We review the district court's legal interpretation of the sentencing guidelines de novo and the district court's factual findings for clear error. United States v. Rice, 52 F.3d 843, 848-49 (10th Cir. 1995). We conclude the district court's imposition of the enhancement for abuse of position of trust was clearly erroneous, and remand for resentencing.

A. Sophisticated Means Enhancement

United States Sentencing Guideline §2T1.1 provides for a two-level sentence enhancement when "sophisticated means were used to impede discovery of the existence or extent of the offense." U.S.S.G. §2T1.1(b)(2) . The commentary to the guideline defines "sophisticated means" as "conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case." U.S.S.G. §2T1.1 , cmt. n.4. The district court imposed this enhancement after explicitly finding this was not a routine case. We agree.

Mrs. Guidry's is not a case of simply claiming to have paid withholding taxes not paid, see Rice, 52 F.3d at 849, or of not disclosing income to one's accountant, see Stokes [93-2 USTC ¶50,545 ], 998 F.2d at 282. Mrs. Guidry's scheme allowed her to do more than conceal her embezzlement from her employers--it allowed her to conceal the income from the Internal Revenue Service and made it difficult to determine the extent of the tax loss suffered by the federal government. The checks Mrs. Guidry used to embezzle funds were made payable to the bank, not Mrs. Guidry. Mrs. Guidry converted the checks to cash, which is harder to trace, then spent the vast majority of the money on personal items, again making it difficult for the Internal Revenue Service to discover the extent of the crime. She deposited only a fraction of the embezzled money in the bank. Most damaging for Mrs. Guidry, she never took more than $10,000 in one day. The district court heard testimony at the sentencing hearing that banks are required to file documents known as Currency Transaction Reports for transactions exceeding $10,000. These reports are filed with the Internal Revenue Service, and are not, as a matter of course, made available to the company or individual in whose name the transaction occurred. Structuring the transactions to avoid a Currency Transaction Report, therefore, served the main purpose of shielding the transaction from the Internal Revenue Service. In addition, while Mrs. Guidry may not have used a sham corporation, or offshore bank accounts, to hide her bounty from the Internal Revenue Service, stocking multiple storage units with over a million dollars in clothes and costume jewelry had a similar effect--concealment of the embezzled cash. Clearly, her meticulous scheme was designed, at least in part, to conceal the existence and extent of her failure to file a truthful tax return, and the district court did not clearly err in finding she did so in a sophisticated manner.

B. Abuse of Position of Trust Enhancement

The district court also imposed an enhancement pursuant to U.S.S.G. §3B1.3, which provides, in pertinent part: "If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense, increase [the offense level] by 2 levels." U.S.S.G. §3B1.3. Before imposing this enhancement, a district court must find two things: (1) the defendant possessed a position of trust; and (2) the defendant abused the position to significantly facilitate the commission or concealment of the offense. United States v. Burt, 134 F.3d 997, 998-99 (10th Cir. 1998). Mrs. Guidry focuses on the latter step, arguing the imposition of this enhancement was clearly erroneous because her obvious abuse of her position of trust at Wichita Sheet Metal did not significantly facilitate the commission or concealment of her offense. While this particular argument is unconvincing, we agree the application of this enhancement is inappropriate here because Mrs. Guidry did not occupy a position of trust vis-a-vis the government, ⁵ thereby failing the first step of the Burt analysis.

The district court employed the two-step Burt analysis and made the following findings: "The first element is really not contested. . . . [T]heevidence is overwhelming that the Defendant occupied a position of trust at Wichita Sheet Metal." As far as the second element, the court emphasized the control Mrs. Guidry exercised over the payment of wages and the finances of the company, and found the evidence showed

the people who ran Wichita Sheet Metal trusted her explicitly and really never questioned her about anything she was doing in her capacity as controller, [her position] allowed her to systematically take more than $2 million out of that company and put it into her pocket and not report it in any way on the books of the company and particularly on records that would go to the Internal Revenue Service as a matter of course from the business. . . . And that allowed her to conceal the offense from the [Internal Revenue Service].

The district court's approach to the second prong of Burt is fairly persuasive. U.S.S.G. §3B1.3 allows enhancement when a defendant's abuse of a position of trust significantly facilitates "the commission or concealment of the offense." U.S.S.G. §3B1.3. Sentencing courts may consider conduct outside the offense of conviction when imposing the abuse of a position of trust enhancement: "The determination of a defendant's role in the offense is to be made on the basis of all conduct within the scope of §1B1.3 (Relevant Conduct), . . . and not solely on the basis of elements and acts cited in the count of conviction." U.S.S.G. Ch. 3, Pt. B, intro. cmt. Section 1B1.3 in turn states enhancements shall be based on "all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant . . . that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense." U.S.S.G. §1B1.3(a)(1). Given the facts of this case, the district court may have been correct in finding Mrs. Guidry's embezzlement activity was relevant conduct, committed to avoid detection of her false income tax returns. However, to reach the second prong of Burt a district court must first find the defendant occupied a position of trust, and our case law clearly states the position of trust must be found in relation to the victim of the offense: "The question of whether an individual occupied a position of trust is evaluated from the victim's perspective." United States v. Trammell, 133 F.3d 1343, 1355 (10th Cir. 1998) (citing United States v. Queen, 4 F.3d 925, 929 (10th Cir. 1993), cert. denied, 510 U.S. 1182 (1994)); see also United States v. Brunson, 54 F.3d 673, 677 (10th Cir.), cert. denied, 516 U.S. 951 (1995).

"The primary concern of §3B1.3 is to penalize defendants who take advantage of a position that provides them freedom to commit or conceal a difficult-to-detect wrong." United States v. Koehn, 74 F.3d 199, 201 (10th Cir. 1996). We have applied §3B1.3 in two types of cases: "The first is where the defendant steals from his employer, using his position in the company to facilitate the offense," and the "second is where a fiduciary or personal trust relationship exists' with other entities [not the employer], and the defendant takes advantage of the relationship to perpetrate or conceal the offense." Id. (quoting Brunson, 54 F.3d at 677). Mrs. Guidry's conduct in filing false income tax returns falls into neither category. We must vacate the portion of the sentence imposed due to the abuse of a position of trust enhancement and remand for resentencing because Mrs. Guidry did not occupy a position of trust vis-a-vis the government, the victim in this case. ⁶

C. Denial of Downward Departure

At sentencing, Mrs. Guidry moved for a downward departure, citing as support her years of service to groups and individuals in the black community. The district court denied Mrs. Guidry's motion. In considering the departure, the court stated it was

balancing her community service with what she did in this case; and in my opinion her community service does not justify a downward departure considering the evidence in the case regarding the nature and extent of her wrongdoing. . . . This is a case where the Defendant set out and did steal millions of dollars from her employer and would be doing so today if she had not been caught.

Now, she might also be out doing good works, Ladies and Gentlemen, in the community; but she also would be a thief and a crook . . . .

The court also cited the "terrible disservice" Mrs. Guidry's criminal activity had visited on her husband and daughter as a factor to take into consideration in determining whether or not to depart. The court then added the following remarks:

So I suppose I ought to say one more thing in view of the evidence today. I have sentenced many many people in this court from the black community here in Wichita . Some of you know that. And probably all of you know it to one extent or another. They are people, some of them, many of them, have had no--they don't have parents . . . who cared for [them]. They had no significant upbringing of any kind. They commit violent crimes. They're involved with drugs. Things that you all, I think rightly so, are trying to stop. Now, what kind of message does it send to the people that you all are concerned about if I overlook, as you all have done for your own reasons, what Mrs. Guidry--the crimes Mrs. Guidry has committed and consider only her community service? It says--I think it would say--it would send a message, perhaps, to people, maybe the wrong message, but it might send the message that if you're active in the community that you can steal a couple of million dollars from your employer and then come in and ask the judge to give you a break because you were active in the community. And I don't believe that's the message to be sent.

Just prior to imposing sentence, the court expressed its dislike for the sentencing guidelines, but stated: "I do my best to follow [the guidelines] because I think that's my duty . . . because I think that the appropriate way for a federal judge to conduct himself or herself is to follow the guidelines whenever possible rather than find ways to get around them."

Under normal circumstances, we lack jurisdiction to review a sentencing court's discretionary denial of a downward departure. United States v. Neary, 183 F.3d 1196, 1197 (10th Cir. 1999); United States v. Castillo, 140 F.3d 874, 887 (10th Cir. 1998) (citing United States v. Rodriguez, 30 F.3d 1318, 1319 (10th Cir. 1994)). However, we retain the ability to review a refusal to depart when the denial is based on an illegal factor, or an incorrect application of the Guidelines. See Castillo, 140 F.3d at 888; Rodriguez, 30 F.3d at 1319; United States v. Garcia, 919 F.2d 1478, 1479, 1481 (10th Cir. 1990); 18 U.S.C. §3742(a)(1) , (a)(2), and (e). Certain factors--"race, sex, national origin, creed, religion, and socio-economic status"--may never be bases for departure. See Koon v. United States , 518 U.S. 81, 93 (1996); U.S.S.G. §5H1.10 . A sentencing decision based on race qualifies as both a violation of law and an incorrect application of the Guidelines, and therefore can be reviewed by this court. Neary, 183 F.3d at 1198; United States v. Onwuemene, 933 F.2d 650, 651 (8th Cir. 1991); Garcia, 919 F.2d at 1480.

Mrs. Guidry argues the district court's reference to the "black community" constituted consideration of her race for sentencing purposes. We disagree. While the district court's reference to race was most unfortunate and inappropriate, we do not read the judge's comments as taking any action or refusing action relating to Mrs. Guidry based on race. Rather, the court was rejecting, inartfully, her argument that her service to the minority community somehow atoned for her crimes. Simply put, the court was responding to a chorus of Mrs. Guidry's supporters with a reference to the fact that the same community Mrs. Guidry had served so ably had also been deeply damaged by her actions. Standing alone, the court's comments might suggest stereotyping and bias that would give us grave concern and require a remand. However, given the context of the sentencing hearing and the nature of the court's remarks taken in their entirety, we determine the district court did not consider Mrs. Guidry's race in its sentencing decision. See generally United States v. Munoz, 974 F.2d 493 (4th Cir. 1992). The district court did not base its sentencing decision on an illegal factor, or an incorrect application of the Guidelines, and therefore we lack jurisdiction to review its discretionary denial of the requested downward departure.

Accordingly, we AFFIRM in part, VACATE the portion of the sentence enhanced for abuse of a position of trust, and REMAND for resentencing.

¹ Mrs. Guidry used her stolen money to make sure she had plenty of pockets to line. During the years of her embezzlement, Mrs. Guidry spent over $1.2 million on clothing from one retailer alone--GM Clotheshorse. Her employer, Wichita Sheet Metal, eventually took possession of 1300 dresses, 182 pairs of shoes, 164 hats, 40 belts, 27 purses, two fur coats, and boxes of jewelry that included over 400 pairs of earings, all of which Mrs. Guidry had kept in several rented storage units. Mrs. Guidry's former employers certainly have the inventory, if not the experience, to open their own boutique should the sheet metal business turn sour.

² The particularity of an affidavit can cure an overbroad warrant when the affidavit is both referenced in the warrant and physically attached to the warrant. See Leary, 846 F.2d at 603. The record here is insufficient to make such a determination, thus the affidavit cannot cure any possible overbreadth in the warrant.

³ Our holding is further bolstered by the fact Special Agent McCormack did not actually seize the tax records and booklets he observed in Mrs. Guidry's home.

⁴ The instruction in Winchell, which was accepted by both parties, stated: "To act willfully' means to voluntarily and intentionally violate a known legal duty . . . . Negligent conduct is not sufficient to constitute willfulness." Winchell [97-2 USTC ¶50,890], 129 F.3d at 1096 (quotation marks and citation omitted).

⁵ "When an issue or claim is properly before the court, the court is not limited to the particular legal theories advanced by the parties, but rather retains the independent power to identify and apply the proper construction of governing law.' " United States Nat'l Bank v. Independent Ins. Agents of Am., Inc., 508 U.S. 439, 446 (1993) (quoting Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991)).

