United States v. GordonUnited States v. Gordon
Alan M. Nelson, Law Office of Alan M. Nelson, Lake Success, NY, for defendant-appellant Oral Frank Osman, aka Frank Osman, aka Frank Martin.
John Laurence Kase, Kase & Druker, Garden City, NY, for defendant-appellant Laura Weitz, aka Laura Winters.
Martin Geduldig, Law Office of Martin Geduldig, Esq., Hicksville, NY, for defendant-appellant Annette Haley.
Thomas F.X. Dunn, Law Office of Thomas F.X. Dunn, Esq., New York, NY, for defendant-appellant Steve Rubin, aka Steven Ruben, aka Steve Walden, aka Steve Ruben.
Scott E. Leemon, Law Office of Scott E. Leemon, Esq., New York, NY, for defendant-appellant Martin Reffsin.
Paula Schwartz Frome, Law Office of Paula Schwartz Frome, Esq., Garden City, NY, for defendant-appellant Scott Michaelson.
Norman Trabulus, Storch, Amini, & Munves, New York, NY, for defendant-appellant Bruce W. Gordon.
Ronald White, United States Attorney‘s Office for the Eastern District of New York, Brooklyn, NY, for appellee.
Before OAKES, NEWMAN, and F.I. PARKER, Circuit Judges.
F.I. PARKER, Circuit Judge.
1 This is an appeal from the February 16, 2000 entry of judgment in the United States District Court for the Eastern District of New York (Arthur D. Spatt, Judge) following a jury trial convicting defendants-appellants on sixty-nine counts of mail fraud, conspiracy to commit mail fraud, money laundering, perjury, tax evasion, conspiracy to impair, impede, and defeat the IRS, filing false tax returns, filing false collection information statements, and obstruction of justice based on the defendants’ roles in a scheme to market memberships in a supposedly prestigious “Who‘s Who” organization. The United States of America cross-appeals, alleging error in the grouping of defendant Gordon‘s mail fraud and tax evasion counts pursuant to
2 In 1989 and 1994 respectively, Bruce W. Gordon incorporated two companies, Who‘s Who Worldwide (“Worldwide“) and Sterling Who‘s Who (“Sterling“), to produce “prestigious” directories of “noteworthy” individuals. United States v. Gordon, CR 96-1016, 1999 U.S. Dist. LEXIS 183, at *5-*6 (E.D.N.Y. Jan. 8, 1999). Gordon served as president and CEO of both organizations, supervising the companies’ efforts to sell expensive memberships in the directories through an extensive telemarketing scheme. Id. After a thirteen-week jury trial, Gordon and nine other defendants were found guilty on 297 charges under the sixty-nine counts of the indictment. Id. at *2.
II.
A. The Fraudulent “Who‘s Who” Scheme
3 Although Gordon‘s companies promoted their listings as exclusive collections of leaders in various fields, potential members were actually solicited from ordinary mailing lists. Id. at *6. Worldwide and Sterling often distributed 100,000 letters at a time. The letters informed potential clients of their “nomination” for inclusion in one of the available registries even though most recipients were not nominated. Although at the time the letters were sent, the companies knew nothing about the intended recipients, a typical solicitation letter included language indicating that (i) Worldwide or Sterling was a leading publication of accomplished individuals, (ii) inclusion in the registry was limited to “exceptional” people who were highly successful in their fields, and (iii) inclusion in the registry was without cost to the “nominee.” An enclosed questionnaire encouraged the recipient to “apply” for membership. If the “nominee” responded by filling out a personal information card, telemarketers then contacted the person to conduct a false evaluation interview. During the interview, the marketers read from “pitch sheets” that laid out false and misleading information aimed at encouraging the customer to join and specified fraudulent answers to common questions. Gordon, 1999 U.S. Dist. LEXIS 183, at *6-*7. The marketers stressed the exclusivity of membership and the great networking value membership would provide. “Memberships” were actually sold to anyone wishing to purchase.
