Criminal Controversies: Sentencing Guidelines Update
a. Acceptance of Responsibility - 3E1.1
i. District Court's Untimely Decision of a Motion to Suppress Is a Defendant's Bad Luck for the Third Point Reduction. United States v. Gilbert, 138 F.3d 1371 (11th Cir. 1998). 3E1.1(b) allows a 3d point acceptance of responsibility reduction for persons in the higher offense levels when a defendant either timely provides information to the government concerning his offense or timely notifies the government of his intention to plead guilty. With his trial set for March 4, the defendant filed a motion to suppress on February 13. The District Court denied the motion to suppress on March 1, the same day on which the prosecutor filed an exhibit list and a notice of prior convictions. The defendant pleaded guilty on March 4. The District Court denied the 3d point acceptance reduction over the defendant's objection that he had acted as timely as he could after his motion was decided.
The Court of Appeal affirmed the denial. Finding no record evidence of providing information, the Court held the defendant disqualified on the first prong. As to the timely notice of an intention to plead guilty, the Court held that the District Courts should give more weight to the state of the government's trial preparation than to the defendant's position. Here, the prosecutor had to prepare for trial (filing an exhibit list and a notice of prior convictions), thus rendering not clearly erroneous the District Court's finding that the plea was untimely.
ii. Alford Plea Relevant Factor in Determining Whether the Defendant Qualifies for Acceptance of Responsibility Reduction. United States v. Morris, 139 F.3d 582 (8th Cir., February 25, 1998). The defendant entered an Alford plea (a guilty or nolo plea coupled with a protestation of innocence) to being a felon in possession of a firearm. The District Court denied him the two point acceptance of responsibility reduction, making the factual finding that he had not accepted responsibility for his offense.
The Court of Appeals rejected the defendant's argument that the District Court's consideration of the Alford plea impermissibly infringed his Fifth Amendment right against self incrimination. Joining the First, Seventh and Eleventh Circuits, the Court ruled that considering the Alford plea as a factor, not a disqualifier, is appropriate.
b. Use of Special Skills 3B1.3
i. Indirect Use of Special Skill Suffices. United States v. Minneman, 143 F.3d 274 (7th Cir., April 17, 1998). An attorney and his client, the operator of a pressurized equipment repair business were convicted of a Klein type conspiracy under 18 U.S.C. 371. Among other things, the attorney regularly deposited the client's business receipts in the attorney's trust accounts, distributed cash withdrawals from the accounts back to the client, filed false returns for one of the client's business operations, purchased equipment for the client, and appropriated the interest and portions of the principal from the accounts.
The Court of Appeals upheld a special skills adjustment for the attorney's use of his legal training in setting up the trust account, noting that a special skill need not relate directly to the offense of conviction. Also, the Court rejected a contention that the special skill enhancement and sophisticated means enhancement involved impermissible double counting because, despite some overlap, there were sufficiently independent factual bases for each adjustment: use of legal training for the special skill adjustment, and use of multiple accounts and corporate names for the sophisticated means addition. c. Obstruction 3C1.1
i. Tendering False Deposit Analysis to Agent During Investigation Qualifies As Attempt to Obstruct the Investigation; Remand Required to Assess Willfulness. United States v. Parrott, _____F.3d _____, Case No. 97-6035 (6th Cir., July 6, 1998). The defendant tendered a deposit analysis to the Special Agent during the investigation designating misappropriated funds as loans. The Court of Appeals determined the act could constitute obstruction if willful, but as the defendant disputed willfulness and the District Court made no specific findings on intent, a remand was required.
a. Outside The Heartland. Koon v. United States, 518 U.S. 81 (1996).
(1) A Denied Departure Is Not Subject to Review Absent An Incorrect Application Of The Guidelines Or A Sentence Imposed In Violation Of The Law. United States v. Madoch, F.3d ___, Case No. 96-3754 (7th Cir., July 8, 1998). The District Court considered, but rejected, the defendant's motion for a downward departure for "extraordinary family circumstances" under 5H1.6. The Court of Appeals held that a District Court's decision not to depart is not subject to appellate review, provided the Court was aware of its authority to depart and of the proper standard for departure.
