In the Courts

Seventh Circuit Interprets 'Position of Trust' Sentencing Guideline

In United States v. Snook, 2004 WL 868502 (7th Cir. April 23, 2004), the Seventh Circuit upheld the conviction and sentencing of the Environmental Manager from a petroleum refinery. The manager was tried for conspiring to violate the Clean Water Act by selectively reporting only favorable results of wastewater testing, and for making false statements to an EPA inspector. He was convicted by a jury. The defendant appealed his conviction and sentencing on a number of grounds.

Among the issues considered on appeal was whether the district court had erred in applying the “position of trust” guideline to his sentence. See U.S.S.G. ' 3B1.3. In a split decision, the panel affirmed the district court's application of the two-level enhancement. The majority and dissent agreed that application of the guideline is appropriate where the defendant was in a position of trust with respect to his victim. The majority held that “[T]he Clean Water Act is public-welfare legislation and the victims of violations are the public.” According to the majority, the public was dependent on the data reported by the refinery and its employees, and the defendant, as Environmental Manager of the refiner, had abused the responsibility of his position by failing to report water quality violations.

The dissent disagreed that an environmental manager at a private company holds a position of trust “vis-a-vis the public.” The dissent argued that for ' 3B1.3 to apply, the discretion abused must have been “entrusted to the defendant by the victim” and that the position of trust is “assessed from the perspective of the victim.” Further, the dissent noted that only the First Circuit has ever extended the public trust enhancement to a private individual for having broken a public welfare law during the course of employment in a heavily regulated industry, United States v. Gonzalez-Alvarez, 277 F.3d 73 (1st Cir. 2002), and noted that the Ninth Circuit has expressly rejected such an application of the enhancement. United States v. Technic Services, Inc., 314 F.3d 1031 (9th Cir. 2002). Because the public did not place the defendant in the position of Environmental Manager and he was not a government employee, the dissenting judge would have reversed the district court's application of ' 3B1.3.

Sixth Circuit Interprets 'False Claim' Statute

In United States v. McBride, 362 F.3d 360 (6th Cir. 2004), the Sixth Circuit reviewed the conviction and sentence of a defendant who had been found guilty of several counts of bankruptcy fraud, presenting a false claim under 18 U.S.C. ' 287, and obstruction of justice. The Sixth Circuit affirmed the defendant's conviction on all charges except the false claim charge, and vacated and remanded the district court's sentence of the defendant because the district court incorrectly thought it could not depart downward from the sentencing range provided for by the “intended loss” sentencing provision.

The charges brought against the defendant stemmed from a series of bad checks allegedly written by the defendant after his girlfriend was convicted for evading income taxes. After the conviction, but prior to his girlfriend's sentencing, the defendant wrote a check on a closed account to the IRS to cover the amount of her outstanding tax liability. The defendant also wrote bad checks on the same closed account to the County Treasurer, purportedly paying real estate taxes on homes owned by the Judge in his girlfriend's case, two attorneys appointed to represented her, and an IRS revenue agent. The defendant then used statements of payment issued to him by the Treasurer's office (before the checks bounced) as evidence that he was a creditor of the four individuals to file involuntary bankruptcy petitions against them, and also wrote bad checks to the bankruptcy court to cover the filing fees.

The Sixth Circuit reversed the defendant's conviction on the charge of making a false claim. 18 U.S.C. ' 287 imposes criminal liability on “whoever makes or presents to any … department or agency … any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent.” The jury convicted the defendant under section 287 because he sent a bad check to the IRS. The court noted that section 287 does not define the word “claim,” but used a dictionary definition to define it as a “[d]emand for money or property as of right.” The panel reasoned that because the defendant did not receive any undue payments and had not tried to elicit any payment or value from the government (including a tax refund) by writing the bad check, the defendant's use of the check to try to cover his girlfriend's tax liability was not a “claim.”

The Sixth Circuit also vacated the defendant's sentence. The district court increased the defendant's base offense level by ten levels under U.S.S.G. ' 2B1.1, because it had found the defendant's “intended loss” to include the face value of the bad checks he had written to the IRS and the bankruptcy court, plus the total market value of the residences of the four individuals who he had tried to force into involuntary bankruptcy, on the theory that he had intended to obtain possession of their residences. Because the intended loss guideline has been amended to expressly include intended losses that “would have been impossible or unlikely to occur,” see U.S.S.G. ' 2B1.1 cmt. 3(A)(2), the district court did not believe it could consider the low likelihood that the defendant could successfully manipulate the bankruptcy process to foreclose on the homes of the Judge, two attorneys, and the IRS agent.

The Sixth Circuit agreed that the market value of the homes was properly included in the “intended loss” calculation even though it was “wildly improbable” because the scheme was not so irrational as to defeat the very notion of intent. However, the court of appeals noted that under ' 2B1.1 cmt. 18(C), an intended loss calculation may significantly overstate the seriousness of the offense, making a downward departure appropriate. The panel adopted the so-called “economic reality” principle as one of the standards for when a downward departure might be warranted. Under that principle, a downward departure may be appropriate if there was “no reasonable possibility that the scheme could have caused the loss that the defendant intended,” of if there was a “gross disparity” between the actual loss and intended loss. Because the district court had believed that after the amendment to the definition of “intended loss” in U.S.S.G. ' 2B1.1 it was not permitted to take economic realities into account, the court of appeals vacated and remanded the defendant's sentence so that the district court could consider whether a downward departure was warranted.

