United States v. Cline , 332 F. App'x 905 ( 2009 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-4430
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
TIMOTHY RAY CLINE,
Defendant - Appellant.
Appeal from the United States District Court for the Southern
District of West Virginia, at Bluefield. David A. Faber,
District Judge. (1:06-cr-00161-1)
Argued: March 27, 2009 Decided: June 9, 2009
Before MICHAEL and TRAXLER, Circuit Judges, and Thomas D.
SCHROEDER, United States District Judge for the Middle District
of North Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: John Miles Morgan, Charleston, West Virginia, for
Appellant. Larry Robert Ellis, OFFICE OF THE UNITED STATES
ATTORNEY, Charleston, West Virginia, for Appellee. ON BRIEF:
Dwane L. Tinsley, HENDRICKSON & LONG, PLLC, Charleston, West
Virginia, for Appellant. Charles T. Miller, United States
Attorney, Charleston, West Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Timothy Ray Cline pled guilty to one count of tax evasion
under 26 U.S.C. § 7201 and one count of Social Security fraud
under 42 U.S.C. § 408(a)(4). He appeals his sentence,
contending the district court erred in calculating his sentence
and made incompatible findings of fact. Finding no error, we
affirm for the reasons stated below.
I.
From September 1991 to March 2003, Cline received Social
Security Disability Insurance Benefits (“DIB”) in amounts
ranging from $761 to $1,370 a month, based on a prior
determination that he suffered from qualifying disabilities. 1
J.A. 973. From February 1995 to March 2003, Cline received
payments totaling $35,622. J.A. 13-14.
In 1993, Cline started a chain of nightclubs and adult
entertainment establishments in southern West Virginia which he
owned, operated and managed through a number of interrelated
corporate entities operating generally under the name “Southern
X-posure.” J.A. 941-49, 953-64. Although he did not draw a
regular salary or wage from any of his companies, he regularly
appropriated the cash door revenue, or “cover charge,” collected
1
Cline became entitled to DIB in September 1991 with a
primary diagnosis of degenerative joint disease and a secondary
diagnosis of depression. J.A. 973.
2
at the nightclubs. J.A. 941, 958. From 2001 through 2003
alone, Cline drew an estimated $200,000. (Id.) Neither Cline
nor any of his companies reported this income to the Internal
Revenue Service (“IRS”). J.A. 971.
Following the filing of an Information, Cline pled guilty
pursuant to a plea agreement to federal income tax evasion, in
violation of 26 U.S.C. § 7201, and Social Security fraud, in
violation of 42 U.S.C. § 408(a)(4). J.A. 11-14.
During a three-day sentencing hearing, Cline pursued a
previously filed Motion for Downward Departure Based on
Diminished Capacity under U.S. Sentencing Guideline (“USSG” or
“Guidelines”) § 5K2.13. 2 Cline presented the expert testimony of
Dr. Robert Miller, a forensic psychiatrist, and Timothy Saar,
Ph.D., a treating psychologist. Dr. Miller had administered a
series of psychiatric and psychological tests to determine
Cline’s mental capacity, and Dr. Saar had treated Cline for
substance abuse. Based on their interaction with Cline and, in
part, on their independent review of Cline’s medical history
predating the offenses, both Drs. Miller and Saar testified that
Cline suffered from mental and emotional conditions supporting a
finding of the diminished capacity required for a downward
departure. J.A. 86, 194-98, 878. Cline refused to submit to an
2
Cline was sentenced pursuant to the Guidelines in effect
on November 1, 2007.
3
examination by Dr. Ralph Smith, the Government’s expert, who
testified that certain of Cline’s test results indicated that he
had inflated and falsified symptoms during his testing and,
consistent with Cline’s medical history, that he had a high
probability of malingering. J.A. 435-40, 458, 482, 489, 493,
495, 919, 922-23.