⁶ The Circuits are split on the relationship a position of trust must have to the victim of the offense for the purpose of enhancement. Compare United States v. Barakat [98-1 USTC ¶50,114], 130 F.3d 1448, 1454-56 (11th Cir. 1997) (holding defendant did not use his particular position of trust, which allowed him access to illegal unreported income, to conceal the offense of conviction--tax evasion), United States v. Jolly, 102 F.3d 46, 48-50 (2d Cir. 1996) ("the abuse of trust enhancement applies only where the defendant has abused discretionary authority entrusted to the defendant by the victim" (citing United States v. Broderson, 67 F.3d 452, 455-56 (2d Cir. 1995) (stating without a nexus between the victim and the position of trust, anyone commanded by statute to make an accurate report to the government would be subject to the enhancement, including all taxpayers who file false tax returns)), and United States v. Moore, 29 F.3d 175, 179-80 (4th Cir. 1994) (reversing §3B1.3 enhancement when defendants held positions of trust in relation to entities other than the victim of their fraud scheme), with United States v. Cianci, 154 F.3d 106, 110-13 (3d Cir. 1998) (holding §3B1.3 enhancement appropriate in tax evasion case when defendant abused position of trust with his company to embezzle unreported income), United States v. Bhagavan [97-2 USTC ¶50,585], 116 F.3d 189, 193 (7th Cir. 1997) (holding the government is not necessarily the only victim in a tax evasion scheme, and the enhancement can apply if any identifiable victim of the overall scheme to evade taxes put the defendant in a position of trust), and United States v. Duran, 15 F.3d 131, 132-34 (9th Cir. 1994) (per curiam) (sheriff's use of position to embezzle money and his subsequent structuring of financial transactions to avoid reporting requirements were part of a common scheme or plan under U.S.S.G. §1B1.3(a)(2), and §3B1.3 enhancement was appropriate when jury convicted defendant of structuring offense, but failed to reach a verdict on underlying theft charge).

Lucero, Circuit Judge

: I join in the majority opinion with the exception of Section IV.C., as to which I dissent. Race is never relevant to sentencing determinations. U.S.S.G. §5H1.10 . There is no doubt in my mind that the trial court's comments on race uttered at Mrs. Guidry's sentencing were motivated by good intent. Nonetheless, it is impossible to overlook the fact that Mrs. Guidry's race played some role in the denial of the motion for downward departure. In making this sentencing decision, the trial court expressly and unequivocally sought to send a message--or not send the "wrong" message--to the African-American community of Wichita , a community to which Mrs. Guidry belonged. While it may be permissible to use a sentence to send a message to criminal groups, it is impermissible to use a sentence to send a message to racial groups. Cf. United States v. Munoz, 974 F.2d 493, 496 (4th Cir. 1992) ("[T]he connection between the group targeted for deterrence and the defendant must be the criminal conduct and not the defendant's national origin."). Similarly, while a sentencing court has discretion to disregard a defendant's benevolent activities, see U.S.S.G. §5K2.0 , it may not to do so for the explicit purpose of sending a message to the racial community that benefits from those activities.

Because U.S.S.G. §5H1.10 prohibits the consideration of race in sentencing determinations, and because the sentencing court controverted that principle, I would reverse and remand for resentencing for this reason as well.

 

 

[99-2 USTC ¶50,648] United States of America , Plaintiff-Appellee v. Michael L. Lindsay, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 98-3218, 7/1/99, 184 F3d 1138, 184 F3d 1138. Affirming and reversing an unreported District Court decision

[Code Sec. 7203 ]

Crimes: Tax evasion: Failure to file: Jury instructions: Tax protestor: Constitutional arguments: Good-faith defense.--A tax protestor's conviction on charges of tax evasion and failure to file returns was upheld. The trial court did not commit reversible error when it instructed the jury that neither the taxpayer's opinion that tax laws were unconstitutional nor his disagreement with the government's tax collection system and policies constituted a good-faith misunderstanding of the law. Cheek (SCt), 91-1 USTC ¶50,012 , followed.

[Code Secs. 7201 and 7203 ]

Crimes: Tax evasion: Failure to file: Sentencing guidelines: Downward adjustment denied.--A tax protestor was properly convicted of tax evasion and failure to file returns. The trial court's application of a multi-count sentencing analysis did not constitute plain error; thus, his sentence enhancement was valid. Based on the court's determination that the taxpayer's tax convictions and mail fraud convictions involved unrelated conduct, it grouped them separately for purposes of the sentencing guidelines. In light of the fact that the victims and mischief at issue in the tax and fraud convictions differed, those convictions did not have to be grouped as part of a criminal plan that was ongoing or continuous in nature.

[Code Secs. 7201 and 7203 ]

Crimes: Tax evasion: Failure to file: Sentencing guidelines: Downward adjustment denied.--A tax protestor was properly convicted of tax evasion and failure to file returns. The trial court did not err in refusing to reduce the taxpayer's sentence for acceptance of responsibility. Even though the taxpayer lessened the prosecution's trial burden by admitting his failure to file or pay taxes, by failing to object to the government's exhibits, and by refraining from cross-examining witnesses, his behavior did not warrant a downward adjustment in his sentence. His numerous efforts to obstruct justice were inconsistent with acceptance of responsibility and provided an ample foundation for the trial court's determination.

Jackie N. Williams, United States Attorney, Alan G. Metzger, Assistant United States Attorney, Wichita, Kan., for the plaintiff-appellee. Timothy J. Henry, Assistant Federal Public Defender (David J. Phillips, Federal Public Defender, with him on the briefs), Wichita, Kan., for the defendant-appellant.

Before: BALDOCK, EBEL and LUCERO, Circuit Judges.

LUCERO, Circuit Judge:

We must determine whether a district court commits reversible error when it instructs a jury that a defendant's opinion that the tax laws are unconstitutional cannot constitute a "good faith" defense to tax charges. Exercising jurisdiction pursuant to 28 U.S.C. §1291, we conclude it does not, but nevertheless reverse Lindsay's bank fraud convictions because of insufficient evidence. We affirm the sentence imposed below.

I

Michael L. Lindsay is a tax protester from Kansas . Beginning in 1991, Lindsay ceased to file income tax returns and pay income taxes. In 1992, Lindsay began affirmatively to conceal his income by taking actions such as closing his personal checking account, depositing his earnings in various trust accounts, and destroying his business records. When the Kansas Department of Revenue confronted him with a demand for payment of $138,221.38 in overdue taxes, Lindsay responded by mailing the agency a fraudulent "certified bankers check" in the amount of $276,000. The check was an apparent effort not only to discharge his state tax debt, but also fraudulently to obtain nearly $138,000 from the State. Lindsay also presented worthless certified money orders to Mid-Continent Federal Savings Bank and Central National Bank Marion County.

Lindsay's conduct resulted in indictments charging three counts of tax evasion, 26 U.S.C. §7201; one count of failure to file a tax return, 26 U.S.C. §7203; two counts of bank fraud, 18 U.S.C. §1344(1); and one count of mail fraud, 18 U.S.C. §1341. Lindsay represented himself at trial and was convicted on all counts charged. The district court then sentenced him to twenty-four months in prison.

Lindsay asserts four errors. First, he argues that the district court erred when it instructed the jury that an opinion that the tax laws are unconstitutional cannot constitute a "good faith" defense to a tax charge. Second, he claims that his convictions for bank fraud must be vacated because the government presented insufficient evidence to sustain those convictions. Third, he asserts that the district court erred when it applied a multi-count analysis in determining his sentence. Finally, he argues that the district court erroneously failed to grant him a sentence reduction for acceptance of responsibility.

II

We first consider Lindsay's argument based on the district court's good faith jury instruction. Because Lindsay failed to raise a timely objection to the jury instruction, we review the instruction only for plain error. ¹ See United States v. Sides, 944 F.2d 1554, 1562 (10th Cir. 1991). We apply this standard of review with somewhat less rigidity given that Lindsay's claim alleges constitutional error. See United States v. Jefferson , 925 F.2d 1242, 1254 (10th Cir. 1991).

A defendant charged with a specific-intent, federal criminal tax offense can negate the element of wilfulness necessary to prove the violation, thereby providing a defense to the conduct charged, if the defendant establishes that he or she sought in good faith to comply with the relevant law. See Cheek v. United States [91-1 USTC ¶50,012], 498 U.S. 192, 201 (1991). In the current action the district court instructed the jury that "good faith," which "means, among other things, an honest belief, a lack of malice, and the intent to perform all lawful obligations," is a defense to conduct otherwise punishable under the tax laws, I R. Doc. 40, Instruction No. 30, and that "a person's opinion that the tax laws violate his constitutional rights does not constitute a good faith misunderstanding of the law. Furthermore, a person's disagreement with the government's tax collection system and policies does not constitute a good faith misunderstanding of the law." Id.

Lindsay argues that the referenced instruction conflicts with our decision in United States v. Ratchford, 942 F.2d 702 (10th Cir. 1991). In Ratchford, a bank fraud case, the defendant-appellant challenged the district court's failure to include, in its jury instruction on good faith, language indicating that a "[d]efendant's belief that he was acting in good faith need not be rational nor reasonable if [d]efendant's belief [was] truly held." Id. at 706. We rejected this argument, concluding the district court's good faith instruction adequately stated the law and was "sufficiently broad to include beliefs not rationally or reasonably held." Id. at 707 (citations omitted). Lindsay apparently incorrectly interprets Ratchford to hold that a good faith belief that is irrationally or unreasonably held can always provide a defense to a charge that requires proof of intent.

The Supreme Court's decision in Cheek [91-1 USTC ¶50,012], 498 U.S. at 204-07, forecloses Lindsay's interpretation. Cheek, who had been charged with tax fraud and tax evasion, appealed his sentence based on an allegedly erroneous good faith jury instruction. Cheek's determination that the tax laws are unconstitutional, the Court concluded, constituted a "studied conclusion" rather than an innocent mistake of the type encompassed by the good faith defense. ² Id. at 205. Accordingly, the Court held that

a defendant's views about the validity of the tax statutes are irrelevant to the issue of willfulness and need not be heard by the jury, and if they are, an instruction to disregard them would be proper. For this purpose it makes no difference whether the claims of invalidity are frivolous or have substance. It was therefore not error in this case for the District Judge to instruct the jury not to consider Cheek's claims that the tax laws were unconstitutional.

Cheek [91-1 USTC ¶50,012], 498 U.S. at 206. Cheek compels our conclusion that the district court's good faith instruction was not plainly erroneous.

III

Lindsay argues, and the government concedes, that the evidence of his bank fraud convictions is insufficient because the government failed to produce evidence that the financial institutions at issue are insured by the Federal Deposit Insurance Corporation. Such proof is an essential element of bank fraud. See United States v. Rackley, 986 F.2d 1357, 1361 (10th Cir. 1993). The government's concession, our independent review of the record, and the mandate of Rackley, require that Lindsay's bank fraud convictions be reversed. ³

IV

Lindsay's next claim--that the district court violated U.S.S.G. §3D1.2 when it applied a multi-count analysis to his sentence--lacks suasion. When, as is presently the case, a defendant fails to object to the district court's application of the Sentencing Guidelines at sentencing, we review a subsequent legal challenge to a sentence for plain error. ⁴ See United States v. Gilkey, 118 F.3d 702, 704 (10th Cir. 1997); United States v. Farnsworth, 92 F.3d 1001, 1007-08 (10th Cir. 1996).

The grouping provisions contained in U.S.S.G. Chapter 3, Part D are intended to "limit the significance of the formal charging decision and to prevent multiple punishment for substantially identical offense conduct." U.S.S.G. Ch. 3, Pt. D, intro. comment. Adopting the approach of the presentencing report ("PSR"), the district court in this case concluded that Lindsay's tax and fraud convictions involve unrelated conduct and should be separately grouped under §3D1.2(d). Lindsay insists the proper procedure required the grouping of these counts, thereby reducing his offense level by two points by invalidating the sentence enhancement he received pursuant to §3D1.4. We disagree.

"[T]he difference in the nature and measure of harm resulting from [multiple] offenses" precludes the grouping of Lindsay's surviving convictions: his tax and mail fraud convictions under §3D1.2(d). ⁵ United States v. Kunzman, 54 F.3d 1522, 1531 (10th Cir. 1995) (citing United States v. Johnson, 971 F.2d 562, 576 (10th Cir. 1992)). The convictions at issue involve different harms. Lindsay's tax offenses deprived the federal government of revenue to which it was entitled from him under the tax code. Lindsay's mail fraud constituted an attempt to obtain funds fraudulently from Kansas . The measure of harm attributable to Lindsay's offenses could also be seen as distinct. Under U.S.S.G. §2T1.1(c)(2)-(3), which concerns failure to file a tax return or pay taxes, the harm attributable to an offense is based on the amount of tax that is actually owed and remains unpaid. So too, the loss attributable to an act of tax evasion is the amount that a defendant owes and seeks to avoid. See U.S.S.G. §2T1.1(c)(1). By contrast, the harm attributable to an act of mail fraud is the amount of loss a perpetrator creates or seeks to create if that amount is determinable and is greater than the actual loss caused. ⁶ See U.S.S.G. §2F1.1, comment. (n.8). In addition, the determination of loss in the mail fraud context, as opposed to the tax context, does not necessarily relate to a pre-existing obligation. Under Johnson and Kunzman, the district court did not commit plain error when it declined to group Lindsay's tax and mail fraud convictions for sentencing purposes.