4 After completing the interview, Gordon‘s sales force would ask the customer to purchase a membership (ranging in price from $75 to $750) and informed the new member of additional “perks” of joining, such as the opportunity to purchase a CD ROM with registry information, discounts on services from Airborne Express and other providers, and networking seminars.1 Id. at *7-*8. By the end of 1994, over 60,000 people, swept along by Gordon‘s scheme, had become members of the organizations, netting tens of millions of dollars for Gordon‘s companies. Gordon v. United States (In re the Seizure of All Funds in Accounts in the Names Registry Publ‘g, Inc.), 68 F.3d 577, 578-79 (2d Cir. 1995). Although Gordon claimed that his registries were composed of leaders in the international business community, many actual members were employed outside the big business arenas his promotional materials implied. Among the members of one registry were the manager of a Florida rental car agency, the owner of a Florida Dairy Queen, a nutritionist at a Virginia state prison, a Virginia high school teacher, a Massachusetts candy store owner, the manager of a Connecticut Radio Shack, and the manager of a Pennsylvania department store beauty salon.
5 Notably, the employees of Worldwide and Sterling had no misconceptions about the true nature of the memberships they sold. The Worldwide employee assigned to “review” applications after conclusion of the telephone interviews admitted that she, at Gordon‘s instruction, regularly altered members’ job titles so that the members would appear more prestigious in the publication, for example, listing the owner of a business as a “President” with expertise in “Corporate Management,” or a store manager as an “area manager” or “operations manager,” and making even small operations sound like large corporations. Furthermore, while telling potential customers that they, as nominees, were the “creme de la creme” or that the marketers rarely spoke with people who weren‘t “multi-billionaires” or “CEO‘s“, Gordon‘s employees, among themselves, considered it a “running joke” that anyone with a credit card could become a member of one of the registries.
B. Gordon‘s Financial Activities
7 Gordon‘s crimes extended beyond his telemarketing fraud. During the early 1990s, Gordon owed the IRS $3.5 million in back taxes, penalties, and interest. Gordon, 1999 U.S. Dist. Lexis 183, at *8-*9. Gordon told the IRS that he was an impoverished salesperson who slept in his car. Id. In reality, however, Gordon resided at two expensive properties, a Manhasset, New York, condominium and an East 54th Street penthouse apartment in Manhattan, the titles to which were in the name of Who‘s Who Worldwide. Gordon drove luxury cars leased by Worldwide and shopped at numerous premiere retail outlets. Id. at *12-*13.
8 Relying on Gordon‘s representations of poverty, the IRS, in 1991, offered to accept payments of $100 per month against Gordon‘s $3.5 million debt, while the tax division of the Department of Justice agreed to accept payments of amounts equal to one-half of Gordon‘s income over $50,000. Id. at *10-*11. In 1993, Gordon attempted to enter a further “offer in compromise” with the IRS under which he would pay $150,000 to resolve his entire debt. Gordon withdrew his offer before the IRS could accept when his arrest raised suspicions that he was more than simply a Sterling or Worldwide employee. Id.
C. Investigation and Trial
9 Postal officials first inspected Gordon and his companies in 1994 on suspicions of mail fraud. In re Seizure, 68 F.3d at 579. That investigation ultimately led to grand jury review and an indictment against Gordon, Sterling, and Worldwide for conspiracy to commit mail fraud, mail fraud, and money laundering. A seventy-three count superseding indictment added counts for perjury, obstruction of justice, and filing false income tax returns, and included six additional salesperson-defendants as well as Gordon‘s accountant. United States v. Gordon, 990 F.Supp. 171, 173 (E.D.N.Y. 1998). On April 7, 1998, after a thirteen-week trial, a jury returned 297 guilty verdicts on sixty-nine separate counts against the ten defendants. Gordon, 1999 U.S. Dist. LEXIS 183, at *17. Gordon and his fellow defendants moved for Rule 29(c) acquittal or a new trial under Rule 33. The court denied these motions, but granted the government‘s cross-motion for preliminary forfeiture of the $1.1 million involved in the money laundering offense. Id. at *79.
D. Sentencing
10 After a four day Fatico hearing at which the defendants presented testimony intended to demonstrate the value of memberships in Worldwide and Sterling registries, the district court sentenced Gordon to ninety-seven months in prison, $10 million restitution, and $3,450 in special assessments. To determine Gordon‘s sentence, the district court reduced the proposed mail fraud loss ($20,000,000) by $10,000,000 and the proposed tax loss ($1,662,832) by $65,579. United States v. Gordon, 71 F.Supp.2d 128, 136-37 (E.D.N.Y. 1999). The district court then applied the sentencing guidelines to establish the appropriate length of the sentence on each count.