Seventh Circuit Interprets 'Position of Trust' Sentencing Guideline

In United States v. Snook, 2004 WL 868502 (7th Cir. April 23, 2004), the Seventh Circuit upheld the conviction and sentencing of the Environmental Manager from a petroleum refinery. The manager was tried for conspiring to violate the Clean Water Act by selectively reporting only favorable results of wastewater testing, and for making false statements to an EPA inspector. He was convicted by a jury. The defendant appealed his conviction and sentencing on a number of grounds.

Among the issues considered on appeal was whether the district court had erred in applying the “position of trust” guideline to his sentence. See U.S.S.G. ' 3B1.3. In a split decision, the panel affirmed the district court's application of the two-level enhancement. The majority and dissent agreed that application of the guideline is appropriate where the defendant was in a position of trust with respect to his victim. The majority held that “[T]he Clean Water Act is public-welfare legislation and the victims of violations are the public.” According to the majority, the public was dependent on the data reported by the refinery and its employees, and the defendant, as Environmental Manager of the refiner, had abused the responsibility of his position by failing to report water quality violations.

The dissent disagreed that an environmental manager at a private company holds a position of trust “vis-a-vis the public.” The dissent argued that for ' 3B1.3 to apply, the discretion abused must have been “entrusted to the defendant by the victim” and that the position of trust is “assessed from the perspective of the victim.” Further, the dissent noted that only the First Circuit has ever extended the public trust enhancement to a private individual for having broken a public welfare law during the course of employment in a heavily regulated industry, United States v. Gonzalez-Alvarez , 277 F.3d 73 (1st Cir. 2002), and noted that the Ninth Circuit has expressly rejected such an application of the enhancement. United States v. Technic Services, Inc. , 314 F.3d 1031 (9th Cir. 2002). Because the public did not place the defendant in the position of Environmental Manager and he was not a government employee, the dissenting judge would have reversed the district court's application of ' 3B1.3.

Sixth Circuit Interprets 'False Claim' Statute

In United States v. McBride , 362 F.3d 360 (6th Cir. 2004), the Sixth Circuit reviewed the conviction and sentence of a defendant who had been found guilty of several counts of bankruptcy fraud, presenting a false claim under 18 U.S.C. ' 287, and obstruction of justice. The Sixth Circuit affirmed the defendant's conviction on all charges except the false claim charge, and vacated and remanded the district court's sentence of the defendant because the district court incorrectly thought it could not depart downward from the sentencing range provided for by the “intended loss” sentencing provision.

The charges brought against the defendant stemmed from a series of bad checks allegedly written by the defendant after his girlfriend was convicted for evading income taxes. After the conviction, but prior to his girlfriend's sentencing, the defendant wrote a check on a closed account to the IRS to cover the amount of her outstanding tax liability. The defendant also wrote bad checks on the same closed account to the County Treasurer, purportedly paying real estate taxes on homes owned by the Judge in his girlfriend's case, two attorneys appointed to represented her, and an IRS revenue agent. The defendant then used statements of payment issued to him by the Treasurer's office (before the checks bounced) as evidence that he was a creditor of the four individuals to file involuntary bankruptcy petitions against them, and also wrote bad checks to the bankruptcy court to cover the filing fees.

The Sixth Circuit reversed the defendant's conviction on the charge of making a false claim. 18 U.S.C. ' 287 imposes criminal liability on “whoever makes or presents to any … department or agency … any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent.” The jury convicted the defendant under section 287 because he sent a bad check to the IRS. The court noted that section 287 does not define the word “claim,” but used a dictionary definition to define it as a “[d]emand for money or property as of right.” The panel reasoned that because the defendant did not receive any undue payments and had not tried to elicit any payment or value from the government (including a tax refund) by writing the bad check, the defendant's use of the check to try to cover his girlfriend's tax liability was not a “claim.”

The Sixth Circuit also vacated the defendant's sentence. The district court increased the defendant's base offense level by ten levels under U.S.S.G. ' 2B1.1, because it had found the defendant's “intended loss” to include the face value of the bad checks he had written to the IRS and the bankruptcy court, plus the total market value of the residences of the four individuals who he had tried to force into involuntary bankruptcy, on the theory that he had intended to obtain possession of their residences. Because the intended loss guideline has been amended to expressly include intended losses that “would have been impossible or unlikely to occur,” see U.S.S.G. ' 2B1.1 cmt. 3(A)(2), the district court did not believe it could consider the low likelihood that the defendant could successfully manipulate the bankruptcy process to foreclose on the homes of the Judge, two attorneys, and the IRS agent.

The Sixth Circuit agreed that the market value of the homes was properly included in the “intended loss” calculation even though it was “wildly improbable” because the scheme was not so irrational as to defeat the very notion of intent. However, the court of appeals noted that under ' 2B1.1 cmt. 18(C), an intended loss calculation may significantly overstate the seriousness of the offense, making a downward departure appropriate. The panel adopted the so-called “economic reality” principle as one of the standards for when a downward departure might be warranted. Under that principle, a downward departure may be appropriate if there was “no reasonable possibility that the scheme could have caused the loss that the defendant intended,” of if there was a “gross disparity” between the actual loss and intended loss. Because the district court had believed that after the amendment to the definition of “intended loss” in U.S.S.G. ' 2B1.1 it was not permitted to take economic realities into account, the court of appeals vacated and remanded the defendant's sentence so that the district court could consider whether a downward departure was warranted.