UNITED STATES OF AMERICA v. SCOTT CAPPS, Appellant
No. 19-3033
United States Court of Appeals for the Third Circuit
October 8, 2020
PRECEDENTIAL. Argued June 16, 2020. Before: JORDAN, MATEY and ROTH, Circuit Judges.
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-18-cr-0572-001) District Judge: Hon. Michael M. Baylson
Abigail E. Horn [ARGUED]
Leigh M. Skipper
Federal Community Defender Office
For the Eastern District of Pennsylvania
601 Walnut Street - Suite 540
Philadelphia, PA 19106
Counsel for Appellant
David J. Ignall [ARGUED]
Office of United States Attorney
615 Chestnut Street - Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
JORDAN, Circuit Judge.
While working for The Vanguard Group (“Vanguard“), Scott Capps fraudulently
Capps now contends that the District Court plainly erred in applying two upward adjustments in calculating his guidelines range. First, he says that, in setting the offense level for the money laundering, the District Court wrongly applied an adjustment for abuse of a position of trust (“the abuse of trust adjustment“). Second, he makes two arguments that the District Court erred in applying an adjustment for deriving morе than $1 million from a financial institution (“the gross receipts adjustment“). More specifically, he says that the gross receipts adjustment should not have been applied because the account holders, not Vanguard, were the source of the funds, and he further argues that the District Court made contradictory statements about whether he met the threshold for the adjustment to apply.
As to the offense calculation for money laundering, we agree that the District Court plainly erred in applying the abuse of trust adjustment. As to the appliсation of the gross receipts adjustment, we conclude that, while the District Court did not plainly err in deciding the adjustment could be applicable, it is not clear on this record whether Capps met the threshold for the adjustment to actually apply. We will therefore vacate Capps‘s sentence and remand for resentencing.
I. BACKGROUND
Vanguard is “an investment management group that manage[s] trillions of dollars in assets for account holders throughout the world.” (Indictment, App. at 16.) Through his employment there, Capps was able to identify accounts that were due for escheatment because of, for example, the death of an account holder with no heirs or the abandonment of funds in an account. Capps drew the money from such accounts by surreptitiously using subordinates’ passwords and causing Vanguard to mail checks drawn on the accounts to his friend, Lance Tobin, and others. He concealed his actions by falsifying documents and deleting records.
Tobin deposited the stolen funds into his bank accounts and then wrote checks back to Capps tо pay him a portion of the criminal proceeds. As stated in the indictment, Capps received at least two checks from Tobin, one for $555,200 and one for $29,750. Capps deposited those checks in his bank account and did not report the income on his federal tax returns.
When the scheme came to light, Capps was charged with conspiracy to commit mail fraud in violation of
A PSR was prepared, employing the United States Sentencing Guidelines. It calculated Capps‘s offense level for money laundering, though not for conspiracy to commit mail fraud, and included two separate 2-level adjustments that Capps now disputes: the abuse of trust adjustment and the gross receipts adjustment. At the time of sentencing, however, neither party raised any objections to the PSR, and the District Court adopted its recommendations without change. The resulting guidelines range was 63 to 78 months. The
II. DISCUSSION1
Capps argues that the District Court erred in applying both the abuse of trust adjustment and the gross receipts adjustment. We address each in turn.
Before turning to the merits, however, we first note the standard of review and how it marks our analytical path. Because Capps did not at sentencing raise any objections to the application of the adjustments, we review for plain error. The plain-error standard requires, first, an error, second, that the error be plain - “that is to say, clear or obvious[,]” and third, a “reasonable probability that, but for the error, the outcome of the proceeding would have been different.” Molina-Martinez v. United States, 136 S. Ct. 1338, 1343 (2016) (citation and internal quotation marks omitted). This third prong of the standard is sometimes described as requiring that the plain error has affected the defendant‘s substantial rights. United States v. Olano, 507 U.S. 725, 732 (1993). “Once these three conditions have been met,” there is a fourth prong to the test, which advises that “the court of appeals should exercise its discretion to correct the forfeited error if the error ‘seriously affects the fairness, integrity or public reputаtion of judicial proceedings.‘” Molina-Martinez, 136 S. Ct. at 1343 (quoting Olano, 507 U.S. at 736).