E. Claims on Appeal
11 Pertinent to this opinion are three challenges to defendant Gordon‘s sentence. On Gordon‘s appeal are the district court‘s refusal to account for potential, but unclaimed, deductions in its calculation of tax loss under
A. Standard of Review
12 In examining a sentencing calculation, this Court reviews the district court‘s factual findings for clear error and its legal interpretations of the Guidelines de novo. See United States v. Carboni, 204 F.3d 39, 46 (2d Cir. 2000).
B. Unclaimed Deductions
13 The 2000 United States Sentencing Guidelines Manual
14 In his appeal, Gordon challenges the district court‘s failure to consider potential, but unclaimed, deductions that might reduce the total amount of tax loss for which he was responsible. Gordon argues that the district court erred by not reading the “more accurate determination” language of
15 Tax loss under
16 In United States v. Martinez-Rios, this Court indicated in dicta that under
17 Gordon asserted at oral argument and in his reply brief that the district court should have allowed a salary deduction because funds transferred from Worldwide to him were likely “salary” if they were not “loans.” Gordon, however, bears the full burden of proof in establishing the appropriateness of consideration of such an unclaimed deduction. See United States v. Spencer, 178 F.3d 1365, 1369 (10th Cir. 1999); see also Martinez-Rios, 143 F.3d at 671-72 (finding witness testimony that close corporations would normally treat payments to officers as salary “doubtful“); United States v. Sik Kin Wu, 81 F.3d 72, 74-75 (7th Cir. 1996) (finding when a “single crime” caused underreporting of both personal and corporate income, that disbursements to individuals should be treated as dividends taxable at both corporate and personal levels). In Martinez-Rios, this Court rejected testimony about how funds were normally distributed in close corporations as insufficient to establish that the funds in question had been distributed in that manner in the case at hand and that, therefore, a deduction applied. 143 F.3d at 671-72. Under Martinez-Rios, Gordon‘s argument that salary treatment was likely does not provide sufficient proof to establish an unclaimed deduction for consideration under
18 The district court grouped Gordon‘s mail fraud and tax evasion charges under
19 The government‘s appeal centers on the appropriate interpretation of
All counts involving substantially the same harm shall be grouped together into a single Group. Counts involve substantially the same harm within the meaning of this rule:
...
(c) When one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts.
(d) When 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.
24
25 In Gordon‘s case, the district court found the mail fraud and tax evasion counts could be grouped under subsection (c). Under subsection (c), the highest level for an indicted offense within the group dictates the group‘s offense level.
26 In United States v. Napoli, this Court rejected a defendant‘s claim for grouping together money laundering and fraud counts. 179 F.3d 1, 7 (2d Cir. 1999) (finding the district court correct in separating fraud and money laundering counts into two distinct groups). The analysis developed in that opinion, however, led the Court in United States v. Fitzgerald to hold that “tax evasion, fraud, and conversion should be grouped under
27 Reading only these opinions, one might conclude that although this Circuit has clearly established the appropriateness of applying
28
2. Plain Error Review
29 While it appears that grouping was appropriate, the government on appeal challenges the district court‘s grouping method. The government objects to the district court‘s use of
30 In our recent decision in United States v. Sofsky, this Court found that plain error review may apply less rigorously in certain sentencing contexts. 31 Fed. Appx. 754 (2d Cir. 2002). In Sofsky, this Court first noted two previous decisions that reviewed unobjected-to sentencing errors in a more relaxed fashion when the party raising the error on appeal did not have prior notice of the possible application of the sentence imposed. Id. at 755 (citing United States v. Pico, 966 F.2d 91 (2d Cir. 1992) (finding “clear error” where a sentence outside the Guidelines range was imposed without explanation and against the recommendation of the PSR); United States v. Alba, 933 F.2d 1117, 1120 (2d Cir. 1991) (reviewing unobjected-to downward departures without applying plain error standards where only one of the four grounds on which the district court granted the departures was addressed in the PSR)). The Court further commented on the relative ease of correcting sentencing errors (requiring only resentencing) as opposed to trial errors (requiring a new trial). Id. at 755 (citing United States v. Leung, 40 F.3d 577, 586 n. 2 (2d Cir. 1994); United States v. Baez, 944 F.2d 88, 90 n. 1 (2d Cir. 1991)). The Sofsky Court then concluded that “[b]oth because the alleged error relates only to sentencing and because Sofsky lacked prior notice, we will entertain [Sofsky‘s] challenge without insisting on strict compliance with the rigorous standards of
32 Traditional plain error analysis is a four-step process. To establish plain error, the Court must find 1) an error, 2) that is plain, 3) that affects substantial rights. See Jones v. United States, 527 U.S. 373, 389 (1999). If an error meets these tests, the Court engages in a fourth consideration: whether or not to exercise its discretion to correct the error. The plain error should be corrected only if it “seriously affects the fairness, integrity, or public reputation of judicial proceedings.” Id. (internal quotation marks, brackets, and citation omitted).
