United States v. Vitale ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
11-6-1998
United States v. Vitale
Precedential or Non-Precedential:
Docket 98-5072
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Filed November 6, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-5072
UNITED STATES OF AMERICA
v.
FRANCIS X. VITALE,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 97-cr-00573)
Argued July 9, 1998
Before: SLOVITER, ROTH, Circuit Judges, and
FULLAM,* District Judge
(Filed November 6, 1998)
Justin P. Walder (Argued)
Walder, Sondak & Brogan
Roseland, N.J. 07068
Attorney for Appellant
George S. Leone
Amanda Haines (Argued)
Office of United States Attorney
Newark, N.J. 07102
Attorney for Appellee
_________________________________________________________________
* Hon. John P. Fullam, Senior United States Circuit Judge for the
Eastern District of Pennsylvania, sitting by designation.
OPINION OF THE COURT
SLOVITER, Circuit Judge.
In this case the principal issue we must decide is
whether the offenses of wire fraud and tax evasion should
be grouped together for sentencing purposes when the
government stipulated that the conduct underlying the wire
fraud charge was embezzlement. Appellant also raises an
issue of his alleged entitlement to a downward departure
for diminished mental capacity.
I.
On September 30, 1997, Francis X. Vitale entered a
guilty plea to one count of wire fraud and one count of tax
evasion pursuant to a plea agreement. He was charged in
the wire fraud charge with causing $407,223.80 to be
illegally wire transferred from Engelhard's account to an
antique clock dealer in Switzerland. He was charged in the
second count with failing to pay over $1,200,000 in income
tax on taxable income of more than $3,700,000.
The charges against Vitale stemmed from his
embezzlement of approximately $12 million from his
employer, Engelhard Corporation, between 1987 and 1996.
Vitale used this money to acquire and restore antique
clocks, which he displayed in what has been described as
a museum type gallery in Spring Lake, New Jersey. Vitale
himself states that his collection was one of thefinest of
18th and 19th century European clocks.
Vitale had been employed for more than thirteen years by
Engelhard, a specialty chemical and metal products
manufacturer, most notably as the vice president of
strategic development and corporate affairs. He controlled a
multi-million dollar budget for domestic and international
marketing and communications and had sole and unlimited
authority to approve at least a million dollars in
international marketing expenditures. Vitale forwarded
fabricated invoices to Engelhard's cash management office,
which received authorization to wire funds on the bogus
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invoices to named vendors who were, in fact, European
clock dealers who sold antique clocks to Vitale's shop. In
addition, Vitale solicited the owner of Dimensional
Marketing, Inc. to wire transfer funds and send checks to
various vendors under the guise of helping Engelhard with
a purported budgeting problem. These payments, however,
went to vendors of Vitale's clock company, with Vitale
approving payment of the invoices. Vitale failed to report
any of the embezzled funds on his income tax returns.
When Vitale was confronted with these crimes by
Engelhard's senior executives, he admitted his guilt and
cooperated with Engelhard by providing complete
restitution by selling his entire clock collection. Vitale's
extraordinary cooperation in organizing the sale of his
clocks was noted in several letters written by Engelhard
employees. Vitale also volunteered full-time with the Boys &
Girls Club of Trenton/Mercer Counties in 1997.
Vitale also underwent psychiatric counseling. Dr.
Ventano, Vitale's treating psychiatrist, opined that Vitale
was not motivated by greed or accumulation of wealth;
instead, he had an obsession with antique clocks which
overpowered his sense of right and wrong. Ventano
observed that Vitale knew what he was doing was wrong,
but could not stop himself.