The district court denied Cline’s motion and, instead,
applied a 2-level enhancement under USSG § 3C1.1 for obstruction
of justice, based on its finding that Cline had willfully
manipulated his test answers in an attempt to demonstrate he
possessed the diminished mental capacity necessary to obtain a
downward departure. J.A. 1078. The district court also
declined to apply a reduction for acceptance of responsibility
under USSG § 3E1.1. J.A. 1076.
To determine the appropriate base offense level for Cline’s
tax evasion count, the district court calculated the tax loss to
be $266,722. J.A. 607-08, 1070. To arrive at this figure, the
district court characterized the door revenue as a dividend
payment to Cline from one of his companies. J.A. 527, 607-08.
It concluded that the company would have paid $69,608 in taxes
on the door revenue prior to its distribution as a dividend and
included this amount in the total tax loss calculation. (Id.)
Based on a tax loss greater than $200,000, the district court
4
assigned a base offense level of 18 to the tax evasion count.
J.A. 1077; USSG § 2T4.1.
The district court also concluded that the loss for the
Social Security fraud count was $35,622, the entire amount of
DIB Cline was charged with improperly receiving. J.A. 607,
1078. It denied Cline’s request to offset from this amount the
Social Security and Medicare taxes he had inadvertently overpaid
on other, unrelated income. The district court determined that
the Social Security fraud count carried a base offense level of
12, the sum of a base offense level of 6 plus a 6-level
enhancement for causing loss in excess of $30,000. J.A. 1078;
USSG § 2B1.1.
Based on these findings, the district court imposed a
sentence of 37 months imprisonment. Judgment was entered on
April 2, 2008, and Cline timely appealed.
II.
We exercise jurisdiction over this appeal under 28 U.S.C. §
1291 and 18 U.S.C. § 3742(a). Cline challenges the district
court’s sentence, contending it erred (1) in applying a 2-level
obstruction of justice enhancement under § 3C1.1, (2) in failing
to credit his overpayment of Social Security and Medicare taxes
in calculating the amount of loss for the Social Security fraud
count, and (3) in making conflicting findings of fact with
5
respect to the characterization of the unreported door revenue
he appropriated from his nightclubs for personal use. We
discuss each assignment of error in turn.
III.
A.
Cline raises three related challenges to the district
court’s imposition of the 2-level enhancement for obstruction of
justice under § 3C1.1 in connection with his attempt to obtain a
downward departure for diminished capacity under § 5K2.13.
First, he claims that the district court improperly relied on
pre-offense conduct. Second, he argues that the district court
erred in concluding that he intentionally gave false information
to his experts in connection with tests they administered for
their analysis and testimony. And third, he contends that, even
if he falsified test information, his conduct did not rise to
the level required to impose the obstruction of justice
enhancement.
1.
We first address Cline’s challenge to the district court’s
determination that § 3C1.1 applies to the facts of his case.
This is a legal issue, which we review de novo. United States
v. Hicks, 948 F.2d 877, 884 (4th Cir. 1991).
6
A 2-level increase in a defendant’s offense level is
authorized if “the defendant willfully obstructed or impeded, or
attempted to obstruct or impede, the administration of justice
with respect to the investigation, prosecution, or sentencing of
the instant offense of conviction” and “the obstructive conduct
related to the defendant’s offense of conviction and any
relevant conduct.” USSG § 3C1.1. Cline argues that the
district court relied on pre-offense medical records to support
the enhancement and that this reliance was improper because any
obstructive conduct evidenced therein is not related to either
of the offenses of conviction.