Furthermore, because the victims and mischief at issue in Lindsay's tax and mail fraud convictions differ, the convictions need not be grouped as part of a criminal plan that is "ongoing or continuous in nature" under §3D1.2(d). We reject Lindsay's argument that example three in §3D1.2, comment. (n.6) requires the grouping of these convictions. That guideline example involves the offenses of wire fraud and mail fraud, not mail fraud and tax evasion. The analogy that Lindsay seeks to draw is not apt.

For these reasons, we conclude that the district court's application of a multi-count sentencing analysis did not constitute plain error. Accordingly, Lindsay's sentence enhancement under §3D1.4 remains valid.

V

The final issue brought to us for consideration is the assertion that the district court erred when it refused to reduce Lindsay's sentence for acceptance of responsibility. Determination of acceptance of responsibility is a question of fact reviewed under a clear error standard. See United States v. Mitchell, 113 F.3d 1528, 1533 (10th Cir. 1997). "The sentencing judge is in a unique position to evaluate a defendant's acceptance of responsibility. For this reason, the determination of the sentencing judge is entitled to great deference on review." U.S.S.G. §3E1.1, comment. (n.5). A district court's determination concerning whether a defendant has accepted responsibility should not be disturbed "unless it is without foundation." United States v. Amos, 984 F.2d 1067, 1071-72 (10th Cir. 1993).

Based on our review of the record, we conclude that Lindsay's numerous efforts to obstruct justice are inconsistent with acceptance of responsibility and provide ample foundation for the court's denial of this downward adjustment. See United States v. Tovar, 27 F.3d 497, 499 (10th Cir. 1994); see also United States v. Hopper, 27 F.3d 378, 383 (9th Cir. 1994) (noting that appellate courts consider whether the defendant's obstructive conduct is inconsistent with the defendant's claim of acceptance of responsibility). The record reveals that Lindsay behaved in an unruly manner during prior proceedings. For example, Lindsay persistently resisted the court's request that he either swear or affirm that he would testify truthfully. He refused to comply with court security procedures, failed to review court correspondence on which his name appeared in all capital letters, and was non-responsive to questions posed by the court. Lindsay also engaged in an apparent effort to undermine the admin istration of justice by filing numerous frivolous documents with the district court. Even though Lindsay lessened the prosecution's trial burden by admitting his failure to file or pay taxes, by failing to object to the government's exhibits, and by refraining from witness cross-examination, for the reasons discussed above, the record nonetheless supports the district court's determination that Lindsay's behavior is inconsistent with acceptance of responsibility. The district court's refusal to award Lindsay a sentence reduction for acceptance of responsibility does not constitute clear error.

VI

We AFFIRM all of Lindsay's convictions except for his bank fraud convictions, which we REVERSE and REMAND to the district court with directions to VACATE. ⁷ Because we conclude that Lindsay's sentence remains valid, we AFFIRM the district court's sentence determination.

¹ The fact that Lindsay proceeded pro se before the district court does not immunize him from resulting prejudice to his case. The right of self-representation is not a license to violate relevant rules of procedural law. See Faretta v. California , 422 U.S. 806, 834-35 (1975).

² The Court also noted a distinction between a good faith, irrationally or unreasonably held belief that a provision of the tax code is inapplicable to oneself, which could constitute a good faith defense by precluding a finding of willfulness, and a studied conclusion, like Lindsay's, that the tax code is unconstitutional, which could not constitute such a defense. Cheek [91-1 USTC ¶50,012], 498 U.S. at 205-07.

³ We conclude that despite our decision to reverse Lindsay's bank fraud convictions, the offense level calculated pursuant to U.S.S.G. §2F1.1(b)(1)(I) for the mail fraud conviction, with which the bank fraud convictions were previously grouped, remains the same. We agree with the government that Lindsay's mail fraud offense caused sufficient loss to render him eligible for the sentence level he received. In sentencing Lindsay, the district court found a total loss of $342,352.02, and enhanced his sentence level by eight points in accordance with §2F1.1(b)(1)(I), which applies to losses of between $200,000 and $350,000 arising from offenses involving fraud or deceit. Even without the losses attributable to his bank fraud, Lindsay's mail fraud still implicates approximately $276,000 of intended loss and therefore still qualifies Lindsay for the eight-point sentence enhancement. Our decision to reverse the bank fraud convictions thus does not affect this offense level determination.

Nor does our reversal affect Lindsay's sentence enhancement under §2F1.1(b)(2)(B) for perpetrating a scheme to defraud more than one victim. Section 1B1.3(a) of the Sentencing Guidelines recognizes that a defendant can be held accountable for "relevant conduct" for which he has not been convicted. See United States v. Watts, 519 U.S. 148, 152-54 (1997). A specific offense characteristic, such as that encompassed by §2F1.1(b)(2)(B), which is used to determine a sentence enhancement, can be based on relevant conduct. See U.S.S.G. §1B1.3; see also United States v. Fox, 999 F.2d 483, 485-86 (10th Cir. 1993) (upholding use of relevant conduct in determining specific offense characteristic of monetary loss for purposes of §2F1.1(b)(1)). In analogous circumstances, in which a defendant pled guilty to one count of defrauding one bank but had actually defrauded three banks in similar schemes, the Second Circuit has held that "the district court erred when it failed to apply the two-level adjustment [under U.S.S.G. §2F1.1(b)(2)(B)] for defrauding more than one victim," given the relevant conduct of defendant's additional fraudulent activities. United States v. Shumard, 120 F.3d 339, 340 (2d Cir. 1997).

For an offense to be included within the scope of §1B1.3(a)(2), the conduct must satisfy a three-pronged standard.

First, there must be a finding that the offense in question involved conduct described in §§1B1.3(a)(1)(A) and (B). Second, the offense must be the type of offense that, if the defendant had been convicted of both offenses, would require grouping with the offense of conviction for sentencing purposes under U.S.S.G. §3D1.2(d). Third, the offense must have been "part of the same course of conduct or common scheme or plan." U.S.S.G. §1B1.3(a)(2).

United States v. Taylor , 97 F.3d 1360, 1363 (10th Cir. 1996). Because Lindsay had originally been convicted of bank fraud, the district court did not need to find that the instances of bank fraud constitute relevant conduct. Nonetheless, we may and do conclude that the record contains sufficient evidence to support such an enhancement based on relevant conduct. See Taylor , 97 F.3d at 1364. First, Lindsay's jury concluded that he sought to obtain funds fraudulently from the two banks at issue here. Second, §2F1.1(b)(2)(B) and the conclusion of the presentencing report demonstrate that Lindsay's bank fraud convictions, were they valid, would be grouped with his mail fraud convictions. Finally, the district court made sufficient findings that Lindsay's attempts to obtain money fraudulently from Mid-Continent Federal Savings Bank, Central National Bank Marion County, and the State of Kansas , were part of a common scheme or plan. See §1B1.3. comment. (n.9(a)). Accordingly, Lindsay's bank fraud is relevant conduct for the purpose of determining Lindsay's eligibility for a sentence enhancement under §2F1.1, and we affirm the two-point enhancement he received.

⁴ Although Lindsay could not have been expected to anticipate our decision to reverse his bank fraud convictions, he should have raised an objection to application of the multi-count sentencing analysis below.

⁵ Section 3D1.2(d) requires that courts shall group together counts

[w]hen the offense level is determined largely on the basis of the total amount of harm or loss, . . . or some other measure of aggregate harm, or if the offense behavior is ongoing or continuous in nature and the offense guideline is written to cover such behavior.

⁶ Moreover, while the district court did not do so here, a court may adjust downward the amount of loss attributed to an act of fraud if the unadjusted loss valuation overstates the seriousness of the offense. See U.S.S.G. §2F1.1, comment. (n.11). No comparable provision exists with respect to the valuation of loss attributable to tax offenses under §2T1.1. Because the amount of loss attributable to a tax offense is the amount of money actually owed and withheld by a perpetrator, the loss valuation cannot logically be deemed to overstate the seriousness of an offense.

⁷ We also reverse and remand with instructions to vacate the accompanying imposition of the special assessments associated with Lindsay's bank fraud convictions.

 

 

[97-2 USTC ¶50,923] United States of America , Plaintiff-Appellee v. Gerald D. Strong, Defendant-Appellant

(CA-4), U.S. Court of Appeals, 4th Circuit, 96-4897, 11/17/97, Affirming an unreported District Court decision

[Code Sec. 7203 ]

Jury instructions: Evidence.--An individual's conviction of willful failure to file income tax returns was upheld. The trial court properly instructed the jury to disregard any reference made to an "amnesty" program for delinquent filers; other than the taxpayer's testimony regarding such a program, no evidence was introduced to show that an amnesty program existed. Moreover, the existence of an amnesty program was not relevant to the issue of the individual's guilt or innocence because he learned of it after completing his crimes.

[Code Sec. 7203 ]

Sentencing guidelines.--An individual's conviction of willful failure to file income tax returns was upheld. The taxpayer was not entitled to an adjustment in his sentence for acceptance of responsibility in light of the fact that he had proceeded to trial maintaining his innocence on all counts.

[Code Sec. 7203 ]

Evasion or avoidance of tax: Willful failure to file returns.--An individual's conviction of willful failure to file income tax returns was upheld since the illness that purportedly prevented him from completing his returns occurred subsequent to the tax years at issue and was irrelevant to his failure to timely file.

Loretta C. Argrett, Assistant Attorney General, Rob ert E. Lindsay, Alan Hechtkopf, Gregory Victor Davis, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. Joseph J. Gigliotti, Fulton , Md. , for defendant-appellant.

Before: BUTZNER, Senior Circuit Judge, LUTTIG and WILLIAMS, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

OPINION

Per Curiam"

EC: Gerald D. Strong was convicted by a jury of willfully failing to file income tax returns for 1989, 1990, and 1991, in violation of 26 U.S.C. §7203 (1994), and received a sentence of twelve months imprisonment. He was acquitted on three counts of tax evasion. Strong appeals his conviction, arguing that the district court abused its discretion in excluding testimony concerning a stroke he suffered in late August 1993 and in its response to a jury question about a tax "amnesty" program. He also contends that the district court clearly erred in denying him an adjustment for acceptance of responsibility under U.S. Sentencing Guidelines Manual, §3E1.1 (1995). We affirm the conviction and sentence.

Strong applied for extensions of time to file his tax returns for each of the years in question, but each time falsely represented that he owed no tax. The extensions were granted, giving Strong an extra year to file each return. However, he never filed them. Internal Revenue Service Agent John Rob ertson testified at trial that he met with Strong in June 1993 and advised him that he was the subject of a criminal investigation. Subsequently, Strong completed his tax returns for the years 1988, 1989, 1990, and 1991 and delivered them to Rob ertson. Under cross-examination by defense counsel, Rob ertson testified that Strong delivered the 1988 and 1989 returns in mid-August 1993 and delivered the 1990 and 1991 returns in October 1994. When Strong's attorney asked why the 1990 and 1991 returns were delivered over a year later, the government objected. Defense counsel proffered that Strong had suffered a stroke and was unable to complete the last two returns until he had sufficiently recovered. The government argued that the stroke was not relevant because it occurred well after the crimes had been completed. The district court sustained the government's objection.

The trial court's evidentiary decisions are reviewed for abuse of discretion. See United States v. Hassan El, 5 F.3d 726, 731 (4th Cir. 1993). Evidence is relevant if it has "any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Fed. R. Evid. 401. "Evidence which is not relevant is not admissible." Fed. R. Evid. 402. Because Strong's 1993 stroke did not make his willful failure to timely file tax returns for the years 198991 any more or less probable, it was irrelevant to the issue before the jury. Consequently, the district court did not abuse its discretion in excluding this evidence.