This appeal concerns Vitale's sentence, which the district
court calculated as follows:
Count one: Wire Fraud
Base Offense Level [S2F1.1(a)] 6
Specific Offense Characteristic
(Loss of $10 million to $20 million)
[S2F1.1(b)(1)(P)] 15
Specific Offense Characteristic
(More than minimal planning)
[S2F1.1(b)(2)(A)] 2
Adjustment for Role in the Offense
(Abuse of trust) [S3B1.3] 2
Adjusted Offense Level 25
Count Two: Tax Evasion
Base Level
(Tax loss of $2,500,000 to $5,000,000)
[S2T1.1(a)(1) and S2T4.1(P)] 21
3
Specific Offense Characteristic
(Failed to report source of income exceeding
$10,000 from criminal activity) [S2T1.1(b)(1)] 2
Adjusted Offense Level 23
The district court rejected Vitale's argument that the wire
fraud and tax evasion counts should be grouped. Therefore,
under the multiple-count rules of Chapter 3 of the
Sentencing Guidelines, Vitale's greater adjusted offense
level of 25 was increased by two levels, based on the
number of units, for a combined adjusted offense level of
27. Three levels were deducted for acceptance of
responsibility, for a total offense level of 24, which
corresponds (with a Criminal History Category of I) to a
range of 51 to 63 months incarceration.
The court denied Vitale's request for a downward
departure based on the government's alleged manipulation
of the charging documents, app. at 94, and declined to
further depart downward from the guideline range based
upon Vitale's alleged reduced mental capacity, app. at 94.
However, the court granted Vitale's motion for downward
departure pursuant to U.S.S.G. S 5K2.0 due to Vitale's
extraordinary acceptance of responsibility, restitution
efforts, community service and post-offense rehabilitation.
Thus, after all the calculations and the downward
departure, Vitale was sentenced to thirty months
imprisonment (concurrent on counts one and two), two
years of supervised release (also concurrent on counts one
and two), and 500 hours of community service. App. at 95-
96. Vitale appeals.
II.
A.
GROUPING
Vitale argues that the district court erred in denying his
request to group the two charges. We give deference to a
district court's grouping decision, see United States v.
Selingsohn, 981 F.2d 1418, 1426 (3d Cir. 1992) (citation
4
omitted), and we review its factual findings leading to a
grouping determination for clear error, see United States v.
Bush, 56 F.3d 536, 537-38 (3d Cir. 1995). However, we
have plenary review of the district court's interpretation of
the Sentencing Guidelines. See United States v. Rudolph,
137 F.3d 173, 178 (3d Cir. 1998) (citations omitted).
Vitale premises his argument for grouping on U.S.S.G.
S 3D1.2, which instructs as follows: "All counts involving
substantially the same harm shall be grouped together into
a single Group." The Guideline then sets forth four
circumstances which involve the same harm and in which
counts are to be grouped together.1 The Guideline also lists
certain offenses that must be grouped and certain offenses
which are excluded from grouping.
Vitale relies on the subsection that provides that counts
involve "substantially the same harm" when, inter alia, 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."
S 3D1.2(c). Vitale contends that because the offense level for
_________________________________________________________________
1. The relevant portion of the Guidelines for Groups of Closely Related
Counts provides:
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:
(a) When counts involve the same victim and the same act or
transaction.
(b) When counts involve the same victim and two or more acts or
transactions connected by a common criminal objective or
constituting part of a common scheme or plan.
(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, the quantity of a substance
involved, 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.
U.S.S.G. S 3D1.2.
5
his tax count was increased two levels under S 2T1.1(b)(1)
because the unreported income was derived from his
criminal activity, i.e., the wire fraud charged in count one,
the wire fraud "embodies conduct that is treated as a
specific offense characteristic of the tax evasion count" and
therefore grouping is required.
This court dealt with a comparable situation in United
States v. Astorri, 923 F.2d 1052 (3d Cir. 1991), where
defendant, a stockbroker who defrauded various vulnerable
investors, pled guilty to one count of wire fraud and one
count of income tax evasion. Astorri sought to have the
counts grouped under U.S.S.G. S 3D1.2(c) arguing, as Vitale
does, that "the fraud count embodies conduct treated as a
specific offense characteristic under the tax evasion
offense." Id. at 1056. We disagreed. We noted that because
the Sentencing Commission listed the failure to report
criminally-derived income as a Specific Offense
Characteristic for tax evasion in order to deter concealment
of such income, it would negate that deterrence were that
designation the basis for grouping. Id. at 1057.