Dr. Miller, Cline’s expert, administered a series of
psychiatric and psychological tests on Cline to determine his
eligibility for a downward departure. Among the tests he
administered were: two IQ tests, two Malingering Probability
Scale tests (MPS), the Minnesota Multiphasic Personality
Inventory test (MMPI-2), and the BRIEF-A test (measuring
executive ability and behavior regulation). J.A. 203-10. In
rendering his opinion, Dr. Miller relied on the lower of the IQ
scores, showing an IQ of 84. J.A. 887. He also rejected the
first MPS test result that showed a 99% probability that Cline
was malingering and, when the second test result was invalid,
rejected it as well. J.A. 243-47. Cline’s MMPI-2 test results,
which suggested that he experienced moderate to severe emotional
7
distress and was introverted and withdrawn, J.A. 232-33, 888,
also showed a high correlation with having been exaggerated for
secondary gain. J.A. 236. Cline’s BRIEF-A test results raised
concerns about his ability to “initiate problem solving or
activity, sustain working memory, plan and organize problem-
solving approaches, [and] attend to task-oriented output.” J.A.
888. Dr. Miller adopted the BRIEF-A test results as valid
despite the fact that Cline’s answers put him in the 99th
percentile of all test takers for severity and an instruction in
the test’s interpretative guide cautioned that the results
should be questioned. J.A. 268-69. Dr. Miller also considered
and relied upon Cline’s medical records, including pre-offense
records, along with his other testing in rendering his opinion
that Cline suffered from diminished capacity and had an IQ of
84, demonstrating borderline intellectual functioning. J.A.
886-89.
Dr. Smith, the Government’s expert, formed his opinion
based on the same test results Dr. Miller interpreted because
Cline refused to submit to Dr. Smith’s examination. J.A. 429.
Dr. Smith opined that Cline’s higher IQ test score of 88 was
more accurate and, although within the low average intelligence
range of 80-88, did not support a conclusion of borderline
intellectual functioning. (Id.) Dr. Smith further criticized
Dr. Miller for rejecting the first MPS test result that revealed
8
that Cline was malingering so he could conduct a second MPS
test, whose results he also rejected. J.A. 437-38. He also
opined the MMPI-2 test result demonstrated “extreme over-
endorsement” by Cline and indicated that he was “trying to
create the impression of a severe psychological problem.” J.A.
436. As to the BRIEF-A test results, Dr. Smith testified that
Cline “pegs it out at the very top, as if he has very, very,
very severe problems in all those areas and it just doesn’t
comport with the rest of his history to have that serious a
problem.” J.A. 439. In short, Dr. Smith opined that the
results obtained by Dr. Miller undercut a finding of diminished
capacity and contained significant evidence of malingering, all
of which were inconsistent with the decades of evidence of
Cline’s ability to thrive in the business world. J.A. 458, 482,
919, 923.
The district court concluded that Dr. Miller deviated from
standard testing methodology, ordered and repeated certain tests
to significantly influence the results, “disregarded results
indicating an extremely high probability” that Cline was
malingering, and failed to account for Cline’s ability to
function day-to-day. J.A. 1073. It found that Cline “attempted
to manipulate the results of his psychiatric and psychological
evaluations in order to obtain a downward departure under §
5K2.13.” J.A. 1076. The § 3C1.1 enhancement was supported, it
9
concluded, by “test results indicating an extremely high
probability of malingering, by defendant’s refusal to submit to
an independent evaluation for purposes of his motion for a
downward departure, and by the conclusions of Dr. Ralph Smith,”
the Government’s expert who confirmed a determination of
malingering. J.A. 1076.
There is no evidence that the district court improperly
based its application of the § 3C1.1 enhancement on Cline’s pre-
offense medical records. 3 Rather, it based its determination on
evidence that Cline malingered on psychiatric and psychological
evaluations administered by Dr. Miller, the results of which
were furnished to the district court in support of a downward
departure in the present case. (Id.) Thus, we conclude that
§ 3C1.1 was properly applied based on the facts before the
district court.
3
To the extent that Drs. Miller, Saar and Smith referred to
Cline’s pre-offense medical records in arriving at their
respective conclusions as to Cline’s condition, it bears noting
that Cline introduced the records himself. Cline’s Motion to
Depart Downward Based on Diminished Capacity references his
extensive pre-offense mental history, including this “extensive
15 year history of psychiatric treatment involving several
Clinicians.” J.A. 878, 881-82. The expert reports Cline
submitted in support of his motion also rely on the records.