3. SPECIFIC OFFENSE CHARACTERISTICS 2T1.1(b)
a. Criminal Activity Income
i. No Need To Net Expenses For the Criminally Derived Income Exceeding $10,000 Enhancement. United States v. Ladum, 141 F.3d 1328 (9th Cir., April 17, 1998). The defendant operated a chain of second hand and firearms dealing stores in Portland through concealed ownership arrangements under which nominee operators split net profits with the defendant. On the strength of a nominee's failure to identify the defendant as a partner on a federal firearms license application, the District Court imposed the 2T1.1(b)(1) increase for failure to report or correctly identify the source of income exceeding $10,000 in any year from criminal activity. Arguing that the license application omission was not a criminal activity and the insufficiency of proof that net profits exceeded $10,000 annually, the principal and one of the nominees objected to the enhancement.
The Court of Appeals held the license application omission enabled issuance of a firearms license permitting the sales of firearms, thus making the gun sales income the fruit of a criminal activity. The Court upheld the District Court's finding of sufficient evidence that both defendants each profited more than $10,000 annually.
Of larger significance, the Court pointed to Application Note 1 to 2T1.1 ("In such instances, such as when indirect methods of proof are used, the amount of tax loss may be uncertain; the guidelines contemplate that the Court will simply make a reasonable estimate based on the available facts in holding that nothing in the Guidelines requires the netting of expenses allocable to the criminal activity income.") to rule that nothing in the Guidelines requires that overhead expenses be considered when calculating the amount of income from the criminal activity.
b. Sophisticated Means.
i. The Content-less Standard Strikes Again. United States v. Minneman, 143 F.3d 274 (7th Cir., April 17, 1998). Using 2T1.1(b)(2)'s standard for the sophisticated means enhancement for "conduct that is more complex or demonstrates greater intricacy or planning than a routine tax evasion case," the Court of Appeals held that the use of multiple corporate names and deposit of client business proceeds in an attorney's trust account both constitute complex efforts to hide income.
4. SELECTION OF GUIDELINE
a. The One Book Rule 1B1.11
i. No Smorgasbord Of Defendant Favorable Changes. United States v. Minneman, 143 F.3d 274 (7th Cir., April 17, 1998). The District Court allowed the defendants to choose to be sentenced under the 1991 version of the Guidelines in effect at the time the crime was committed (which allowed a lower base offense level) or the 1996 version in effect on the date of sentencing (which allowed consideration of unclaimed deductions, a practice specifically proscribed by the 1991 version). The Court of Appeals rejected the defendants' argument they should have been allowed to blend the more beneficial aspects of each version, citing both the general One Book Rule of 1B1.11(b)(2), and the inapplicability of the exception to the One Book Rule (when applying an earlier version of the Guidelines the Court shall consider amendments which are clarifying, but not substantive changes). The Court held the 1993 Amendment to the tax offense guideline, codified at 2T1.1(c)(1)(A), worked a substantive change over the previous guideline by allowing a court to inquire into the actual tax burden.
5. TAX LOSS 2T1.1
a. 2d Circuit Adopts the Harvey Methodology; 1991 Guidelines Don't Permit Credit for Unclaimed Deductions. United States v. Martinez-Rios, ______ F.3d ______ (2d Cir., May 4, 1998). The owner of a closely held pen company in New York opened a Puerto Rican bank account in the name of a fictitious person and caused customers to make checks for purchases payable to the fictitious owner of the account. The pen company owner allowed two officers of another pen company to do the same. The men also generated fictitious business expenses by, among others, drawing checks deposited in the Puerto Rican bank account. The defendants pleaded guilty to a Klein type conspiracy under 18 U.S.C. 371.
In calculating the tax loss attributable to the unreported income, the District Court applied the 34% corporate tax rate to the unreported corporate income and then the 28% individual rate to the same income, for an effective tax rate of 62%, in accordance with methodology approved in the Sixth Circuit, United States v. Cseplo, 42 F.3d 360 (6th Cir. 1994).
The Second Circuit adopted the Seventh Circuit's three step methodology articulated in United States v. Harvey, 996 F.2d 919 (7th Cir. 1993) for computing tax loss when the same conduct causes both corporate and individual tax understatements, under which 1) the unreported corporate profit is multiplied by the corporate tax rate of 34%; 2) the imputed dividend paid to the shareholder is reduced by the amount of imputed taxes attributable to the unreported corporate income; and 3) the reduced dividend is multiplied by the individual 28% rate.