It is difficult to see why our reasoning in Astorri is not
apposite here. Like Astorri, Vitale pled guilty to wire fraud,
18 U.S.C. S 1343, and tax evasion, 26 U.S.C.S 1701. As in
Astorri, the counts here involve different victims (Engelhard
and the United States), different harms, and different types
of conduct. As explained in Astorri, the tax evasion count
represents significant criminal conduct in addition to the
fraud count, and therefore the two counts are not so closely
related that such grouping is required. See also United
States v. Bissell, 954 F. Supp. 841 (D.N.J. 1996) (refusing
to group mail fraud and tax fraud counts in reliance on
Astorri), aff'd, 142 F.3d 429 (3d Cir. 1998) (Table).
Vitale argues that this case is not controlled by Astorri
because although he, like the defendant in Astorri, was
charged with fraud, the government stipulated with him in
the plea agreement that "the conduct underlying the wire
fraud offense is embezzlement." App. at 16, P 8. Vitale then
argues that grouping is appropriate when the government
has brought charges of both embezzlement and tax evasion,
an issue we left open in United States v. Lieberman, 971
F.2d 989 (3d Cir. 1992).
6
Lieberman was a former bank vice president who pled
guilty to bank embezzlement and attempted income tax
evasion. In setting the sentence, the district court departed
downward for inappropriate manipulation of the
indictment, and the government appealed. We upheld the
district court's discretion in that regard, and, in the course
of our discussion, observed that Lieberman made a
plausible argument that "a case involving tax evasion and
embezzlement, which necessarily involves a taking of
moneys, funds, assets or securities, is distinguishable from
a case involving tax evasion and wire fraud, which does not
necessarily generate criminally-derived income by the
taking of money or property, [but] we leave that issue for
another day." Id. at 997 (citations, footnotes, and quotation
omitted).
There are several significant differences in this case from
Lieberman. In the first place, in Lieberman we were
affirming a discretionary sentencing decision of the district
court. That is far different from using a similar argument to
overturn the district court's choice of a sentence. In the
second place, Vitale was indeed charged with fraud like
Astorri, not with embezzlement, like Lieberman. In fact,
there is no federal embezzlement charge that would have
covered Vitale's actions. Finally, we did not hold in
Lieberman that charges of embezzlement and tax evasion
must be grouped; on the contrary, we left that issue for
another day. As Vitale was not charged with embezzlement,
this is not that other day.
Even though we believe the holding of Astorri is
dispositive, we will consider Vitale's argument that he was
entitled to have his offenses grouped under S 3D1.2(c). A
defendant in Vitale's position would be substantially
advantaged by grouping. If the counts were not grouped,
under the multiple-count rules set forth in S 3D1.4 the
offense level is determined by adding the requisite number
of levels (one for the wire fraud count and one for the tax
evasion count) to the higher offense level (25) applicable to
wire fraud. This leads to an offense level of 27. On the other
hand, if the counts were grouped under S 3D1.3, the
offense level would be determined by the higher offense
level, which is the 25 applicable to wire fraud.
7
If Vitale is correct that the tax evasion count should be
grouped with the wire fraud count, there would be no
accounting in the sentence for the fact that Vitale had
evaded taxes, and in effect his conviction on that count
would be washed away. However, the offense level for tax
evasion is enhanced two levels under S 2T1.1(b)(1) because
the defendant has failed to report income acquired from
criminal activity. In other words, the enhancement is
designed to deter and punish tax evaders who fail to report
illegally-acquired income. See S 2T1.1(b)(1) and Background
Commentary. Thus, under Vitale's interpretation, we would
have the anomalous result that an enhancement designed
to increase a sentence has the effect of reducing it. We see
nothing in the guidelines for grouping that requires that
result.
Vitale's textual argument is dependent upon interpreting
the phrase that appears in the grouping guideline, "conduct
that is treated as a specific offense characteristic in, or
other adjustment to, the guideline applicable to another of
the counts," to encompass every "adjustment" to the offense
level, whatever its consequence. The two-level enhancement
to the tax evasion count (raising it from level 21 to 23)
cannot affect the offense level of the higher wire fraud
charge (25) which is the offense level used for the ultimate
sentence, whether or not there has been grouping. Nor, in
this instance, can it affect the multiple count enhancement
under the formula in S 3D1.4. Because the two point
adjustment to the tax evasion offense level has no
significance to and does not in fact adjust the overall
sentence, it does not cause the kind of "adjustment"
referred to in S 3D1.2(c). We reject Vitale's textual
argument.