Strong maintained at trial that his failure to file was negligent rather than willful. He testified that in 1992 or 1993 he read about an "amnesty" program for delinquent filers and at that time decided to complete and submit his tax returns. He said he was working on his returns when Agent Rob ertson contacted him. Other than his testimony, there was no evidence of any amnesty program for delinquent filers ¹ or that he had actually begun work on his returns when he was first interviewed by Agent Rob ertson. During jury deliberations, the jury sent out a note asking for more information about the "Amnesty Period." The district court responded that the amnesty program involved a matter of law and was not a matter of concern for the jury. ²

When a jury makes clear that it is having difficulties, the trial court should "clear them away with concrete accuracy." United States v. Ellis, -- F.3d --, 1997 WL 438752, at *14 (4th Cir. Aug. 6, 1997) (quoting Bollenbach v. United States, 326 U.S. 607 (1946)). At the same time, "the court must be careful not to invade the jury's province as fact finder." Ellis, 1997 WL 438752 at *14 (quoting United States v. Blumberg, 961 F.2d 787, 790 (8th Cir. 1992)). Here, although the government did not object to Strong's testimony about the supposed "amnesty" program, the existence of such a program was not relevant to the issue of his guilt or innocence because Strong learned of it only after he completed the crime of failing to file his tax returns in a timely fashion. The court thus properly instructed the jury that it was not a matter for them to consider.

Last, Strong maintains that the district court clearly erred in finding that an adjustment for acceptance of responsibility would be "totally inappropriate." The court cited the commentary to guideline section 3E1.1, which provides that the adjustment is not intended to apply to a defendant who goes to trial maintaining his factual innocence as Strong did. See USSG §3E1.1, comment. (n.2). Strong argues that he earned the adjustment by offering to enter into plea negotiations concerning the failure to file counts. He maintains that he did not plead to those counts because of the government's intention to charge him with tax evasion as well. In any event, Strong did go to trial asserting his innocence on all counts. In this circumstance, we find that the district court did not clearly err in denying him the adjustment.

The sentence is therefore affirmed. ³ We dispense with oral argument because the facts and legal contentions are adequately presented in the materials before the court and argument would not aid the decisional process.

AFFIRMED.

¹ The government asserts on appeal that the IRS has a voluntary disclosure program which was publicized in 1992. The program does not provide immunity from prosecution, but the voluntary disclosure is a factor which is taken into consideration, as a matter of internal IRS practice, in deciding whether to recommend criminal prosecution.

² The parties have not chosen to include this portion of the trial transcript in the joint appendix or supplemental appendix. Because they appear to be in general agreement about the question and the court's response, we have not resorted to the original transcript to resolve the issue.

³ Strong's sentencing range was 12-18 months. The statutory maximum for each of the three counts of conviction was 12 months. The district court imposed a 12-month sentence in the belief that it could not impose more. Had the court wished to impose a higher sentence, it had authority under U.S.S.G. §5G1.2(d) to impose a consecutive sentence on one of the counts to the extent necessary to produce a sentence of up to 18 months. However, the government has not claimed error in this regard.

 

 

[96-2 USTC ¶50,670] United States of America , Appellee v. Anthony G. Olbres and Shirley A. Olbres, Appellants

(CA-1), U.S. Court of Appeals, 1st Circuit, 96-1021, 96-1022, 11/1/96, 99 F3d 28, Vacating and remanding an unreported District Court decision

[Code Sec. 7201 ]

Crimes: Tax evasion: Sentencing: Base offense level: Willfulness.--The record was not clear as to whether the trial court, in sentencing a married couple for tax evasion, adequately concluded whether the couple willfully attempted to evade all the taxes used in determining the base offense level under the United States Sentencing Guidelines. Thus, the couple's sentences were reversed and remanded. Simple reliance by the trial court on the findings and recommendations set forth in the presentence investigation report (PSR) was insufficient because the PSR did not resolve all the disputed factual issues. A willfulness finding for each of the disputed amounts stemming from factually distinct sources for each year in question was necessary in order to determine the correct base offense level.

[Code Sec. 7201 ]

Crimes: Tax evasion: Sentencing: Downward departure: Third-party job loss.--In sentencing a married couple for tax evasion, the trial court failed to consider the fact that, if the couple were jailed, their innocent employees would lose their jobs and suffer severe hardship as a basis for downward departure. The trial court incorrectly concluded that, as a matter of law, business failure and third-party job loss, regardless of the magnitude or the severity of the consequences, could not serve as the basis for a downward departure motion. The employees' job loss did not fall under the USSG's vocational skill factor, which was a discouraged factor and was not ordinarily relevant.

Loretta C. Argrett, Assistant Attorney General, Karen Quesnel, Rob ert E. Lindsay, Alan Hechtkopf, Department of Justice, Washington, D.C. 20530, for appellee. Gregory G. Katsas, John B. Nalbandian, Jones, Day, Reavis & Pogue, Scott P. Lopez, Terry Philip Segal, Segal & Feinberg, 210 Commercial St., Boston, Mass. 02109, Steven M. Gordon, Shaheen, Cappiello, Stein & Gordon, P.A., One Barberry Lane, Concord, N.H. 03302-2159, for appellants.

Before: SELYA, CYR and LYNCH, Circuit Judges.

LYNCH, Circuit Judge:

This tax evasion case raises two sentencing issues, one of import to tax cases and one of larger import. We hold that a sentence in a tax evasion case must be predicated on findings as to amounts that the government has proven were willfully evaded and that it is unlikely the requisite findings were made here. We also hold that there is no categorical imperative prohibiting the very consideration of whether a case is so unusual as to warrant a downward departure based on the loss of jobs to innocent employees occasioned by the imprisonment of the defendant owner of a small business. We reject the argument that the United States Sentencing Commission's comment discouraging departures based on the "vocational skills" of the defendant categorically prohibits consideration of such job loss to third parties. Accordingly, we vacate defendants' sentences and remand.

I

Anthony and Shirley Olbres, husband and wife, run a business, Design Consultants ("DC"), which creates exhibit booths for trade shows. Design Consultants currently employs twelve people in addition to Anthony Olbres, who is president of the company, and Shirley Olbres, who serves as DC's part-time bookkeeper. In 1987, Mr. and Mrs. Olbres had a total income of $837,480. In June 1987, they purchased a Rolls Royce Corniche convertible for $158,000. They drove the Rolls to a local restaurant in Exeter , New Hampshire . A passing IRS employee saw the luxury car parked outside of the restaurant. His curiosity engaged, he wrote down the license plate number with the intention of identifying the car's owner and examining his or her tax returns. The IRS employee's curiosity led to a 1989 audit of the Olbres' 1987 joint tax returns and eventually resulted in a criminal investigation. The investigation led the government to conclude that Mr. and Mrs. Olbres had committed criminal tax evasion.

Mr. and Mrs. Olbres were indicted on three counts of criminal tax evasion related to the income tax returns they filed for the years 1986, 1987, and 1988. See 26 U.S.C. §7201 . The returns understated the couple's taxable income for those years by approximately $153,000, $749,000, and $175,000, respectively. For 1987, the year with the bulk of the unreported income, Mr. and Mrs. Olbres failed to report income from three sources: 1) payments, totaling $630,000, from business customers that were deposited directly into a business savings account and not recorded in the cash receipts journal provided to the Olbres' accountant; 2) rental income, totaling $22,000, from various properties the couple owned; and 3) rebates, totaling $97,000, paid by shipping companies utilized by DC. Mr. and Mrs. Olbres conceded all the understatements but defended on the basis that none were willful. The couple insisted that they had relied on their accountant, who had prepared their returns since 1977. That accountant died before the trial. The couple attributed other errors, including the failure to report the shipping rebates, to Mrs. Olbres, who was depicted as a well-meaning but untrained bookkeeper.

The jury acquitted Mr. and Mrs. Olbres on the charges relating to the 1986 and 1988 returns and convicted on the charge related to the 1987 return. The jury verdict was general; the district judge instructed the jury that it could convict on a count if it found that Mr. and Mrs. Olbres had willfully attempted to evade a "substantial" amount of taxes for the relevant year. There was no specific jury finding as to the amounts willfully evaded, or as to whether the willful evasion encompassed some or all of the categories of income involved.

The district court granted the Olbres' motion for judgment of acquittal on the conviction relating to the 1987 tax return on the basis that the government had failed to prove willfulness beyond a reasonable doubt. United States v. Olbres, 881 F. Supp. 703, 706 (D. N.H. 1994). The government appealed, and this court reversed, holding that there was evidence of willfulness sufficient to uphold the conviction. United States v. Olbres [95-2 USTC ¶50,401 ], 61 F.3d 967, 970-73 (1st Cir.), cert. denied, 116 S. Ct. 522 (1995). This court did not parse the evidence as to the specific amounts willfully underreported for the year 1987. See id.

On remand, the district court determined that the tax loss caused by Mr. and Mrs. Olbres totalled $632,158, which, according to the Sentencing Guidelines' Tax Table, places the Olbres' base offense level at 15. See U.S.S.G. §2T4.1. The $632,158 amount included the $470,236 tax loss from 1987 as well as the tax losses from 1986 and 1988, despite the defendants' challenge to the inclusion of certain amounts from 1987 and of the entire 1986 and 1988 amounts.

The district court judge sentenced Mr. and Mrs. Olbres to 18 months in prison, the lowest possible sentence within the level 15 sentencing range for their Criminal History Category of I. That sentence is predicated upon the willfulness requirement having been met for the entire sum underreported for 1987. It is also predicated on the entire sums underreported for 1986 and 1988, as the court felt it was required to consider those amounts as relevant conduct, despite the acquittals. Stating that it was legally required to do so, the court rejected Mr. and Mrs. Olbres' argument that there should be a downward departure from the sentence because sending them to prison would mean the demise of their small business and loss of employment for a dozen innocent employees. It is from these determinations that Mr. and Mrs. Olbres appeal. Three issues are argued. Mr. and Mrs. Olbres argue that the district court erred in failing to determine whether they willfully evaded all of the taxes on which their sentence was based. They also argue that the consideration of the acquitted conduct stemming from the 1986 and 1988 tax years violated the Sentencing Reform Act and the Double Jeopardy and Due Process Clauses of the Constitution. Finally, Mr. and Mrs. Olbres argue that the district court erred as a matter of law in adopting a per se rule that a trial court may never consider a downward departure to prevent termination of an ongoing business enterprise and the loss of employment to innocent persons. We vacate the sentence and remand for further proceedings on the first and third grounds and do not reach the Olbres' acquitted conduct argument.

II

The United States and defendants agree on this appeal that for sentencing purposes the trial judge was required by Rule 32(c)(1), Fed. R. Crim. P., to find that Mr. and Mrs. Olbres willfully attempted to evade all of the taxes used in determining their base offense level. The dispute is over whether the court adequately, or ever, made such findings. The government contends that although the trial court made no specific findings, the trial judge, by expressly adopting the findings of the Presentence Investigation Report ("PSR"), implicitly found that Mr. and Mrs. Olbres had willfully evaded taxes on income of approximately $1.1 million, encompassing the tax years 1986, 1987, and 1988. Mr. and Mrs. Olbres contend that the trial court improperly declined to make such findings and instead erroneously assumed that the general jury verdict and this court's opinion in its sufficiency review established that the entire sum of $1.1 million was willfully evaded. Because the record is unclear as to what the district court actually found, and in light of our disposition of the downward departure issue, we vacate the Olbres' sentences and remand for further proceedings. See United States v. Garafano, 36 F.3d 133, 135 (1st Cir. 1994).

In order to determine the base offense level under the Sentencing Guideline for tax evasion, the sentencing court must determine the amount of "tax loss" to the government. U.S.S.G. §2T1.1(a)(1987). In the pertinent 1987 Guidelines Manual, "tax loss" is defined as "the total amount of tax that the taxpayer evaded or attempted to evade, including interest to the date of filing of an indictment." Id.

The primary difficulty presented by this case is that the jury, in order to convict, was not required to find the total amount of the tax that the taxpayers evaded or attempted to evade. Indeed, the jury was instructed that "[t]he government does not have to prove the exact amount the defendants owed, nor does the government have to prove that all the tax charged in the indictment was evaded." Thus, the sentencing judge is required to make a determination which is not necessarily made by the jury and, in this case, was not made.

Further enlarging the sentencing judge's task, the Guidelines also state that "[w]hen more than one year is involved, the tax losses are to be added." U.S.S.G. §2T1.1. The Guidelines Commentary explains this instruction as follows:

While the definition of tax loss corresponds to "criminal deficiency," its amount is to be determined by the same rules applicable in determining any other sentencing factor. In accordance with the "relevant conduct" approach adopted by the guidelines, tax losses resulting from more than one year are to be added regardless of whether the defendant is convicted of multiple counts.

U.S.S.G. Pt. T, comment. 1 (1987).