a. The district court‘s use of § 3D1.2(c) was in error.
33 Although this Court has not previously addressed directly the choice between
34 This Circuit has recently concluded that the offenses of fraud and tax evasion should be grouped under
36
37 Following the scheme outlined in Chapter 3, Part D‘s introductory commentary and
38 The structure of Chapter 3, Part D, through the introductory commentary, the grouping provisions of
b. The district court‘s error was plain.
39 An error is “plain” if it is “clear” or “obvious” at the time of appellate consideration. Johnson v. United States, 520 U.S. 461, 467-68 (1997). In light of current case law indicating that mail fraud and tax counts “should” be grouped under
c. The district court‘s error affected substantial rights.
40 An error affects “substantial rights” if the error is “prejudicial” and “affected the outcome of the district court proceedings.” United States v. Gore, 154 F.3d 34, 47 (2d Cir. 1998). The ability to claim such a violation of rights is not limited to defendants. United States v. Perkins, 108 F.3d 512, 517 (4th Cir. 1997).
41 The difference between a maximum possible sentence of 135 or possibly 151 months and a maximum possible sentence of 121 months is substantial, as is the difference between the 97 month minimum sentence imposed and the 108 or possibly 121 month minimum sentence that would have resulted from the correct application of the grouping provisions. Thus, the district court‘s application of
d. The Court should exercise its discretion to correct the error.
42 This Court should correct plain error only if it “seriously affect[s] the fairness, integrity, or public reputation of judicial proceedings.” Jones, 527 U.S. at 389. Other circuits have found that sentencing errors raised by the government on appeal require correction because failure to correct such errors may damage the reputation of the judicial system by allowing district courts to sentence without regard to the law, Barajas-Nunez, 91 F.3d at 833, allow similarly situated defendants to receive different sentences, id., or “frustrate the Guidelines’ goal of national sentencing uniformity,” Perkins, 108 F.3d at 517. Circuits have chosen not to exercise their discretion to correct plain sentencing errors raised by the government on appeal, however, when refusal to remedy the error would provide a future incentive to the government to raise all available arguments below, United States v. Garcia-Pillado, 898 F.2d 36, 39-40 (5th Cir. 1990), disapproved in part on other grounds, United States v. Calverley, 37 F.3d 160, 163 (5th Cir. 1994), and when the difference in the length of the sentence imposed and the correct sentence was not significant enough to create a “miscarriage of justice,” United States v. Posters ‘N’ Things Ltd., 969 F.2d 652, 663 (8th Cir. 1992), aff‘d 511 U.S. 513 (1994).
D. Consecutive Sentences
44 After concluding that the total punishment should be ninety-seven months, the district court structured its sentence as follows: sixty months on counts 1-53, to run concurrently; 37 months on counts 54 and 55, to run concurrently with each other but consecutively to the sentences on counts 1-53; 37 months on counts 56 and 57, to run concurrently with each other and with counts 1-55; 36 months (the statutory maximum) on counts 59-61 and 66-68, to run concurrently with each other and with counts 1-57; and 97 months on count 69, the money laundering count (which carries a statutory maximum of 20 years,
45 The correct method for structuring the sentence, where the total punishment exceeds the statutory maximums on some counts, is to impose the statutory maximum punishment on all such counts, impose the total punishment on the count with a statutory maximum higher than the total punishment, and run sentences consecutively only to the extent necessary to achieve the total punishment.