On the other side of the ledger, the Court held the District Court erred in allowing the defendants credit for legitimate but unclaimed business expense deductions, which the 1991 Guidelines expressly disallow in the offense level determination.
b. Tax Losses Occurring After Date Defendants Joined Conspiracy Reasonably Foreseeable. United States v. Clark, 139 F.3d 485 (5th Cir., April 17, 1998). The District Court computed the tax losses attributable to a tax protester conspiracy based on amounts of tax loss estimated to have been sustained by the government from all participants in the defendant's "untaxing process" scheme after the date the defendants joined the conspiracy. While objecting, the defendants presented no evidence to contradict the tax loss calculation, thus making inevitable the Court of Appeals' conclusion that the District Court's determination of tax loss was not clearly erroneous.
c. Unclaimed Expenses Not Required To Be Considered In Computing Tax Loss For 7206(1) Offenses. United States v. Parrott, ______ F.3d _____, Case No. 97-6035, (6th Cir., July 6, 1998). An accountant absconded with funds entrusted to him by clients for investment, and failed to report other income.
Despite stipulating in the plea agreement that the tax loss exceeded $70,000, the defendant presented amended returns on the day of sentencing reflecting previously unclaimed deductions. The deductions reduced the tax loss to under $70,000. The District Court refused to consider the amended returns based on the plea agreement. The Court of Appeals ruled that basing the tax loss computation on the magnitude of the false statements without consideration of deductions to be correct for the 7206(1) offense at issue here.
6. SENTENCING PROCEDURE
a. Sentencing Memoranda Are In Aid of Presentence Report and Subject to a Confidentiality Requirement Precluding Filing With the Clerk's Office. United States v. J. David Smith, 992 F.Supp. 743 (D.N.J. 1998). After the defendants were convicted in a kickback scheme involving the New Jersey State Lottery, the AUSA filed with the Clerk's Office, mailed to several state lottery regulators, distributed to press representatives and posted on the U.S. Attorney's Web site, a sentencing memorandum noting that one of the defendants had received kickbacks from an uncharged individual similar to those involved in the offenses for which he was convicted, facts which were grand jury information covered by Rule 6(e). The ensuing uproar resulted in applications by the defendants and an uncharged person for contempt sanctions against the AUSA for violations of Rules 6(e) and 32 of the Federal Rules of Criminal Procedure. The District Court determined that sentencing memoranda are in aid of the Presentence Investigation Report and governed by Rule 32's confidentiality requirement; that the memoranda ought not be filed with the Clerk's Office or be otherwise made available to the public except upon a determination of appropriateness made by the court; and that the U.S. Attorney's Office would be sanctioned by an injunction against unilateral dissemination of grand jury information and being required to write a letter of apology to be posted on the Internet. b. Specific Written Findings, Not Mere Adoption Of PSR's Findings, Necessary In Sixth Circuit When Defendant Alleges Factual Inaccuracies. United States v. Parrott, ______ F.3d _____, Case No. 97-6035 (6th Cir., July 6, 1998). The Sixth Circuit rigidly follows Rule 32(c)(1) of the Federal Rules of Criminal Procedure: When a defendant alleges factual inaccuracies in the PSR, the Court must make written findings of fact; adopting the factual findings of the PSR will not suffice.
a. Restitution Authorized For Klein Type Conspiracy Offenses; No Detailed Inquiry Into Tax Liability Required. United States v. Minneman, 143 F.3d 274 (7th Cir., April 17, 1998). The Court of Appeals ruled that restitution was explicitly authorized under the 1996 Amendment to the Victim and Witness Protection Act, 18 U.S.C. 3663, for Title 18 criminal offenses. The Court also held that despite the existence of elaborate procedures in Title 26 for the determination of civil tax liabilities, nothing in the VWPA contemplates the use by the District Court of special procedures for making tax loss restitution awards. So long as the lower court relied on accurate information, determined the amount of loss with appropriate certainty and allowed the defendant an opportunity to be heard on the amount of loss, the lower court's determination will typically be upheld.