We also believe it is contrary to the policies under the
Guidelines. Although grouping is designed to "limit the
significance of the formal charging decision and to prevent
multiple punishment for substantially identical offense
conduct," U.S.S.G. Ch. 3, Part D, Intro. Commentary, P 4,
it is still supposed to provide "incremental punishment for
significant additional criminal conduct." See U.S.S.G. Ch.
3, Part D, Intro. Commentary, P 2; see Bush, 56 F.3d at
538. Evading taxes on $12 million is patently "significant
8
additional criminal conduct" which would not be punished
were Vitale's interpretation of S 3D1.2(c) to prevail. It would
be an unreasonable application if S 3D1.2(c) were to apply
in these circumstances and we decline to construe grouping
unreasonably. It is significant that the grouping section is
titled "Groups of Closely Related Counts;" and patently tax
evasion and wire fraud are not closely related offenses.
We are not persuaded by the recent opinion in United
States v. Haltom, 113 F.3d 43 (5th Cir. 1997), on which
Vitale relies. There, like here, defendant was convicted of
fraud and tax evasion. Although the court recognized that
the mail fraud and tax evasion convictions did not cause
"substantially the same harm," because the criminal
activity associated with each count harmed different
victims, it held they must be grouped because the mail
fraud count "embodies conduct that is treated as a specific
offense characteristic" of the tax evasion count. Id. at 46
(citing U.S.S.G. S 3D1.2(c)). As noted above, we disagree.
The Haltom opinion discussed that there, unlike here, the
tax evasion enhancement affected the defendant'sfinal
offense level. See id. at 47 n.5. Whatever the rationale in
Haltom, we decline to construe S 3D1.2(c) to encompass an
adjustment effected by the tax evasion enhancement in a
situation where the final offense level is not in fact
adjusted.
We are also unpersuaded by Vitale's reliance upon the
responses given in the Sentencing Commission's Most
Frequently Asked Questions About the Sentencing
Guidelines, Volume VII, Question No. 45, construing
U.S.S.G. SS 3D1.2(c) and 2T1.1(b)(1). The response, which
apparently emanated from the staff, is to the effect that tax
evasion and the conduct generating the income should
"always" be grouped, regardless of whether an
enhancement under S 2T1.1(b)(1) was applied. The response
fails to address circumstances where an intended penalty is
transformed into a sentence reduction. Moreover, this
section of the response includes a disclaimer:
Information provided by the Commission's Training
Staff is offered to assist in understanding and applying
the sentencing guidelines. This information does not
necessarily represent the official position of the
9
Commission, should not be considered definitive, and
is not binding on the Commission, the courts, or the
parties in any case.
Id. Under the circumstances, we accord no weight to the
response.
Finally, we note that in this case the district court made
a substantial downward departure based on Vitale's
acceptance of responsibility, service and rehabilitation. The
30-months sentence represents a 21-month departure from
the bottom of the sentencing range. Vitale has shown
nothing in the record to support his view that the district
court would have departed yet further had grouping been
utilized. Although we do not base our disposition on
harmless error because we find no error, we note this fact
in passing.
Accordingly, we find that the district court properly found
that grouping under these facts was improper and we will
affirm the district court on this issue.
B.
MANIPULATION OF THE CHARGING DOCUMENTS
Vitale's challenge to the district court's refusal to grant a
downward departure for manipulation of the charging
document does not differ in essence from his grouping
argument. Relying upon Lieberman, 971 F.2d 989 (3d Cir.
1992), Vitale asserts that a downward departure is proper
to compensate for the multiple counts when grouping is
unavailable. Assuming that is so, our statement in
Lieberman that nothing "forecloses the district courts from
using their departure power to correct unwarranted
sentencing disparities caused by charging decisions," id. at
998, does not suggest departure is required.