J.A. 887-88. Moreover, his counsel expressly invited the
inquiry at the sentencing hearing by stating that Cline had a
“constitutional right” to bring to the court’s attention the
“mental history that [Cline] had for some 17 years.” J.A. 615.
10
2.
Cline further contends that the district court erred in
concluding that he intentionally falsified his test results. We
review a district court’s factual findings for clear error.
United States v. Layton, ___ F.3d ___, 2009 WL 1110814, at *2
(4th Cir. Apr. 27, 2009). Under a clear error standard of
review, a district court’s finding will be reversed only if
there is a “definite and firm conviction that a mistake has been
committed.” United States v. Stevenson, 396 F.3d 538, 542 (4th
Cir. 2005) (internal quotation marks and citation omitted).
The record amply supports the finding that Cline
intentionally faked test results in an effort to reduce his
sentence. For example, one of the tests, the MPS, is
specifically designed to detect malingering. It demonstrated
that Cline had a 99% probability of doing so. J.A. 437.
Cline’s MMPI-2 and BRIEF-A results also showed that he was
grossly exaggerating his symptoms for secondary gain. J.A. 235-
36, 436, 438-40, 835, 839. That Cline’s expert, Dr. Miller,
rejected the MPS results and simply accepted the other test
results as valid despite their serious deficiencies does not
preclude the district court from relying on such evidence of
malingering. J.A. 269-70, 210.
After considering Cline’s evidence, the district court
concluded that Dr. Saar’s testimony was “unsupported by notes or
11
records of his appointments with the defendant” and that Dr.
Miller “deviated from standard testing methodology” and
disregarded key test results that undermined his opinion. J.A.
1073. Instead, the district court found the testimony of Dr.
Smith, whose report Dr. Miller characterized as “excellent,
well-written and well-reasoned,” to be more consistent with the
record as a whole. J.A. 196. Dr. Smith concluded that Cline’s
MMPI-2 results evidenced his “distortion or exaggeration of the
severity of [his] psychopathology in an attempt to derive
secondary gain . . . and [that he] has distorted and greatly
exaggerated his problems to create the impression of a severe
psychological problem.” J.A. 919. In concluding that Cline
“willfully manipulated his test answers in an attempt to
demonstrate the mental capacity necessary to obtain a downward
departure,” J.A. 1074, the district court plainly found Dr.
Smith’s testimony more credible. A district court’s credibility
determinations receive “great deference.” United States v.
Feurtado, 191 F.3d 420, 424 n.2 (4th Cir. 1999). Moreover, in
situations where there are “two permissible views of the
evidence, the [district court’s] choice between them cannot be
clearly erroneous.” Stevenson, 396 F.3d at 542 (internal
quotation marks and citation omitted). Thus, Cline fails to
demonstrate that the district court clearly erred in concluding
that he falsified test information based on the court’s
12
crediting of Dr. Smith’s testimony over that of Drs. Miller and
Saar.
3.
Cline contends that, even had he falsified responses on Dr.
Miller’s tests, such conduct would not rise to the level of
egregiousness necessary to trigger the § 3C1.1 enhancement.
(Appellant’s Br. at 19.) We review the application of § 3C1.1
to the facts de novo. Hicks, 948 F.2d at 884.
The district court found that Cline’s deliberate
manipulation of his answers to psychiatric and psychological
tests was calculated to lead his examiners to misrepresent his
mental capacity to the district court. J.A. 619-22. Providing
materially false information to a judge is an explicit basis for
the enhancement. USSG § 3C1.1 cmt. n.4. Material information
means “evidence, fact, statement or information that, if
believed, would tend to influence or affect the issue under
determination.” USSG § 3C1.1 cmt. n.6. Cline’s falsification
of test results was intended to mislead the district court into
concluding that he was eligible for a downward departure.
Therefore, the district court properly applied the enhancement
upon a finding that Cline willfully obstructed the
administration of justice with respect to his sentencing by
providing false answers to the district court through his
examiners, with the goal of receiving a downward departure to
13
which he was not entitled. See United States v. Frierson, No.