It is against this background that the district court stated the task it thought it faced in light of the government's position at that time:

With regard to the amounts evaded, I find that the proper means of calculating the amount of tax loss or the amount evaded under the Sentencing Guidelines requires the Court to look to the amounts not included as income on the return that should have been included as income and then to compute the tax based upon that income plus interest based on the statutory rate from the date of return to the date of indictment.

This is a correct statement of the first step of the analysis. The next step, as the government now concedes, is to identify the amount of taxes willfully evaded. We are left with uncertainty as to whether that step was taken. In determining what the district court did and did not do at sentencing, "[w]e are guided ... by the record--a record that flavors the judge's words and concomitantly, offers insights into his thinking." United States v. Tavano, 12 F.3d 301, 304 (1st Cir. 1995).

In the court's most express statement of findings, the judge stated that he adopted the findings and recommendations set forth in the PSR. The court then held that Mr. and Mrs. Olbres could be sentenced for all "amounts not included as income that should have been included as income." Other than the adoption of the PSR's findings, the judge made no explicit finding regarding the willfulness of evasion on specific amounts.

In many instances, a general statement that the judge has adopted all the factual statements contained in the PSR satisfies the requirements of Rule 32(c), Fed. R. Crim. P. United States v. Skrodzki, 9 F.3d 198, 202 n.7 (1st Cir. 1993) (express adoption of PSR defeats Rule 32 challenge); United States v. Barnett, 989 F.2d 546, 551 n.5 (1st Cir.)(checking a box on judgment form indicating that court adopted all findings from PSR constituted specific finding as to the quantity of drugs for which defendants were held responsible), cert. denied, 510 U.S. 850 (1993); United States v. Wells Metal Finishing, Inc., 922 F.2d 54, 58 (1st Cir. 1991)(judge briefly explained sentence at hearing and then completed memorandum indicating that he adopted all factual statements in PSR, noting that one fact had been disputed). Here, however, because the PSR did not resolve all of the disputed factual issues, simple reliance on it is not enough. ¹

The original PSR made no reference to willfulness and did not consider the defendants' acquitted conduct. After a government objection, the PSR was amended to include the tax loss amounts attributed to the acquitted conduct. The PSR addendum noted that, in the district court's Order for Acquittal on the 1987 charge, the judge conceded that a different result would obtain under the civil preponderance standard. See Olbres, 881 F. Supp. at 717. The PSR addendum concluded:

Although the Court's remarks only addressed [1987], there is little difference between the evidence submitted as to the acquitted conduct.... The question regarding their intent is the same, regardless of whether one is focusing on [1987] or the acquitted conduct.

This reference back to the district court's order is ineffective; whether defendants willfully evaded all, or specific portions of, the tax on their 1987 unreported income is not clearly established in that order or in any other statement made by the district court. As defense counsel points out, a willfulness finding for each of the disputed amounts stemming from factually distinct sources for each year in question (as to each of which different lack-of-willfulness arguments are made) is necessary here in order to determine the correct base offense level. ²

Lastly, at sentencing the district court also stated that "willfulness isn't an issue ... as to [19]87" because this court, in its sufficiency opinion, "found a jury could find beyond a reasonable doubt that intent was present." That appellate opinion did not, and could not, make any findings of willful evasion of any specific amount of taxes. ³ Rather, the opinion addressed whether there was legally sufficient evidence to support a verdict that Mr. and Mrs. Olbres willfully evaded a "substantial" amount of taxes on their 1987 income. See generally Olbres [95-2 USTC ¶50,401 ], 61 F.3d 967.

As we are unable to settle the issue of willfulness findings based on the jury's general verdict, the trial judge's statements, or the documents he incorporates by reference, see United States v. Tavares, 93 F.3d 10, 16 (1st Cir.), cert. denied, No. 96-6067 (Oct. 21, 1996), we leave it to the sentencing court on remand to clarify the specific amounts on which the sentence is based--that is, those amounts as to which payment of taxes was willfully evaded as proven by the government under the preponderance of the evidence standard. See Garafano, 36 F.3d at 136. We express no opinion on the appropriateness of the sentence previously imposed. United States v. Quinones, 26 F.3d 213, 220 (1st Cir. 1994).

III

The defendants appeal the denial of their downward departure motion based on their argument that, if they are imprisoned, their business will fail. Should this occur, the Olbres allege, twelve innocent employees will lose their jobs and suffer severe hardship. The government argues that the Guidelines discuss "vocational skills" as a discouraged factor, not "ordinarily relevant," U.S.S.G. §5H1.2, ⁴ and so there is no room for the Olbres' "business failure" argument--an argument that, it contends, is not unusual.

The Olbres' argument is based on the premise that their circumstances take their case out of the "heartland" of the Tax Guidelines. "U.S.S.G. §5K2.0 allows sentencing courts to depart from the guideline sentencing range in a given case if the court finds aggravating or mitigating circumstances that render the case atypical and take it out of the 'heartland' for which the applicable guideline was designed." United States v. Carrion-Cruz, 92 F.3d 5, 6 (1st Cir. 1996).

The district court found that if Mr. Olbres was jailed, DC would become defunct and its employees would lose their jobs. The district court ruled, nonetheless, that the Sentencing Commission must have necessarily understood that small businesses will often fail if their principals are incarcerated and that job loss to innocent third parties was therefore "not an unusual situation" under the Guidelines. ⁵ In so doing, the district court expressly stated it was following the Third Circuit opinion in United States v. Sharapan, 13 F.3d 781 (3d Cir. 1995), and declined to follow the Second Circuit opinion in United States v. Milikowsky, 65 F.3d 4 (2d Cir. 1995). The district court understood Sharapan to hold that "as a matter of law this is not a basis for departing because the Sentencing Commission has considered the failure of business in constructing heartland guidelines." ⁶

Apparently believing that, as a matter of law, business failure and third party job loss, regardless of the magnitude or the severity of the consequences, could not serve as the basis for a downward departure motion, the trial judge stated at the end of the sentencing hearing:

I also want the record to be clear that if the fact that your business were to fail could serve legally as a basis for departing under the Sentencing Guidelines, then I would depart, and I would depart in a manner sufficient to keep the business from failing and putting those people out of work. But as I say, I can't as I sit here find a principal [sic] basis for departing from the guidelines on those factual assumptions.

In Sharapan, the Third Circuit reversed the district court's grant of a downward departure. 13 F.3d at 786. The trial court had found that incarceration of the defendant would cause his business to fail, resulting in the loss of approximately thirty jobs. Id. at 782. It therefore departed from the Guidelines' sentence and sentenced the defendant to probation with conditions. Id. at 783. The Third Circuit reversed, holding that the departure was inconsistent with U.S.S.G. §5H1.2, p.s., which provides that departures based on a defendant's "vocational skills" are not ordinarily appropriate. Id. at 784-85. The Third Circuit viewed the Commission's policy statement on "vocational skills" as being based on an underlying "principle ... that a sentencing judge may grant a departure based on a defendant's ability to make a work-related contribution to society only in extraordinary circumstances." Id. at 785; see also United States v. Reilly, 33 F.3d 1396, 1424 (3d Cir. 1994); United States v. Mogel, 956 F.2d 1555, 1564 (11th Cir.), cert. denied, 506 U.S. 857 (1992); accord United States v. Rutana, 932 F.2d 1155 (6th Cir.) ("[E]ven assuming that [defendant's] imprisonment would lead to the failure of his business and the loss of his employees' jobs, this fact does not distinguish [defendant] from other offenders."), cert. denied, 502 U.S. 907 (1991).

In contrast, the Second Circuit in Milikowsky affirmed a downward departure taken by the district court because of the effect that Milikowsky's imprisonment would have on his employees. 65 F.3d at 6. The Second Circuit noted "that business ownership alone, or even ownership of a vulnerable small business, does not make downward departure appropriate," id. at 9, but held that the district court was nonetheless free to, and indeed required to, consider the possibility of downward or upward departure "when there are compelling considerations that take the case out of the heartland factors upon which the Guidelines rest." Id. at 7 (citations omitted).

Milikowsky arose under the antitrust guideline, U.S.S.G. §2R1.1 (1990), and not the tax guideline involved here. Contrary to the government's argument, this is a distinction without a difference. The Second Circuit considered the same argument the government makes here--that "the Commission could hardly have overlooked the effect that imprisonment of offenders would have on small businesses that are likely to be heavily dependent on those very offenders for their continuing success." Milikowsky, 65 F.3d at 8. That may be so, reasoned the Second Circuit, but "in considering, and taking into account, the effect of imprisonment on antitrust offenders' businesses ... the Commission did not thereby take into account the effect such imprisonment would have in 'extraordinary circumstances.' " Id.

The structure of analysis we follow in considering sentencing departures is governed by the Supreme Court's decision in Koon v. United States, 116 S. Ct. 2035 (1996). The Supreme Court agreed with the analytical structure adopted by this Circuit in United States v. Rivera, 994 F.2d 942, 949 (1st Cir. 1993):

The Commission's treatment of departure factors led then-Chief Judge Breyer to explain that a sentencing court considering a departure should ask the following questions:

"1) What features of this case, potentially, take it outside the Guidelines' 'heartland' and make of it a special, or unusual, case?

2) Has the Commission forbidden departures based on those features?

3) If not, has the Commission encouraged departures based on those features?

4) If not, has the Commission discouraged departures based on those features?"

We agree with this summary.

Koon, 116 S. Ct. 2035, 2045 (quoting Rivera, 994 F.2d 942). The Supreme Court continued:

If the special factor is a discouraged factor, or an encouraged factor already taken into account by the applicable Guideline, the court should depart only if the factor is present to an exceptional degree or in some other way makes the case different from the ordinary case where the factor is present. If a factor is unmentioned in the Guidelines, the court must, after considering the "structure and theory of both relevant guidelines and the Guidelines taken as a whole," decide whether it is sufficient to take the case out of the Guideline's heartland. The court must bear in mind the Commission's expectation that departures based on grounds not mentioned in the Guidelines will be "highly infrequent."

Id.

To adopt the categorical approach to job loss from business failures that the district court appears to take would run afoul of one of the important concerns articulated in Koon. The Supreme Court has held that generally courts should not categorically reject a factor as a basis for departure from a Guidelines' sentence because:

Congress did not grant federal courts authority to decide what sorts of sentencing considerations are inappropriate in every circumstance. Rather, 18 U.S.C. §3553(b) instructs a court that, in determining whether there exists an aggravating or mitigating circumstance of a kind or to a degree not adequately considered by the Commission, it should consider "only the sentencing guidelines, policy statements, and official commentary of the Sentencing Commission.".... The Commission set forth factors courts may not consider under any circumstances but made clear that with those exceptions, it "does not intend to limit the kinds of factors, whether or not mentioned anywhere else in the guidelines, that could constitute grounds for departure in an unusual case." 1995 U.S.S.G. ch. I, pt. A, intro. comment. 4(b). Thus, for the courts to conclude a factor must not be considered under any circumstances would be to transgress the policymaking authority vested in the Commission.

Id. (emphasis added). Categorical interpretations "would nullify the Commission's treatment of particular departure factors and its determination that, with few exceptions, departure factors should not be ruled out on a categorical basis." Id. at 2051. ⁷

The district court's categorical approach also presents a question of law, which, if incorrectly decided, constitutes an abuse of discretion. As the Supreme Court noted:

The Government is quite correct that whether a factor is a permissible basis for departure under any circumstances is a question of law, and the court of appeals need not defer to the district court's resolution of the point.... A district court by definition abuses its discretion when it makes an error of law.

Id. at 2047.

Koon, we believe, reinforces this Circuit's view that "[p]lenary review is appropriate where the question in review is simply whether the allegedly special circumstances (i.e., the reasons for the departure) are of the 'kind' that the Guidelines, in principle, permit the sentencing court to consider at all." Rivera, 994 F.2d at 951. This is so because this court, "in deciding whether the allegedly special circumstances are of a 'kind' that permits departure, will have to perform the 'quintessentially legal' function of interpreting a set of words, those of an individual guideline, in light of their intention or purpose." Id.

It is clear that the Guidelines do not explicitly list the factor at issue here among the forbidden or the discouraged factors. The question is whether the Commission's "vocational skills" comment ⁸ implicitly discourages consideration of job loss to innocent employees. We note first that "vocational skills" themselves are not a forbidden factor, but a discouraged factor. Compare U.S.S.G. §5H1.10 (race, sex, national origin et al. "are not relevant" in determination of sentence) with U.S.S.G. §5H1.2 ("vocational skills are not ordinarily relevant"). Therefore, even if the present case merely concerned vocational skills, a per se approach would be inappropriate and the district court would still have to consider whether the case was in some way "different from the ordinary case where the factor is present." Koon, 116 S. Ct. at 2045. "[A] federal court's examination of whether a factor can ever be an appropriate basis for departure is limited to determining whether the Commission has proscribed, as a categorical matter, consideration of the factor. If the answer to the question is no ... the sentencing court must determine whether the factor, as occurring in the particular circumstances, takes the case outside the heartland of the applicable Guideline." Id. at 2051.