Here, the district court clearly understood it had power to
depart but declined to exercise it. See app. at 94 ("[T]he
question of manipulating the charging documents is one
that in keeping with my discretion I choose not to
entertain."). Accordingly, in the absence of any legal error
by the district court regarding its power to depart, we lack
10
jurisdiction to consider whether the district court properly
exercised its discretion. See United States v. Casiano, 113
F.3d 420, 429 (3d Cir.) (citation omitted), cert. denied, 118
S.Ct. 221 (1997); United States v. Miele, 989 F.2d 659, 668
n.11 (3d Cir. 1993).
C.
DIMINISHED MENTAL CAPACITY
Vitale contends that the district court erroneously
believed it lacked the authority to grant a downward
departure based on Vitale's diminished mental capacity, in
particular, his compulsion to purchase antique clocks. We
do not read the district court as so stating. UnderS 5K2.13,
a departure may be granted where a defendant (1) has
committed a non-violent offense, (2) while suffering from a
significantly reduced mental capacity, (3) that was not
caused by the voluntary use of intoxicants, (4) where
defendant's mental incapacity contributed to the
commission of the offense, and (5) so long as the
defendant's criminal record does not indicate a need for
imprisonment to protect public safety. See U.S.S.G.
S 5K2.13.
Following the analysis used by the Supreme Court in
Koon v. United States, 518 U.S. 81 (1996), we stated in
United States v. McBroom, 124 F.3d 533 (3d Cir. 1997), that
"[w]ith limited exceptions, mental and emotional conditions
are discouraged factors; that is, they are not ordinarily
relevant in determining whether a departure is warranted."
Id. at 538. Vitale relies on the Guideline that provides that
a sentence may be reduced to reflect "the extent to which
reduced mental capacity contributed to the commission of
the offense." U.S.S.G. S 5K2.13, and our remand in
McBroom so that the district court could consider whether
the evidence that McBroom "suffered from obsessive-
compulsive disorder complicated by Cyclothymia, an after-
effect of his childhood sexual abuse and a significant
contributing factor in his possession of child pornography"
warranted a departure on that ground. Id. at 550.
11
We review the district court's refusal to grant a downward
departure due to Vitale's compulsion to purchase antique
clocks for abuse of discretion. Koon, 518 US. at 98. In its
analysis, the district court noted that disorders such as
gambling and intoxication do not ordinarily warrant a
diminished capacity reduction. App. at 91. The court also
noted the length of time and sophistication of Vitale's
criminal activities, and commented that Vitale did not use
his personal money but only money obtained from his
employer to feed his clock compulsion. See App. at 91-92.
The court concluded that compared with other cases
Vitale's compulsion did not rise to a level that warranted a
downward departure. Because the district court did not
misinterpret its authority and committed no error of law,
we have no jurisdiction over its decision not to depart on
this ground as well.
III.
For the reasons stated above, we will affirm the judgment
of conviction and sentence.
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FULLAM, Senior Circuit Judge, Concurring.
I concur in the judgment, because we are bound by the
panel opinion in U.S. v. Astorri, 923 F.2d 1052 (1991). I
believe, however, that the reasons given by the Astorri
panel, and the majority's further elaboration of that
reasoning, are incorrect.
Section 3D1.2(c) of the Guidelines clearly requires
grouping of the counts in this situation, since the criminal
conduct embodied in the mail fraud count is a specific
offense characteristic of the tax count. Contrary to the view
of the majority, this does not in any way frustrate the
intent of the Commission to treat tax cases more harshly if
the unreported income came from criminal activity. The
guideline range for the tax count is still increased by two
points. And under the grouping analysis, this would be
directly reflected in the actual sentence, if the tax count
were the more serious of the two counts. The anomaly
perceived by the majority is entirely due to the fact that,
here, the fraud count carries a higher guideline range, and
concurrent sentencing is mandatory. The conduct which
aggravated the tax violation is being punished in the fraud
count.
It should be noted that all "specific offense
characteristics" enhance the guideline range; accepting the
majority's reasoning, there could never be grouping of
counts on that basis; Guideline 3D1.2(c) would be a dead
letter.
If free to do so, I would adopt the bright-line rule
espoused by the staff of the Commission, and accepted by
our sister-circuit in U.S. v. Haltom, 113 F.3d 43 (5th Cir.
1997). This is not, I respectfully suggest, an issue which
should divide the circuits.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
13