Case o' The Week: A Grand is "Substantial" (in the Ninth) - George and "Substantial financial hardship" guideline enhancement

The Hon. Judge Eric D. Miller

“‘I stole only from those who were already poor’ is not often advanced as an argument in mitigation, and we find it unpersuasive.”

   (Guess how the remaining sentencing issues panned out).

United States v. George, 2020 WL 547383, *4 (9th Cir. Feb. 4, 2020), decision available here.

Players: Decision by Judge Miller, joined by Judges Owens and Ryan Nelson. Hard-fought appeal by former AFD Ben Coleman.  

Facts: Christopher George was found guilty of fraud offenses after trial. His companies “defrauded nearly 5,000 homeowners out of millions of dollars.” Id. at *1. George’s original twenty-year sentence was reversed by Judges Reinhardt, W. Fletcher and Owens. 713 Fed.Appx. 704 (9th Cir. 2018). 

  On remand the district court and government agreed that newer (2015) guidelines should be used. Id. The court then reduced George’s sentence “by just five months, to 235 months.” Id. George appealed again: the case went to the new panel of Judges Miller, Owens and Ryan Nelson. Id.

Issue(s): “[George] focuses on the district court’s application of section 2B1.1(b) (2)(C) of the Guidelines, which provides for a six-level enhancement if the offense ‘resulted in substantial financial hardship to 25 or more victims.” U.S.S.G. § 2B1.1(b)(2)(C)(2016).’” Id. “George argues that the district court erred in finding that 25 or more victims suffered substantial financial hardship. Addressing that argument requires us to examine the meaning of ‘substantial financial hardship,’ a term we have not previously interpreted.” Id. at *2.

Held: “We conclude that section 2B1.1(b)(2) requires the sentencing court to determine whether the victims suffered a loss that was significant in light of their individual financial circumstances.” Id. at *2.

  “The notes reinforce the conclusion that our inquiry must consider how the loss affects the victim. For some victims, a loss of, say, $10,000 might not have any of the listed effects. For others, a much smaller loss might have such effects. The provision thus requires a focus on the victims’ individual circumstances, a focus that is consistent with the Sentencing Commission’s goal in amending section 2B1.1 in 2015 to ‘place greater emphasis on the extent of harm that particular victims suffer.’” Id. (internal quotations and citation omitted).

Of Note: Relying on the Ninth’s 1999 Merino decision (where a $32,000 cleanup was not substantial), George argued on appeal that the $1,000 to $3,000 fees lost by most victims was not “substantial” here. Judge Miller is unpersuaded. The district court found that these victims were on the brink of losing their homes because of mortgage non-payments. For these specific victims, a couple of thousand in fees paid to George’s (fraudulent) loan-modification company was “substantial” -- the district court did not clearly err. Id. at *3.

   Note that this is a whopping +6 offense level bump – a worrisome and expansive reading of “substantial” for fraud cases.    

How to Use: One has to squint hard to see the silver lining in this dark guideline cloud, but there’s a brief tort-ish analysis of interest towards the end of the opinion. The government argued that this enhancement did not require foreseeability – that is, the government argued that there was no requirement that the defendant could foresee that his actions would cause the victim’s “substantial” loss. 

  Judge Miller rejects the government's “but-for causation” argument, and presumes that the Commission meant to include the (higher) proximate cause requirement. Id. at *4. This is a useful interpretation for when the government stretches that causal link to the breaking point.

  (Unfortunately for Mr. George, the Ninth finds that both "but-for" causation and proximate cause were met here: his 19 ½-year sentence stands).

                                               

For Further Reading: Last week Mr. Roger Stone was sentenced to forty months in custody. His sentencing sparked two stories. First, DOJ’s dueling mitigation-memo revealed how much political meddling has undermined the independence of federal prosecutors. 

  The Stone sentencing also, however, illustrated just how unfairly punitive the sentencing guidelines are for all federal defendants. DOJ was right, to recommend a lower sentence than the whopping 7-9 years urged by the line AUSAs. Notably, Judge Amy Berman Jackson agreed with DOJ that the guidelines were too high -- even for this colorful defendant -- in a thoughtful and underreported sentencing decision. The Stone sentencing was a victory for judicial independence in sentencing, and yet another black eye for the increasingly irrelevant sentencing guidelines. 