We do not agree with the Government's contention that the loss of employment to innocent employees necessarily falls within the term "vocational skills." ⁹ That a defendant may have vocational skills of great value or rarity does not necessarily tell one whether incarceration of that defendant will entail job loss to others totally uninvolved in the defendant's crimes. Vocational skills may or may not be related to job loss to others.

Our belief that courts should be careful not to construe the categories covered by the Guidelines' factors too broadly finds support in Koon. There, the Supreme Court recognized that while "socio-economic status" of the defendant is an impermissible ground for departure and "a defendant's career may relate to his or her socio-economic status, ... the link is not so close as to justify categorical exclusion of the effect of conviction on a career. Although an impermissible factor need not be invoked by name to be rejected, socio-economic status and job loss are not the semantic or practical equivalents of each other." Koon, 116 S. Ct. at 2051. ¹⁰

As Koon holds that job loss by the defendant resulting from his incarceration cannot be categorically excluded from consideration, we think it follows that job loss to innocent employees resulting from incarceration of a defendant may not be categorically excluded from consideration. Further, the rejected link between the socio-economic status of a defendant and a defendant's personal job loss is, we think, stronger than the link the Government posits between "vocational skills" of a defendant and certain loss of employment to innocent employees. To add a judicial gloss equating job loss by innocent third parties with "vocational skills" is to run headlong into the problem of judicial trespass on legislative prerogative against which the Supreme Court warned in Koon. We do not travel this path.

Because we are remanding on the tax loss issue and the district court will make further findings on that point, we believe the wisest course is to remand on this issue as well. In addition, it is unclear to us whether the government and defendants have had the opportunity to put on the evidence they would have wished had a non-categorical approach been taken. ¹¹ In rejecting the government's categorical imperative approach, ¹² we do not suggest that the defendants' argument establishes that they fall outside of the heartland. It is a rare case which does fall outside. As courts have recognized, incarceration of a defendant inevitably means that the defendant will no longer be employed in his previous position and that fact inevitably will have consequences. See, e.g., Milikowsky, 65 F.3d at 8 ("[T]he Commission could hardly have overlooked the effect that imprisonment of offenders would have on small businesses that are likely to be heavily dependent on those very offenders for their continuing success."). The mere fact that innocent others will themselves be disadvantaged by the defendants' imprisonment is not alone enough to take a case out of the heartland. These issues are matters of degree, involving qualitative and quantitative judgments. Bruce M. Selya & Matthew Kipp, An Examination of Emerging Departure Jurisprudence Under the Federal Sentencing Guidelines, 67 Notre Dame L. Rev. 1, 7-8 (1991). As this court said in Rivera:

It may not be unusual, for example, to find that a convicted drug offender is a single mother with family responsibilities, but, at some point, the nature and magnitude of family responsibilities (many children? with handicaps? no money? no place for children to go?) may transform the "ordinary case" of such circumstances into a case that is not at all ordinary.

United States v. Rivera, 994 F.2d at 948; accord United States v. Sclamo, 997 F.2d 970 (1st Cir. 1993); see also Koon, 116 S. Ct. at 2051 (it is not unusual for public officials convicted of violating 18 U.S.C. §242 to be subject to career related consequences, so these consequences alone do not make a case unusual).

Given our decision to vacate the sentence and remand for further proceedings, consideration of the defendants' acquitted conduct arguments would be premature.

We close with words from Koon on which all of the Justices agreed:

The goal of the Sentencing Guidelines is, of course, to reduce unjustified disparities and so reach towards the evenhandedness and neutrality that are the distinguishing marks of any principled system of justice. In this respect, the Guidelines provide uniformity, predictability, and a degree of detachment lacking in our earlier system. This too must be remembered, however. It has been uniform and constant in the federal judicial tradition for the sentencing judge to consider every convicted person as an individual and every case as a unique study in the human failings that sometimes mitigate, sometimes magnify, the crime and the punishment to ensue. We do not understand it to have been the congressional purpose to withdraw all sentencing discretion from the United States District Judge. Discretion is reserved within the Sentencing Guidelines.

Id. at 2053. Even were we not obliged to agree, we would.

We vacate the sentence and remand. United States v. Carvell, 74 F.3d 8 (1st Cir. 1996).

¹ This Circuit has also repeatedly held that an implicit resolution of disputed facts is sufficient "when the court's statements and the sentence imposed showed that the facts were decided in a particular way." United States v. Van, 87 F.3d 1, 3 (1st Cir. 1996)(citing cases). "As a general rule, a trial court lawfully may make implicit findings with regard to sentencing matters, incorporating by reference suitably detailed suggestions limned in the PSI Report or advanced by a party." Tavano, 12 F.3d at 307; see also United States v. Ovalle-Marquez, 36 F.3d 212, 227-28 (1st Cir. 1994)(finding that trial court's statement that offense level was "based ... on the amount of cocaine involved in the offense" showed that the court adopted the PSR's recommendations and implicitly made the necessary findings as to drug quantity), cert. denied, 115 S. Ct 1322 (1995). In this case, however, the PSR was not "suitably detailed."

² It is the defendants' position, for example, that the guilty verdict could have been based on as little as $22,000 of unreported rental income in 1987.

³ Such factual determinations are either for the jury at trial, see, e.g., United States v. Gaudin, 115 S. Ct. 2310, 2313-14 (1995), or for the district court at sentencing, see, e.g., 18 U.S.C. §3742(d).

⁴ Discouraged factors are those "not ordinarily relevant in determining whether a sentence should be outside the guidelines ...." U.S.S.G. §5H1.2.

⁵ The issue is not moot because the district court granted defendants' motion for bail pending resolution of this appeal. The government agreed that Mr. and Mrs. Olbres do not present a danger to the community or a flight risk.

⁶ It is not necessary to resolve whether this is a correct reading of Sharapan.

⁷ The Government's argument here relies on a general distinction between harm to society, which, it says, may be an extraordinary factor, and business failure, which, it says, may not. The Supreme Court rejected this type of argument in Koon:

The Government seeks to avoid the factual nature of the departure inquiry by describing it at a higher level of generality linked closely to questions of law. The relevant question, however, is not, as the Government says, "whether a particular factor is within the 'heartland' " as a general proposition, but whether the particular factor is within the heartland given all the facts of the case.... These considerations are factual matters.

Koon, 116 S. Ct. at 2047 (citations omitted).

⁸ The Commission statement results from the instructions of Congress that the Commission's guidelines and policy statements "reflect the general inappropriateness of considering the ... vocational skills, employment record, ... and community ties of the defendant." 28 U.S.C. §994(e); see Mogel, 956 F.2d at 1564.

⁹ The dictionary definitions of "vocational skills" do not import notions of business failures. See Sharapan, 13 F.3d at 784 (describing a dictionary definition of "vocational skills").

¹⁰ Koon similarly rejected the government's argument that because "physical appearance" is a discouraged factor, the broader category of physical abuse in prison, including that resulting from physical appearance, could not be considered. 116 S. Ct. at 2051.

¹¹ Though the defense treated Mr. and Mrs. Olbres identically for sentencing purposes, evidence was presented only on Mr. Olbres' importance to DC. Each defendant must be considered individually. We note that there was no evidence to suggest that the business would fail were Mrs. Olbres incarcerated.

¹² We note that the opinions from our sister circuits on which the government has relied, Sharapan, Rutana, and Mogel, were all decided without the benefit of Koon. In distinguishing those cases, we decide only that there is no categorical barrier to the district court's consideration of a departure--not that a departure would be proper on these facts.

 

 

[96-2 USTC ¶50,606] United States of America , Plaintiff-Appellee v. Roger V. Chastain, Defendant-Appellant

(CA-9), U.S. Court of Appeals, 9th Circuit, 95-10267, 5/17/96, 84 F3d 321, Affirming an unreported District Court decision

[Code Sec. 7203 ]

Conviction: Failure to timely pay income tax: United States Sentencing Guidelines: Sentence reduction: Downward departure.--A trial court erred in granting an attorney who was convicted of willfully failing to timely pay income taxes a two-level sentence reduction based on United States Sentencing Guidelines (USSG) section 3E1.1. Although the attorney never denied that he had tax liability, he never accepted responsibility for the offense of willful failure to pay, as evidenced by his decision to take his case to trial and his vigorous defense of his actions as not willful. The trial court should not have granted a reduction for circumstances unrelated to acknowledgment of guilt, such as whether deterrence interests were served. Further, the attorney did not make a voluntary payment of restitution prior to adjudication of guilt. Also, the trial court should not have departed downward an extra two months in order to facilitate the attorney's payment of restitution. Since restitution was adequately taken into consideration by the USSG, it was not a legitimate basis for departure. Further, the trial court could not reduce the sentence to preserve the attorney's job and facilitate restitution.

[Code Sec. 7203 ]

Jury instructions: Good-faith defense: Abuse of discretion.--During the trial of an attorney who was convicted of willfully failing to timely pay income tax, the trial court did not abuse its discretion by declining to further instruct the jury regarding the relationship between willfulness and good faith. The instructions adequately covered the attorney's good-faith defense, gave the IRS the burden of proving that the attorney did not have a good-faith belief that his actions were not violating the law, and explicitly included the IRS's burden on the good-faith issue among the other elements of the offense.

[Code Sec. 7203 ]

Improper comments: Closing arguments: Abuse of discretion.--During the trial of an attorney who was convicted of willfully failing to timely pay income tax, the trial court did not abuse its discretion by allowing the jury to consider comments made by the IRS during closing arguments regarding the attorney's use of his disposable income. The assertions were reasonable inferences drawn from trial testimony, including the testimony of the attorney himself.

Benjamin B. Wagner, Assistant United States Attorney, Sacramento , Calif. , for plaintiff-appellee. Ann C. McClintock, Marnie L. Sayles, Assistant Federal Public Defenders, Sacramento, Calif., for defendant-appellant.

Before: CHOY, BEEZER and HAWKINS, Circuit Judges.

OPINION

HAWKINS, Circuit Judge:

Appellant Roger V. Chastain ("Chastain") was convicted pursuant to 26 U.S.C. §7203 of five misdemeanor counts of willfully failing to timely pay income taxes. Chastain contends (1) the magistrate judge who presided over Chastain's trial abused his discretion by failing to instruct the jury regarding the relationship between §7203 's "willfulness" requirement and Chastain's "good faith" defense; (2) the magistrate judge abused his discretion by refusing to strike the government's allegedly inaccurate summary of the evidence during closing argument; and (3) the district court erred in vacating the magistrate judge's downward sentencing departures. We affirm.

I. FACTUAL AND PROCEDURAL HISTORY

Chastain is an attorney in Northern California . Evidence at trial established that although he filed accurate tax returns for years 1984-1989, he failed to pay taxes totalling over $100,000. Despite making over $50,000 a year and taking at least five trips to Europe between 1985 and 1989, Chastain told the IRS he did not have enough money to pay his taxes.

In September 1993, Chastain was charged with five misdemeanor counts of willfully failing to timely pay income tax. Chastain consented to proceed before a magistrate judge and pleaded not guilty. The focus of the trial was the "willful" element of the offense. Perhaps elevating hope over common sense, Chastain contended that the "willful" element of §7203 was negated by his good faith belief that he could treat the IRS "like any other general creditor."

The jury convicted Chastain on all counts. At sentencing, ¹ the magistrate granted a two-level reduction in the base offense level for acceptance of responsibility pursuant to U.S.S.G. §3E1.1. The magistrate then departed downward two months from the low end of the 4-10 month guideline range in order to facilitate the payment of approximately $118,000 restitution to the IRS. Chastain appealed his conviction to the district court, and the government cross-appealed the sentence.

The district court affirmed Chastain's conviction after rejecting his claim of instructional error on the willfulness element of §7203 . The district court granted the government's cross-appeal and vacated the magistrate's two-level reduction for acceptance of responsibility and the magistrate's two-month downward departure. ²

Chastain timely appealed. We have jurisdiction pursuant to 28 U.S.C. §1291 , and we affirm the district court.