The Supreme Court has given directly pertinent guidance on how the third and fourth prongs of the plain-error test apply in cases like this. As to the third prong, the Court
has explained that “[i]n most cases a defendant who has shown that the district court mistakenly deemed applicable an incorrect, higher Guidelines range has demonstrated a reasonable probability of a different outcome.” Id. at 1346. And, concerning the fourth prong, the Court has said that, where the guidelines have been miscalculated, a “reasonable citizen” would “bear a rightly diminished view of the judicial process and its integrity.” Rosales-Mireles v. United States, 138 S. Ct. 1897, 1908 (2018). Of course, “any exercise of discretion ... inherently requires a case-specific and fact-intensive inquiry.” Id. at 1909 (internal quotation marks omitted). But, “[i]n the ordinary case ... the failure to correct a plain Guidelines error that affects a defendant‘s substantial rights will seriously affect the fairness, integrity, and public reputation of judicial proceedings.” Id. at 1911.
Nothing in this case suggests that we should stray from those general principles, so we take the third and fourth prongs of the plain-error test as being met here and are only left to determine whether the District Court erred in applying the adjustments and, if so, whether those errors were plain. In short, we are examining prongs one and two.
A. The Adjustment for Abuse of Trust
Capps first argues that the District Court erred in applying the abuse of trust adjustment to his money laundering conviction. That adjustment, set forth in Chapter 3 of the Sentencing Guidelines, tells a sentencing court that, “[i]f the defendant
1. Calculating the Offense Levels
To explain the error, we need to walk through the guidelines calculations for both Capps‘s mail fraud and money laundering convictions,2 as the guidelines require a sentencing court to group those convictions by choosing the highest offense level calculation after calculating the level for each оffense separately. See
(“In the case of counts grouped together pursuant to
Mail fraud has a base offense level of 7.
The base offense level for money laundering is the “offense level for the undеrlying offense from which the laundered funds were derived[.]”
money laundering calculation, an additional 2 levels are added because Capps was convicted under
In determining whether to apply the abuse of trust adjustment, we use a two-step inquiry. United States v. Douglas, 885 F.3d 124, 130 (3d Cir. 2018) (en banc). “First, we must determine whether the defendant actually occupied a position of public or private trust.” Id. at 130. At that steр, we “ask whether the defendant had the power to make decisions substantially free from supervision based on (1) a fiduciary or fiduciary-like relationship, or (2) an authoritative status that
would lead his actions or judgment to be presumptively accepted.” Id. at 133. “[I]f we conclude that the defendant did hold such a position,” we reach the second step, where the question is “whether the defendant abused this position in a manner that significantly facilitated his crime.” Id. at 130. (citation and internal quotation marks omitted). In answering that question, “courts should consider, among other things, whether the defendant‘s position allowed him to commit a difficult-to-detect wrong, and the defendant‘s authority vis-à-vis the object of the wrongful act. Courts may also consider whether the victim relied on the defendant‘s integrity, such that the victim became a more susceptible target for the defendant.” Id. at 134.
Capps argues that the guidelines calculation contained in the PSR and adopted by the District Court violated Commentary Note 2(c) to the money laundering guideline,
Supporting the abuse of trust adjustment, the PSR said:
As a supervisor at Vanguard, the defendant stole the passwords of subordinates and used those passwords to access the Vanguard system used to issue checks and submit requests to have checks issued on certain dormant accounts, all in an effort to conceal his conduct. Capps then deleted and attempted to deletе the record transactions in Vanguard‘s system related to the
falsely submitted requests and improper approvals for checks issued by Vanguard on certain dormant accounts. The defendant abused a position of public or private trust in a manner that significantly facilitated the commission or concealment of the offense; therefore, the offense level is increased by two levels, pursuant to
USSG §3B1.3 .
(Presentence Report at 7.)
That justification for the adjustment would make perfect sense, if the count at
сommission or concealment of the money laundering as charged in the indictment.
The government responds that the money laundering could not have happened but for the fact that Capps was able to direct the disbursement of funds from Vanguard. This is perfectly true, but beside the point. It is always the case with money laundering that the money came from some unlawful activity. By definition, that is a feature of money laundering. There is always an underlying crime. In Capps‘s case, the only abuse of a position of trust occurred in the fraud that genеrated the money to be laundered. The point of Commentary Note 2(c) is to keep the adjustments applicable to the criminal activity that generated the money from being applied to the conceptually distinct money laundering offense. In relying on the flawed PSR, the District Court failed to heed that separation, just as the government‘s argument invites us to make the same mistake now.
The government believes that United States v. Sokolow, 91 F.3d 396 (3d Cir. 1996), supports its position. The defendant there, the president and CEO of a corporation, collected money in premiums from insurance clients through a fraudulent scheme. Id. at 400. He converted some of those premiums for his personal benefit and laundered them through a number of bank and brokerage accounts, real property, and mortgages. Id. at 400-01. On appeal, we affirmed the application of the 2-level abuse of trust adjustment because “[i]t was within [the defendant‘s] authority to withdraw funds from [the corporation] and that authority was necessary for the commission of the money laundering offenses.” Id. at 413. But Sokolow predates the adoption of
consider the question we do today. The separation between thе underlying offense and the money laundering was simply not at issue.