08-6254, 2009 WL 766533, at *2 (10th Cir. Mar. 24, 2009)
(unpublished) (affirming district court’s imposition of
obstruction of justice enhancement under § 3C1.1 for defendant’s
malingering on his post-plea competency tests); United States v.
Greer, 158 F.3d 228, 234-38 (5th Cir. 1998) (finding obstruction
enhancement proper for defendant who feigned incompetency by
misrepresenting his psychiatric condition to his examiners,
intending for them to present their inaccurate impressions to
the court).
B.
Cline also challenges the district court’s sentence on his
Social Security fraud count. The district court concluded that
the loss on this count was $35,622, the total amount of DIB
Cline received from February 1995 to March 2003. J.A. 1078. In
2001 and 2002, Cline inadvertently overpaid Social Security and
Medicare taxes on other income in the amount of $14,380, a sum
he argues should have been credited against the amount of DIB
payments he improperly received from the Government. We review
the district court’s application of the Guidelines de novo.
Layton, ___ F.3d at ___, 2009 WL 1110814, at *2.
The district court calculated the Government’s loss under
USSG § 2B1.1, cmt. n.3(F)(ii), which provides, in pertinent
part, that in government benefit cases “loss shall be considered
14
to be not less than the value of the benefits obtained by
unintended recipients.” The district court thus determined that
the loss for the Social Security fraud count was $35,622, the
total amount of DIB Cline was charged with improperly receiving.
J.A. 1078. Cline urges application of the “net loss” theory
under which the Government’s loss would be reduced by “the money
returned . . . by the defendant . . . to the victim before the
offense was detected.” USSG § 2B1.1, cmt. n.3(E). A credit for
his overpayment of taxes would reduce the amount of the social
security loss to $21,242, resulting in a 2-level decrease in his
base offense level. 4 USSG § 2B1.1(b)(1).
We find Cline’s argument to be without merit. The district
court’s calculation of loss was consistent with the Application
Notes, which define loss as “the greater of actual or intended
loss.” USSG § 2B1.1 cmt. n.3(A). Actual loss is “the
reasonably foreseeable pecuniary harm that resulted from the
offense,” and intended loss is “the pecuniary harm that was
intended to result from the offense.” USSG § 2B1.1 cmt.
n.3(A)(i)-(ii). In making “loss” calculations, the sentencing
court is instructed to hold the defendant “responsible for the
amount of loss which was intended, not the actual loss
ultimately sustained.” United States v. Loayza, 107 F.3d 257,
4
The base offense level is enhanced by 4 levels for a loss
greater than $10,000, and by 6 levels for a loss greater than
$30,000. USSG § 2B1.1.
15
266 (4th Cir. 1997) (refusing to apply net loss theory and
credit payments made to victims of Ponzi scheme against amount
of loss intended by perpetrator); cf. United States v. Phelps,
478 F.3d 680, 682 (5th Cir. 2007) (“We are not persuaded that
the amount of tax loss Appellant intended to cause should be
reduced simply because his scheme to defraud apparently
inadvertently caused payment of excess social security taxes.”).
Because Cline’s overpayments were “erroneous,” his intended
harm was the full amount of DIB he improperly received.
Moreover, Cline has provided no case applying the net loss
theory to government benefit cases, and nothing in the
Application Notes suggests such an application is required here.
Accordingly, the district court properly applied § 2B1.1 cmt.
n.3(F)(ii) to calculate “loss” in the Social Security fraud
count as the sum total of DIB payments Cline improperly received
from the Government. 5
5
Cline is correct that the trial court’s Sealed Memorandum
of Sentencing Hearing (“Sealed Memorandum”) misstates his
argument as one requesting a credit against the calculation of
loss for the tax evasion count, rather than for the Social
Security fraud count. J.A. 1072. However, the transcript from
his sentencing hearing demonstrates that the district court
understood his request as an offset against the loss for the
Social Security fraud count, and orally denied it. J.A. 606-
607. Because the request was denied orally at the sentencing
hearing, the error in the Sealed Memorandum had no impact on
Cline’s sentence and does not alter the fact that the amount of
loss was properly calculated under USSG § 2B1.1.