II. DISCUSSION

A. Jury Instructions

Chastain contends that the magistrate judge should have instructed the jurors that a good-faith belief that Chastain was not violating the law would "directly negate" the willfulness element of §7203 . We review whether a trial court's instructions adequately covered a defendant's proffered defense de novo, United States v. Warren, 25 F.3d 890, 895 (9th Cir. 1994), and review a district court's formulation of jury instructions for an abuse of discretion, United States v. Vaandering, 50 F.3d 696, 702 (9th Cir. 1995).

The magistrate judge instructed the jury that accepting Chastain's good-faith defense would require acquittal. The instruction gave the government the burden of proving Chastain did not have a good-faith belief and explicitly included the government's burden on the good faith issue among the other elements of the offense. The instruction adequately covered Chastain's good-faith defense, and the magistrate did not abuse his discretion in declining to further instruct the jury regarding the relationship between willfulness and good faith.

B. Closing Argument

Chastain contends that during closing argument the government mischaracterized evidence regarding Chastain's use of his disposable income. Chastain specifically challenges the prosecutor's assertion that "defendant got a windfall of $80,000, threw a bone to the IRS, went out and spent over $60,000 buying a new car, a bunch of furniture." The trial court's decision to allow a jury to consider comments made by one party in closing argument to which the other party objects is reviewed for an abuse of discretion. United States v. Diaz, 961 F.2d 1417, 1418 (9th Cir. 1992).

Chastain's argument is without merit. The prosecutor's assertions were reasonable inferences drawn from trial testimony, including the testimony of Chastain himself. See United States v. Birges, 723 F.2d 666, 671-72 (9th Cir.) (noting that attorneys may draw reasonable inferences from the evidence during closing argument), cert. denied, 466 U.S. 943, and cert. denied, 469 U.S. 863 (1984). The prosecutor's reference to an $80,000 "windfall" related to Chastain's share of a client's award in a personal injury case. The prosecutor's characterization of Chastain's effort to "throw the IRS a bone" referred to Chastain's attempt, after he had received the $80,000, to settle his debt with the IRS for $20,000. Finally, the reference to a new car and new furniture came from the testimony of IRS Agent Sandra Mohan, who testified that Chastain told her after he had received the $80,000 that "he had purchased a brand-new 1993 automobile that he paid cash for. He had gotten furniture. He sent money to his kids, paid other creditors, and he had some money left over he wanted to ask the IRS to consider compromising his liability with." Because each of the alleged mischaracterizations finds support in the record, the trial court did not abuse its discretion in allowing them.

C. Sentencing Guidelines

1. Two-Level Reduction for Acceptance of Responsibility

At sentencing, the magistrate granted Chastain's request for a two-level sentence reduction based on the §3E1.1 Acceptance of Responsibility guideline. The magistrate judge based his §3E1.1 two-level reduction on three factors: (1) Chastain demonstrated an acceptance of responsibility by never contesting that he owed taxes, (2) deterrence interests had already been served by the negative publicity and legal fees associated with Chastain's case, and (3) a longer sentence would damage his law practice and thus constitute a "financial death penalty." The sentencing court's interpretation and application of the Sentencing Guidelines are reviewed de novo. United States v. Basinger, 60 F.3d 1400, 1409 (9th Cir. 1995).

The reasons cited by the magistrate in support of his decision to grant an acceptance of responsibility reduction are not legitimate grounds for a §3E1.1 reduction. Although it is true that Chastain never denied that he had tax liability, Chastain never accepted responsibility for the offense of willful failure to pay. See U.S.S.G. §3E1.1(a) (providing that defendant is eligible for reduction only if defendant accepts responsibility for his criminal conduct). Chastain's failure to accept responsibility for his crime was manifest in his decision to take the case to trial, where he vigorously denied the "willful" element of the offense. See U.S.S.G. §3E1.1 n.2 (specifying that only in "rare situations" will a defendant qualify for a reduction after "put[ting] the government to its burden of proof at trial by denying the essential factual elements of guilt"). ³

The other grounds upon which the magistrate based his reduction are even more suspect. Whether deterrence interests have been served by other means (public approbation, financial loss, etc.) may be relevant to a §5K2.0 departure, but the §3E1.1 acceptance of responsibility guideline does not permit a sentence reduction for circumstances unrelated to whether Chastain acknowledged his guilt. The final ground cited by the magistrate, Chastain's payment of restitution, is mentioned in §3E1, but only in a very narrow sense. Application Note 1(b) permits the judge to consider a defendant's "voluntary payment of restitution prior to adjudication of guilt" in determining whether a defendant has clearly accepted responsibility for his criminal acts. In this case, Chastain made no voluntary restitution. Because the acceptance of responsibility guideline does not permit a reduction to facilitate post-conviction payment of restitution, the magistrate erred in using §3E1.1 in an attempt to avoid a "financial death penalty."

In sum, Chastain's conduct fell well short of manifesting the "clear acceptance of responsibility" required by §3E1.1.

2. Departure to Facilitate Payment of Restitution

After granting a two-level departure for acceptance of responsibility, the magistrate departed downward an additional two months in order to facilitate payment of restitution. In lieu of a Guideline provision that explicitly permits departure based on the amount of restitution required, Chastain relies on Guideline §5K2.0 in combination with 18 U.S.C. §3553(a)(7) to justify the magistrate's decision to depart. Guideline §5K2.0 permits departure based on " 'mitigating circumstance[s] of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission.' " U.S.S.G. §5K2.0 (quoting 18 U.S.C. §3553(b)).

The sentencing judge may not depart unless he or she has legal authority under the Guidelines to do so. United States v. Lira-Barraza, 941 F.2d 745, 746 (9th Cir. 1991) (en banc) (noting that "legal authority" is first of three-part test for departure under the Guidelines). Although in United States v. Miller, 991 F.2d 552 (9th Cir. 1993), and United States v. Berlier, 948 F.2d 1093 (9th Cir. 1991), we analyzed the related question of the scope of §3E1.1 departures based on pre-trial restitution efforts, we have not decided under what, if any, circumstances a §5K2.0 departure is appropriate to permit a defendant to make restitution payments after conviction.

We join the Second, Fourth, Sixth, and Seventh circuits in holding that a sentencing judge may not depart to facilitate payment of restitution. See United States v. Broderson, 67 F.3d 452, 458 (2d Cir. 1995) ("Ordinarily, payment of restitution is not an appropriate basis for downward departure under Section 5K2.0."); United States v. Bolden, 889 F.2d 1336, 1340 (4th Cir. 1989) ("[W]e do not think that the economic desirability of attempting to preserve [defendant's] job so as to enable him to make restitution warrants a downward adjustment from the guidelines."); United States v. Seacott, 15 F.3d 1380, 1388-89 (7th Cir. 1994) (holding that restitution is not a proper ground for departing downward from the Guidelines range); United States v. Harpst, 949 F.2d 860, 863 (6th Cir. 1991) (holding that district court may not depart downward to preserve defendant's ability to make restitution). Guideline §5K2.0 requires that the mitigating circumstance that forms the basis for departure must be "of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission." We have held, however, that restitution was taken into consideration by the Commission under Guideline §3E1.1, which permits a downward departure when voluntary restitution paid before trial demonstrates an acceptance of responsibility. See Miller, 991 F.2d at 553 ("The Sentencing Commission considered the possibility that a defendant's payment of restitution might be a mitigating factor[in §3E1.1].... A court's discretion in departing because of restitution is therefore constrained [by the requirements of §3E1.1]."); see also United States v. Crook, 9 F.3d 1422, 1426 (9th Cir. 1993) ("We recently held in [Miller] that extraordinary restitution is a basis for downward departure only 'to the extent it shows acceptance of responsibility.' " (quoting Miller)), cert. denied, 114 S. Ct. 1841 (1994). Our determination that the Commission took restitution into consideration in §3E1.1 is in accord with the decisions of other circuits that have considered the relationship between §3E1.1 and a court's §5K2.0 authority to depart on the basis of restitution. See, e.g., Broderson, 67 F.3d at 458 ("Ordinarily, payment of restitution is not an appropriate basis for downward departure under Section 5K2.0 because it is adequately taken into account by Guidelines Section 3E1.1, dealing with acceptance of responsibility."); Seacott, 15 F.3d at 1388 (citing §3E1.1 in support of the proposition that Commission considered and rejected restitution as a mitigating circumstance). Because restitution was adequately taken into consideration by the Sentencing Commission as a ground for departure, a §5K2.0 departure based on restitution is not legitimate.

In addition to the explicit incorporation of restitution considerations into §3E1.1, the Commission also implicitly considered departures based on ability to pay restitution in formulating Guideline §5H1.10. Section 5H1.10, a Guideline policy statement, provides that socio-economic status is "not relevant in the determination of a sentence." Allowing a sentencing judge to reduce a defendant's sentence to preserve a defendant's job and facilitate restitution would introduce precisely the type of socio-economic disparity into sentencing that the Guidelines were designed to eliminate. Cf. United States v. DeMonte, 25 F.3d 343, 347 (6th Cir. 1994) ("In accordance with U.S.S.G. §5H1.10, we may not sentence a poor convict more harshly than a rich convict simply because the rich convict is better able to make restitution."); Harpst, 949 F.2d at 863 ("Furthermore, it seems that the Sentencing Commission considered including the ability to make restitution as a possible mitigating circumstance, yet rejected it as a basis for departure from the guidelines." (citing U.S.S.G. §5H1.10)).

Finally, the Commission's decision to separate the calculation of restitution from the sentencing determination evinces an intent to prevent restitution considerations from influencing the guideline sentence. Although ability to pay and the "financial needs of the defendant and his dependents" must be considered by a sentencing judge in fashioning a restitution order, see Commentary to U.S.S.G. §5E 1.1, the restitution guideline found in §5E is entirely independent of the §3E1.1 reduction and §5K2.0 departure provisions. Cf. Crook, 9 F.3d at 1426 (examining structure of Guidelines to determine whether extraordinary forfeiture is a valid ground for downward departure).

18 U.S.C. §3553(a)(7) is not in conflict with the proposition that restitution is not a legitimate ground for departure from the guideline sentencing range. Section 3553(a)(7) instructs that "[t]he court, in determining the particular sentence to be imposed, shall consider-- ... (7) the need to provide restitution to any victims of the offense." (emphasis added). Section 3553(a)(7) applies to the sentencing determination once the sentencing range has been established. See Bolden, 889 F.2d at 1341 (holding that although restitution is not valid ground for a §5K2.0 departure, 18 U.S.C. §3553(a)(7) permits the sentencing court to consider restitution "in deciding what sentence within the guidelines to impose"). Departure from the applicable sentencing range is controlled not by §3553(a)(7), but rather by §3553(b), which contains the familiar refrain that departure from the guideline range is appropriate only in the presence of aggravating or mitigating circumstances of a kind or degree not considered by the Commission. In short, §3553(a)(7) applies to setting a sentence within a guideline range, but may not be used as a basis for departure from a guideline range.

On the foregoing bases--§3E1.1's inclusion of restitution as a sentencing factor, §5H1.10's exclusion of socioeconomic status as a guideline variable, and the Commission's decision to separate the calculation of restitution from the guideline range determination--we hold that the magistrate judge had no authority to depart to facilitate the payment of restitution. Accordingly, the district court's decision to vacate the magistrate's two-month departure is affirmed.

AFFIRMED.

¹ Chastain was sentenced under the 1992 version of the Guidelines. Any reference in this disposition to the Guidelines is to the 1992 edition.

² On remand, Chastain was resentenced to four months in prison and a one-year term of supervised release. The magistrate stayed his incarceration pending appeal.

³ Because Chastain attacked the government's proof on willfulness, which is a specific, factual element of a §7203 offense, he was not in one of the "rare situations" that would qualify him for a reduction under Guideline §3E1.1. See U.S.S.G. §3E1.1 n.2.

 

 

[96-2 USTC ¶50,582] United States of America , Appellant v. Milton Brechner, Defendant-Appellee

(CA-2), U.S. Court of Appeals, 2nd Circuit, 95-1649, 11/1/96, 99 F3d 96, Vacating and remanding an unreported District Court decision

[Code Sec. 7201 ]

Tax evasion: United States Sentencing Guidelines: Downward departure: Cooperation agreement: Breach of.--The government's refusal to move for a downward departure from the United States Sentencing Guidelines at the sentencing of a president of a toy manufacturer who had plead guilty to tax evasion was justified. Although the president helped the government obtain incriminating evidence against a third party pursuant to a written cooperation agreement, the government did not act in bad faith because the president lied about his own criminal activities in violation of the agreement. The president's breach of the agreement released the government from its obligation to move for downward departure. The president's subsequent correction of his false statements did not cause his breach to be immaterial because the lies seriously undermined his credibility as a potential government witness because the case against the third party would be a single witness case based on the testimony of the president, a convicted tax evader.