It is at issue here, though, and the District Court erred in applying the 2-level abuse of trust adjustment to the money laundering offense calculation. Given the text of Commentary Note 2(c), we think the error is plain.7
B. The Gross Receipts Adjustment
In calculating the money laundering offense level, the District Court also applied the gross receipts adjustment, which calls for a 2-level adjustment when “the defendant derived
more than $1,000,000 in gross receipts from one or more financial institutions[.]”
1. The Source of the Funds
The sentencing guidelines’ definition of “financial institution” is broad and expressly includes investment companies.
indictment recognizes, one of the world‘s largest investment companies. No contention has been made to the contrary. It thus clearly fits within the definition of a “financial institution,” for purposes of
It is also true that Vanguard has a property interest in the accounts it manages. Although its customers, the account holders, obviously have property rights in their funds, Vanguard too has a possessory property interest in them. The Supreme Court‘s decision in Shaw v. United States, 137 S. Ct. 462 (2016), explains that both account holders and financial institutions have property interests in funds held by the institutions. The context in Shaw was the theft of a depositor‘s funds in a scheme “to defraud a financial institution” in violation of
Capps points to Stinson to argue that Vanguard‘s interest in the funds was nevertheless insufficient to apply the
gross receipts adjustment.10 But his understanding of that case is misguided. In Stinson, we explained that
a financial institution is a source of the gross receipts when it exercises dominion and control over the funds and has unrestrained discretion to alienate the funds. A financial institution is not the source of all funds that have passed through the institution, as might occur during a simple wire transfer. Accordingly, mere tangential effects on financial institutions will not support application of the enhancement.
Although that language indicates the need for a significant degree of control over the funds at issue, we do not read it to mean that a financial institution‘s having less than the unrestrained right to treat the funds as its own means that crimes against the institution lie outside the reach of the gross receipts adjustment. Here, Vanguard possessed the funds. Its control of them was much more than the tangential control exercised by a bank handling a wire transfer. See Stinson, 734 F.3d at 186. In fact, Vanguard‘s dominion and control over the abandoned funds is what allowed Capps to commit his fraud: it was through his employment at Vanguard that he was able to identify and draw checks on abаndoned accounts.
Stinson, rightly understood, asks for nuanced fact-finding. The defendant in that case had a fraudulent scheme in
which he set up a sham fund and used investors’ money for a variety of personal business ventures. 734 F.3d at 181-82. As part of the fraud, the defendant entered into agreements with two independent financial
Capps argues that Vanguard‘s control over the funds here was especially weak because the funds were due to escheat. He points to the Supreme Court‘s statement in Delaware v. New York that “[f]unds held by a debtor[, here, Vanguard, the holder of the funds,] become subject to escheat because the debtor has no intеrest in the funds[.]” 507 U.S. 490, 502 (1993). But, if anything, the fact that the money Capps stole was due to escheat strengthens the argument that Vanguard exercised the necessary dominion and control over them for the gross receipts adjustment to apply. Delaware v.
New York focused on which sovereign could lay claim to abandoned property. Id. The observation that the holder of the property, without an ownership interest in it, does not get to keep it was a statement about the relative rights of a sovereign and the holder of the abandoned property. It dоes not mean that, as the holder of funds before they escheat, institutions like Vanguard lack the ability to exercise dominion and control over them. On the contrary, Vanguard was the only one exercising dominion and control over the abandoned funds at issue here, until they escheated. Thus, it was not error—let alone plain error—for the District Court to conclude that the funds were derived from Vanguard.
2. The $1 Million Threshold
Commentary Note 13(A) to money laundering guideline
The government does not try to say that the District Court‘s comments were clear but argues that the Court must have found that Capps met the threshold because “the loss in this case (which Capps was ordered to repay to Vanguard) is $2,137,580.81.” (Answering Br. at 21 n.4.) According to the government, “[t]here is no question that the ‘gross receiрts’ in this case—not Capps’ personal receipts after dividing the
proceeds—was far over $1 million.” (Id.) Even if true, that assertion manages to explicitly avoid the relevant question. It ignores the requirement from the commentary that the threshold must be applied in terms of what Capps himself received, individually.
III. CONCLUSION
For the foregoing reasons, we will remand for resentencing.