IV.
46 This Court affirms as harmless error the district court‘s refusal to consider potential but unclaimed deductions in the calculation of tax loss under
47 I concur in the Court‘s judgment and in substantially all of Judge Parker‘s opinion, but believe that additional views are warranted on two aspects of the sentencing issue in this case: (1) whether the District Court erred in “grouping” the mail fraud and tax fraud offenses pursuant to subsection (c) instead of subsection (d) of 48 The District Court placed Gordon‘s mail fraud and tax fraud offenses in one group, pursuant to subsection (c) of 49 Subsection (c) governs “[w]hen one of the counts embodies conduct that is treated as a specific offense characteristic in, or other adjustment to, the guideline applicable to another of the counts.” 50 The Government offers two reasons why subsection (c) is inapplicable. First, it contends that subsection (c) does not literally apply because the conduct that resulted in enhancement of the tax offense level was the failure to report income from the fraud, not the fraudulent conduct itself. Second, it relies on language in Application Note 5 to 51 The Court‘s opinion opts for subsection (d) because the mail fraud and tax fraud offenses both involve money, and subsection (d) applies to offenses, otherwise groupable, where the offense level is determined by aggregating loss or harm, such as with money and drugs. But the fact that both offenses involve money tells us, at most, that subsection (d) is available to be applied; it does not tell us why subsection (c), the text of which appears to apply, is not also available to be applied. 53 I note that in the 2001 Guidelines Manual the Commission has revised the tax and fraud loss tables once again and now makes them more congruent than they were in 2000. The tables are now identical for losses above $120,000; below that dollar level, the tax loss table yields offense levels that are the same or slightly more severe than the levels from the fraud loss table for the same amount. 54 If we were to distinguish Fitzgerald and Petrillo on the ground that their reasoning depended on the substantial identity of the tax and fraud loss tables in 1993, there would be a plausible argument that mail fraud and tax fraud offenses should now not be grouped at all, as the Government unsuccessfully argued in the pending case in the District Court. The argument starts with our decision in United States v. Napoli, 179 F.3d 1 (2d Cir. 1999), in which we refused to group money laundering and the underlying offense because the victims were different. See also United States v. McCarthy, 271 F.3d 387, 400-01 (2d Cir. 2001). It is true that the Commission has rejected Napoli and elected to have money laundering and underlying offenses grouped, 55 Ultimately, the Commission needs to cut through this morass and tell us in plain English whether it wants tax offenses grouped with the offenses that produced the income on which the taxes were evaded. Money derived from criminal offenses is frequently unreported to tax authorities, and tax and fraud offenses are frequently charged together. In dealing with this recurring issue, the Commission can either opt for no grouping, grouping under subsection (c), or grouping under subsection (d). The Commission once proposed an amendment that would explicitly have provided for grouping tax and fraud offenses under subsection (c), see Notice of Proposed Amendments to the Sentencing Guidelines for United States Courts, 66 Fed. Reg. 7962-01, 8003 (proposed Jan. 26, 2001), but did not promulgate the amendment. The Commission staff has informally advised that grouping should occur pursuant to subsection (c), see United States Sentencing Commission, Most Frequently Asked Questions About the Sentencing Guidelines No. 45, at 14 (7th ed. June 1, 1994), but has also advised that informal staff advice is not authoritative, see id. Until the Commission makes its position clear, I agree with the Court‘s opinion that we should continue to follow Fitzgerald and Petrillo, despite the arguable basis for distinguishing them, and group mail fraud and tax fraud offenses under subsection (d). 56 The Court‘s opinion concludes that the District Court‘s application of subsection (c) is not only error but plain error of the sort we may notice under 57 Adequacy of the Government‘s objection at trial. The Government made clear to the District Court its view concerning grouping: it believed that the mail fraud and tax fraud offenses should not be grouped at all. There is a substantial argument that this position should be sufficient to preserve for review the Government‘s fall-back position, now asserted on its cross-appeal, that if grouping is to occur, it should occur under subsection (d), not subsection (c). In prior cases, we have been rather indulgent in permitting a sentencing objection to comprehend related points not explicitly articulated to the sentencing