Zachary W. Carter, United States Attorney, Stanley J. Okula, Jr., Assistant United States Attorney, Peter A. Norling, Brooklyn, N.Y. 11201, for appellant. Victor J. Rocco, Gordon, Altman, Butowsky, Weitzen, Shalov & Wein, 114 W. 47th St., New York, N.Y. 10036-1510, for defendant-appellee.

Before: MINER, MCLAUGHLIN, and LEVAL, Circuit Judges.

Defendant pled guilty to federal criminal charges pursuant to a plea agreement providing that the government would move for downward departure at sentencing if defendant cooperated fully, provided substantial assistance and complied fully with the terms of the agreement, including truthfulness. At sentencing, the government declined to move for downward departure on the ground that defendant had lied in a proffer session. The United States District Court for the Eastern District of New York (Jacob Mishler, J.) found that the government had breached the plea agreement and ordered specific performance, granting a downward departure. The government appealed. The Court of Appeals, Leval, Circuit Judge, held that the government's refusal to move for downward departure was justified.

Vacated and remanded.

LEVAL, Circuit Judge:

This is an appeal by the government from a sentence imposed by the United States District Court for the Eastern District of New York (Mishler, J.) upon the defendant Milton Brechner in which the court departed downward by reason of the defendant's cooperation.

After the defendant was charged with tax evasion, he and the government entered into a written cooperation agreement which provided that if the United States Attorney's Office determined that Brechner had cooperated fully, provided substantial assistance, and otherwise complied with the terms of the agreement, the government would move for a downward departure on his sentence under §5K1.1 of the U.S. Sentencing Guidelines. Brechner went to considerable lengths to help the government obtain incriminating evidence against another person, but lied to prosecutors about the extent of his own criminal activities. At sentencing, the Assistant U.S. Attorney declined to move for a downward departure. Brechner moved for specific performance of the agreement. The district court found that the government's refusal was in bad faith and that the plea agreement entitled the defendant to the benefit of such a motion. Accordingly, on imposing sentence, the court departed downward from the level indicated by the Guidelines.

On appeal, the government argues that Brechner's lies justified the prosecutor's refusal to move for a downward departure. We agree that because Brechner breached his cooperation agreement in a way that damaged the case in which he was cooperating the government's refusal to make its promised motion was justified. We therefore vacate and remand for resentencing.

Background

Brechner was president of a company that manufactured stuffed toy animals for sale to carnivals.In January 1992, shortly after the government began investigating him, Brechner offered to plead guilty to four counts of income tax evasion. In exchange for his plea, the government agreed not to prosecute Brechner's company, its affiliates, or his wife or son for their involvement in Brechner's tax fraud schemes. As was later determined, those schemes included at least three sources of unreported income. Most of the unreported income came from payments from one of Brechner's main customers, the Fred Silber Company. Two other sources were Brechner's Asian supplier, Manley Company, and the company that transported Manley's goods to Brechner, Zim Israel Navigation Company. Both of these companies issued inflated invoices to Brechner's company and then kicked back the difference to Brechner.

In May 1992, seeking a downward departure on his sentence, Brechner, through counsel, contacted the Assistant U.S. Attorney in charge of the investigation and offered to provide information about bribes he had paid to a corrupt bank officer. The Assistant expressed interest and arranged a formal proffer session on June 12, 1992, at which Brechner gave government representatives the details of his payments to the bank officer and the tax evasion scheme involving Fred Silber. Brechner's lawyer also advised the government that Brechner had received approximately $500,000 in unreported income from his overseas supplier, Manley. The payments from Zim Israel , however, were never mentioned. The district court later found that Brechner received almost $5 million dollars in income from Fred Silber, $50,000 - $100,000 from Manley and about $200,000 from Zim Israel .

On August 12, 1992, Brechner and the Assistant executed a written cooperation agreement, which provided that "Milton Brechner will provide truthful, complete, and accurate information, and will cooperate fully with the [U.S. Attorney's] Office." According to the agreement, this cooperation would include debriefings "concerning his involvement in and knowledge of all criminal activities," participating in undercover work, and testifying at proceedings upon request.

In exchange for Brechner's cooperation, the government agreed to move for a downward sentencing departure under §5K1.1 of the United States Sentencing Guidelines "[i]f the [U.S. Attorney's] Office determines that the defendant has cooperated fully, provided substantial assistance to law enforcement authorities, and otherwise complied with the terms of this agreement." The agreement further provided that, in connection with the sentencing departure, "it is understood that the [U.S. Attorney's] Office's assessment of the value, truthfulness, completeness, and accuracy of the cooperation shall be binding upon [Brechner]."

In the following paragraph, the agreement cautioned that

Milton Brechner must at all times give complete, truthful, and accurate information and testimony. ... Should it be judged by the [U.S. Attorney's] Office that the defendant has failed to cooperate fully, has intentionally given false, misleading, or incomplete information or testimony ... or has otherwise violated any provision of this agreement, the defendant will not be released from his plea of guilty but this Office will be released from its obligation under this agreement ... to file the motion [for downward departure].

After signing the agreement, Brechner participated actively in the government's bribery investigation of the bank officer, who by this time had retired from the bank and apparently was employed as a consultant by Brechner. For over a year, Brechner arranged meetings with him about once a month, under audiotape and videotape surveillance, at which Brechner attempted, with limited success, to elicit incriminating statements from the bank officer about the bribes he had taken. In September 1993, the Assistant informed Brechner's attorney that the bank officer would be arrested.

Two months later, in November 1993, the Assistant scheduled a debriefing session with Brechner. At the debriefing, Brechner was asked whether he had received kickbacks from Manley and Zim. He denied receiving any such payments. Brechner's lawyer then asked to interrupt the session so that he could speak with his client in private. After a break, Brechner acknowledged his receipt of payments from both Manley and Zim. The Assistant said he would give Brechner a "fresh start," and Brechner proceeded to provide details of the Manley and Zim kickbacks. This was Brechner's last meeting with government representatives.

In April 1994, the Assistant informed Brechner's counsel that he was not inclined to move for a downward departure because of Brechner's misrepresentations and the fact that it would be difficult to prosecute the bank officer with Brechner as the sole witness in the case.

At sentencing, the government declined to move for a downward departure; Brechner moved to compel the §5K1.1 motion, alleging prosecutorial bad faith. The district court held a hearing after which Judge Mishler found that Brechner "cooperated fully and completely" and that his "substantial assistance to the investigation was sufficient to warrant a §5K1.1 motion" despite his false statements. The district court concluded that the government's refusal to move for a downward departure had been in bad faith and granted the motion for specific performance of a downward departure for substantial assistance. The district court also departed downward for "family ties and responsibility" under §5H1.6, which is not contested on appeal. Based on the combined effect of these two downward departures, Judge Mishler sentenced Brechner to five years probation.

Discussion

Although federal prosecutors have considerable discretionary control over whether to move, under §5K1.1, for a downward departure by reason of cooperation, that discretion is by no means unlimited. As the Supreme Court made clear in Wade v. United States, 504 U.S. 181, 185-86, 112 S.Ct. 1840, 1843-44 (1992), even defendants who have no cooperation agreements are entitled to assurance that the government's motion is not withheld for some unconstitutional reason. See United States v. Leonard, 50 F.3d 1152, 1157 (2d Cir. 1995). Defendants who have made an agreement with the government are entitled to a " 'more searching' review," United States v. Kaye, 65 F.3d 240, 243 (2d Cir. 1995)(quoting Leonard, 50 F.3d at 1157). In such cases we look to see "if the government has lived up to its end of the bargain." United States v. Knights, 968 F.2d 1483, 1486 (2d Cir. 1992). We inquire also whether the government acted fairly and in good faith. United States v. Resto, 74 F.3d 22, 26 (2d Cir. 1996).

Brechner contends he did not receive the benefit of his bargain essentially because he was promised a §5K1.1 letter if he cooperated satisfactorily, which he did, but was denied the letter. We find no merit in Brechner's claim.

Under the agreement Brechner signed, the government's §5K1.1 motion was contingent on Brechner's having "cooperated fully, provided substantial assistance to law enforcement authorities, and otherwise complied with the terms of this agreement." Those terms included that Brechner "provide truthful, complete, and accurate information." Furthermore, the agreement expressly stated that the government would be released from its obligation to file the §5K1.1 motion if Brechner had "intentionally given false, misleading, or incomplete information." By falsely denying his receipt of kickbacks from Zim and Manley, Brechner breached his obligations under the agreement. According to the terms of the agreement, the government was expressly entitled to withhold the letter in those circumstances.

The district court found that, because Brechner "corrected his misstatements" when he subsequently admitted the kickbacks, the breach was not material. The court characterized Brechner's initial lies as "trivial defects" that did not prejudice the government, and thus held that they could not constitute a good faith basis for refusing to make the §5K1.1 motion. We disagree.

These lies, although swiftly corrected, seriously undermined Brechner's credibility as a potential government witness. As we have previously explained, a cooperating defendant's truthfulness about his own past conduct is highly relevant to the quality of his cooperation. Resto, 74 F.3d at 26. By lying to the prosecutor during the period of his cooperation about his own criminal involvement, Brechner made it impossible for the government to argue at any future trial that, despite his past sins, Brechner had acknowledged his guilt, turned over a new leaf and cooperated in a truthful and trustworthy manner. The disclosure of Brechner's lies to the bank officer's defense counsel under Giglio v. United States, 405 U.S. 150, 154, 92 S. Ct. 763, 766 (1972), would have brought on harsh cross-examination and a powerful argument that Brechner was no more trustworthy as a cooperating witness than he had been as a crook. Brechner's swift correction would not cure the problem, as it was obviously due not to honesty but to his attorney's warning about Brechner's self-interest. Because Brechner would be the sole witness, his lies created a serious problem for the government's contemplated prosecution of the bank officer and provided good faith grounds for refusing to move for a downward departure.

Brechner points out that the government knew when it made the cooperation agreement that a prosecution of the bank officer would be a single witness case based on the testimony of a convicted tax cheat. He contends that the government's refusal to make the §5K1.1 motion because of concerns about the credibility of Brechner's testimony was thus improperly based on dissatisfaction with a condition known to exist at the time of the bargain. See Knights, 968 F.2d at 1488 (holding that in refusing to make a §5K1.1 motion, government may not rely on circumstances of which it was aware at time of cooperation agreement). This argument, however, ignores the fact that at the time of the agreement the government did not know that Brechner would lie during cooperation, further detracting from his credibility. In addition, the agreement expressly sets forth that a defendant's intentionally false statements will release the government from its obligation to perform. Thus, to the extent that the government anticipated a lack of truthfulness from its potential witness, the agreement unambiguously places the burden of that untruthfulness on Brechner. ¹

We do not imply that in some circumstances the government's refusal to make a §5K1.1 motion after substantial cooperation in an investigation might not be found to be in bad faith. Here, however, the government's decision was reasonable. Cf. United States v. Pollack, 91 F.3d 331 (2d Cir. 1996) (Defendant who agreed to provide complete, truthful and accurate information was not under open-ended duty to volunteer all information, however attenuated its connection to the basis of his plea, but where government was reasonably and honestly dissatisfied because of belief defendant lied in response to direct questions about criminal acts, refusal to give §5K1.1 letter was justified.). The government was within its rights in refusing to move for a downward sentencing departure.

Conclusion

We vacate the sentence of the district court and remand for resentencing.

¹ Brechner's arguments of waiver and estoppel are also unavailing. The government did not waive its right to refuse to make the §5K1.1 motion by telling Brechner he could have a "fresh start" and continuing to question him for an hour. In the first place, the invitation to have a "fresh start" was ambiguous. It did not necessarily mean that Brechner would suffer no consequences from having lied; it might have meant nothing more than that the prosecutor would allow Brechner to continue rather than immediately terminating Brechner's opportunity to gain the benefits of the agreement. The further questioning was also necessary to determine whether the lies were material.

While there may well be circumstances in which the government's conduct towards a cooperating witness after the witness's breach of the agreement will prevent the government from later relying on that breach to claim that its obligations were nullified, merely stating that Brechner would have a "fresh start," followed by some brief further questioning does not have this effect. Brechner suffered no prejudice from the "fresh start"; nor was there want of good faith in the prosecutor's conduct toward Brechner. Indeed, no further cooperation was sought after the incident.