   Who better to give us insights on both "Stone stories" than a former criminal-division AUSA, who is now a proud, hard-fighting member of a CJA panel?

N.D. Cal. CJA Panel Member Jeffrey Bornstein

 For a very thoughtful op-ed on both stories that weave through the Stone brouhaha, see “Trump’s Meddling is Wrong, but so are Overlong Sentences,” by stalwart NorCal CJA member Jeffrey Bornstein, available here. 

Image of the Honorable Judge Eric D. Miller from https://www.youtube.com/watch?v=nHQYcZ9Kr98

Image of Mr. Jeffrey Borstein from https://rbgg.com/attorneys/partners/jeffrey-l-bornstein/

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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Case o' The Week: Convictions of King and Queen Upheld by Ninth - Anieze-Smith and Restitution

  Queen avoids custody.

   (But not restitution).

United States v. Anieze-Smith, 2019 WL 1944737 (9th Cir. May 2, 2019), decision available here.

Players: Decision by Judge Gould, joined by Judge Nguyen and District Judge Benitez. 

  Hard-fought appeal by, among others, CD Cal AFPD Kathryn Ann Young.   

Facts: Queen Anieze-Smith, and her co-defendant, Abdul King Garba, owned a medical supply company. Id. at *1. She was indicted in April 2013 – the statute of limitations went back five years, to April 2008. Id. The indictment alleged a Medicare fraud scheme involving powered wheelchairs that took place from 2006 to 2009, and alleged five executions that took place in 2008 (within the S.O.L.). Id. at *4.

   She was convicted after a jury trial, and the district court imposed restitution for the entire amount billed to Medicare – which necessarily included fraudulent acts outside of the statute of limitations. Id.

Issue(s): “[W]e turn to Anieze-Smith’s argument that the district court’s restitution order should be limited to losses traceable to executions of the fraudulent scheme that occurred within the statute of limitations.” Id.

  “Anieze-Smith’s argument presents an issue of first impression in this circuit . [W]e have held that the MVRA authorizes a district court to impose restitution based on related but uncharged conduct that is part of a fraudulent scheme . . . But we have not yet had occasion to address whether that rule applies when the conduct occurred outside the statute of limitations.” Id. at *5.

Held: “[T]he text of the MVRA does not limit restitution to the reach of the indictment, but instead authorizes district courts to order restitution for all losses directly resulting from conduct throughout the course of the fraudulent scheme. We reject Anieze-Smith’s argument and hold that the MVRA authorizes district courts to impose restitution to all victims for the losses they suffered from the defendant’s conduct throughout the course of the fraudulent scheme, even where such losses were in part caused by conduct outside the statute of limitations.” Id. at *5.

Of Note: Medicare fraud, powered wheelchairs? Sound familiar? In 2016, the Ninth decided an important “abuse of trust” enhancement issue in the context of another powered wheelchair case, United States v. Adebimpe, 819 F.3d 1212 (9th Cir. 2016); see also blog here. 

  These appeals are the tail end of a prosecution effort focused on Medicare wheelchair fraud. Tough cases to defend – particularly when the recipients walk up to the stand to testify in court, with no wheelchair, walker, or cane. See article here. 

How to Use: Anieze-Smith was ordered to pay over $800k in restitution, for offense conduct that extended over years. Id. at *3. She was a CEO with an MBA, an enrolled agent in the IRS, and she managed the company’s financial records. She was convicted after a ten-day trial. Id. at *2.

   Her sentence?

   Probation. Id. at *3.

   Remember Anieze-Smith when arguing sentencing disparity variances in these Medicare fraud cases.

                                               

For Further Reading: Last week marked the milestone of one hundred jurists nominated by President Trump and confirmed by the Senate. See article here.  By this time in his term, President Obama had 81 judicial nominees confirmed. Id. 

  Should the Ninth be expanded, with five more seats to be filled by the President during this first term? For an interesting article discussing that prospect, and reporting the Circuit's last major growth spurt, see, Ninth Circuit Recommended for Expansion. Could it mean shift to the right?, available here.

Image of Mary Queen of Scots from https://www.pinterest.com/pin/403564816588220116/

Image of Ninth Circuit Seal from https://en.wikipedia.org/wiki/United_States_Court_of_Appeals_for_the_Ninth_Circuit  

Steven Kalar, FPD Northern District of California. Website www.calfpd.org

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Case o' The Week: Why Ask Why; Dodge Delicti? - Niebla and Corpus Delicti Rule in Drug Conspiracies

“Why hike Pozo Redondo Mountain?” 