judge. See United States v. Sprei, 145 F.3d 528, 533 (2d Cir. 1998) (Government objection at trial that “family circumstances” departure was not legally permissible sufficient to permit claim on appeal that evidence to support departure was speculative); United States v. Shumard, 120 F.3d 339, 340 & n. 1 (2d Cir. 1997) (Government request that sentencing judge “consider” two-level adjustment for defrauding more than one victim sufficient to permit particularized claim on appeal that number of victims had been improperly counted by disregarding relevant conduct); United States v. Rodriguez-Gonzalez, 899 F.2d 177, 180 (2d Cir. 1990) (defendant‘s objection at trial to appropriateness of sentence enhancement sufficient to permit claim on appeal that enhancement was unlawful on double jeopardy and due process grounds). In the pending case, however, the Court rules that the Government‘s objection to any grouping was insufficient to challenge grouping under subsection (c) of 58 Having ruled that the Government has insufficiently preserved its objection to the sentencing judge‘s erroneous method of grouping, the Court‘s opinion proceeds to consider whether the error may be reviewed as plain error under 59 Application of 60 Before the widespread availability of sentencing appeals, inaugurated by the Sentencing Reform Act of 1984, 61 It is also significant that we have corrected sentencing errors under 62 Rigor of 63 There are several reasons for applying plain error standards less rigorously to sentencing errors than to trial errors. First, as we have previously observed, noticing unobjected to errors that occur at trial precipitates an entire new trial that could have been avoided by a timely objection, whereas correcting a sentencing error results in, at most, only a remand for resentencing. See Sofsky, 287 F.3d at 125; Leung, 40 F.3d at 586 n. 2; Baez, 944 F.2d at 90 n. 1. Second, a sentencing error is normally prejudicial, and, where the sentence is unlawfully too high, the prejudice to a defendant is extremely serious. Third, there is no interest to be served by applying to sentencing errors the same plain error standards applicable to trial errors. 64 Even if some version of plain error review needs to be invoked to consider the sentencing error in this case, surely it should be the less rigorous version we have invoked in other sentencing cases, both for the benefit of the Government, see Alba, 933 F.2d at 1120, and defendants, see Sofsky, 287 F.3d at 125; Pico, 966 F.2d at 92. 65 Instead, the Court‘s opinion asserts that rigorous plain error standards are applicable, and then concludes that the standards of such review are met. In view of the extended discussion the Court‘s opinion has undertaken to show why grouping under subsection (c) was error, a discussion to which I have felt obliged to add further amplification, I do not see how it can be said that the District Judge‘s error in applying subsection (c) met the plain error standard of “clear” or “obvious.” See Olano, 507 U.S. at 734. Moreover, the Supreme Court has instructed that we are to use our discretion to correct plain errors only if the error “seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.” Id. at 732 (alteration in original). I find it difficult to accept the idea that the public reputation of judicial proceedings will be impaired in the slightest if Gordon‘s already substantial sentence of eight years for an economic crime is not increased by eleven more months (or even by the twenty-four months that the Government‘s questionable calculation would impose). Indeed, some might think that Gordon‘s offense — selling listings in a Who‘s Who directory that was not limited, as claimed, to carefully selected, prestigious individuals — is sufficiently outside the heartland of fraud offenses, such as selling worthless stock or fake health remedies, to warrant a downward departure. 66 Despite its use of the language of the “full rigor” plain error review, 291 F.3d at 191, I think the majority‘s opinion in substance and effect has applied a relaxed version of plain error standards to the District Court‘s grouping error. Because I agree that, if 1. The “Grouping” Error
2. Plain Error Review
Notes
Although the government has not supplied its calculation, it appears likely that it combined the fraud and tax losses, identified the appropriate level for the combined total loss from both the fraud and tax loss tables, added adjustments, including four levels for role in the offense, to each of the levels, and then used level 31, resulting from the tax guideline, because that was higher than level 29, resulting from the fraud guideline. One more level was then added for the money laundering offense, pursuant to
We leave for consideration by the district court on remand, after receiving submissions from the parties, how the ultimate offense level should be calculated once the tax and fraud offenses are grouped under subsection (d).