(Maybe “Why! Hike Pozo Redondo Mountain!”)

United States v. Niebla-Torres, 2017 U.S. App. LEXIS 1699 (9th Cir. Jan. 31, 2017), decision available here.

Players: Decision by Judge Christen, joined by Judges W. Fletcher and Friedland.

Facts: Niebla was arrested on Pozo Redondo mountain (see map below, showing mountain and town of "Why"). This mountain is near the Arizona-Mexico border: a purported smuggling corridor. Id. at *2. 

  According to the government’s expert witness at trial, drug trafficking organizations control that route: individuals can only cross if they pay, backpack-in drugs, or act as a scout. Id. at *3. Scouts watch for law enforcement from mountaintops, as backpacking smugglers cross the easier flatlands. Id. Agents had seen men acting furtively on this mountain for two days. Id. When a helicopter then detected possible scouts, agents hiked up and found Niebla and another man. Id. at *4.

 In a satchel worn by Niebla they found cell phones and radio batteries. Id. In a nearby cave they found hand-held radios and binoculars. Id. Both men were wearing camo. Id.

  In a Mirandized interview Niebla admitted he was working as a scout, for presumed marijuana smuggling (no marijuana was ever seen or seized). Id. At the trial for conspiracy to distribute a controlled substance, the government introduced Niebla’s confession, his prior scouting conviction in the same area, and testimony from the aforementioned expert. Id.

  Niebla’s Rule 29 was denied, and he was convicted. Id. at *8.

Issue(s): “[Niebla] argues that the conviction must be vacated under the corpus delicti doctrine because the government did not present sufficient evidence to corroborate his confession.” Id. at *8.

Held: “[E]ven if we define the core of the offense very specifically, as an agreement to possess and distribute marijuana, the government satisfied its corpus delicti burden.” Id. at *12.

  “We conclude that the government satisfied the first prong of the Lopez-Alverez corpus delicti test by introducing sufficient corroborating evidence that the core conduct of Niebla’s crime actually occurred.” Id. at *17.

Of Note: Those infernal stash house cases are doubly damnable: they unfairly hammer our clients in the cases themselves, and they create bad law that then infects other areas of jurisprudence. See generally blog entries here. 

  Here, the question for the corpus delicti analysis was whether there was sufficient evidence to corroborate a conviction for conspiracy to smuggle marijuana. However, there was no evidence (outside of the confession) that marijuana was ever actually smuggled. Id. at *14. 

  Judge Christen notes that the Ninth has affirmed stash house drug-conspiracy convictions, when the “drugs” involved were just the products of the agents’ active imaginations. Id. at *14-*15. So too in Niebla: the fact that this was a conspiracy to smuggle (potentially non-existent) marijuana doesn’t impact the corpus delicti analysis.

How to Use: The first prong of the corpus delicti analysis asks if there was sufficient corroborating evidence to establish the criminal conduct at the core of the offense. Id. at *10. So, what is the “core of the offense,” for “conspiracy to distribute a controlled substance?” That simple question is remarkably complicated: the parties argued for three different definitions during the litigation, sometimes flipping back and forth. Id. at *12.

  The Ninth sidesteps the issue, assumes the most defense-friendly version, and decides against Niebla on that theory. Id. This “core of the offense” issue remains unsettled law – start there if dealing with a corpus delicti case.  

                                               

For Further Reading: Last July, the Ninth decided Lindsey: a frustrating mortgage fraud case that rejected lender negligence as a defense and created some unwelcome new law on fraud materiality. See blog here. 

  The Ninth just granted Lindsey’s petition for rehearing. See order here. 

  Why the change of heart? Maybe Universal Health Serv. Inc. v. United States ex rel. Escobar, 579 U.S. __ (2016), decided just before Lindsey. Knock wood for a better materiality outcome in Lindsey, Take Two.

Image of the Pozo Redondo Mountains from https://www.google.com/maps/place/Pozo+Redondo+Mountains/@32.1840835,-112.8765615,82491m/data=!3m1!1e3!4m5!3m4!1s0x812aabee6bfa0a1f:0x68b5f39de1d6d81c!8m2!3d32.3114492!4d-112.6984805

Image of “Why, Arizona” by Ken Lund - Flickr: Why, Arizona (2), CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=16396941

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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Case o' The Week: Ninth Bangs on Rusty Shields -- Shields and "Duty to Disclose" Instructions in Wire Fraud Cases

 Rusty Shields offers some protection for "omission" theory, wire fraud cases.  

United States v. Melvin Russell "Rusty" Shields, 2016 Westlaw 7384022 (9th Cir. Dec. 21, 2016), decision available here.

Players:  Decision by Judge M. Smith, joined by Judge Tashima and District Judge Korman. Hard-fought appeal by ND Cal CJA colleagues Erick Guzman and Ethan Balogh. 

Facts: Shields and co-D Sims were charged with wire fraud relating to real estate. Id. at *1. Funds were solicited for Arizona and Florida projects, with promises of safe and secure investments. Investments, however, were actually diverted to other projects. Id. 

  The jury was not instructed that it had to find that the defendants had a duty to disclose omitted information. (And the defense didn’t object at that failure to instruct). Id. at *2. Both men were convicted after trial. Id. at *1.  

Issue(s): “Defendants argue that their wire fraud convictions should be reversed because the court erred in not instructing the jury that in order to find the defendants guilty based on a material non-disclosure, it must first find that defendants had a duty to disclose the omitted information.” Id. at *2 (footnote omitted).

Held: “Defendants are correct that a nondisclosure can support a wire fraud charge only when there exists an independent duty that has been breached by the person so charged.” Id. at *2 (quotations and citations omitted).

Hon. Judge Milan Smith

  “In light of [our] precedents, we conclude that it was error not to instruct the jury that it must find a relationship creating a duty to disclose before it could conclude that a material non-disclosure supports a wire fraud charge.” Id. at *3.

  “We conclude that the district court erred by not instructing the jury that it must find a relationship creating a duty to disclose in order to convict defendants of wire fraud based on any material omissions. We hold that, in order for an omission to support a wire fraud charge, the jury must be instructed that it must first find that the defendant and the defrauded party had a trusting relationship in which the defendant acted for the benefit of another and induced the trusting party to relax the care and vigilance which it would ordinarily exercise.” Id. at *4 (internal quotations and citation omitted).

Of Note: Plain error snatches defeat from the jaws of victory for Shields. See id. at *3. In the plain error discussion, Judge Smith explains how the jury would have likely found that the defendants induced the needed “trusting relationship.” Id. at *3. 

  The plain error analysis (relying on the government's pitch) seems a tad circular – the defendants failed to disclose their previous bankruptcies, in order to induce trust from the investors, the better to defraud investors by – among other things – failing to disclose the defendants' previous bankruptcies?

  Shields is the first Ninth Circuit decision that holds jury must find that a duty to disclose exists in wire fraud "omissions" cases – but it is not the opinion to read to understand what it takes to prove that duty.

How to Use: An “omissions” theory of wire fraud posits that a defendant failed to disclose material facts to the victims of the fraud. In Shields, the Ninth adopts the “duty” requirement set forth in Milovanovic, and applies it to wire fraud when the government proceeds on an omissions theory. “Specifically, the relationship creating a duty to disclose may be a formal fiduciary relationship, or an informal, trusting relationship in which one party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it would ordinarily exercise.” . . . This is a factual determination to be made by a properly-instructed jury.” Id. at *3 (internal quotations and citations omitted). 

  Beware that the Ninth's Model Criminal Instruction 8.124 (Wire Fraud) doesn’t include a requirement that the jury finds that this duty existed. See Model Instructions here. Make sure to argue to modify the model instructions, when defending wire fraud charges on an “omissions” theory.

                                               

For Further Reading: Why did Shields have a duty to disclose to his investors? What happened to arms-length bargaining? Does Shields create new disclosure worries for other types of investments? 
  For an interesting discussion on how court-created disclosure duties can run afoul of traditional bargaining postures, see Kathryn Zeiler, Common-Law Disclosure Duties and the Sin of Omission: Testing the Meta Theories (2005), available here. 

Image of rusty shield from http://www.dundjinni.com/forums/uploads/Kepli/A15_RustyShield_FL_kpl01.png

Image of the Honorable Judge Milan Smith from https://law.ucdavis.edu/blogs/deans/posts/neumiller-competition-2012.html

Steven Kalar, Federal Public Defender ND Cal. Website at www.ndcalfpd.org

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