16
C.
Cline argues next that the district court committed clear
error in calculating the loss on the tax evasion count when it
characterized the unreported door revenue he appropriated from
his nightclubs as dividend payments rather than a salary. Cline
contends this error had two significant consequences. First, he
claims it increased the amount of the tax loss and resulted in a
higher base offense level for the tax evasion count. Second, he
contends that it is incompatible with the district court’s
findings of fact to support the Social Security fraud count.
The district court’s characterization of the door revenue as a
dividend payment is a factual determination reviewable for clear
error. Layton, ___ F.3d at ___, 2009 WL 1110814, at *2.
1.
The district court calculated the loss for the tax evasion
count at $266,772. This sum includes $69,608, the amount of tax
one of Cline’s companies would have paid on the approximately
$204,730 in unreported door revenue before paying it out to
Cline as a dividend distribution. 6 J.A. 670. Cline contends
that the door revenue should have been classified as a salary
and thereby a deductible expense to Cline’s corporation on which
6
The door revenue would have been treated first as income
to one of Cline’s companies and been subject to taxation at the
34% corporate rate before being paid out as a dividend to Cline
individually. J.A. 527; see USSG § 2T1.1(c)(1)(A).
17
no tax would have been owed, resulting in no net loss of tax
revenue to the Government. Treated in this fashion, the
Government’s loss on the tax evasion count would have been less
than $200,000 and resulted in a base offense level of 16 rather
than 18. 7 J.A. 1077.
Cline’s contention is without merit. The record is replete
with testimony that although Cline was encouraged on more than
one occasion by his accountant and his lawyer to draw a salary,
he refused to do so. J.A. 311-12, 534, 951-52. The district
court understandably found Cline’s post-conviction argument that
he would have characterized the door revenue as a salary lacking
in credibility. Moreover, in United States v. Delfino, 510 F.3d
468, 473 (4th Cir. 2007), this court refused to engage in post-
hoc determinations of how a defendant, convicted of tax evasion,
would have completed his tax returns had he not committed tax
fraud. 8 The district court’s characterization of the door
revenue as a dividend was not clear error.
7
A tax loss greater than $80,000 results in a base offense
level of 16; whereas a tax loss greater than $200,000 results in
a base offense level of 18. USSG § 2T2.1 & 4.1.
8
Cline attempts to distinguish Delfino on factual grounds,
claiming that, unlike Delfino, he actually filed tax returns and
cooperated with the IRS audit. (Pet’r Br. 35.) None of these
facts affects the holding that a district court is not required
to speculate and reconstruct what a convicted tax evader would
have claimed as deductions on a hypothetical tax return.
Delfino, 510 F.3d at 473.
18
2.
Cline contends lastly that the district court made
incompatible findings of fact in classifying the door revenue as
a salary for purposes of the Social Security fraud count and as
a dividend in calculating the loss for the tax evasion count.
This argument incorrectly presumes that the Social Security
fraud count is premised upon his receipt of a salary. Cline’s
conviction for Social Security fraud is premised on a violation
of 42 U.S.C. § 408(a)(4), based on his failure to disclose
events that affected his eligibility for DIB with the intent to
fraudulently secure such payments in an amount greater than he
was due. 9 J.A. 14.
An individual must be under a “disability” to qualify for
DIB. 42 U.S.C. § 423(a)(1)(E). An individual is not eligible
for DIB if he is engaged in substantial gainful work activity.
20 C.F.R. § 416.920(b). Work is substantial if it involves
doing significant physical or mental activities and is gainful
if it “is the kind of work usually done for pay or profit,
9
Section 408(a)(2) provides that whoever:
“having knowledge of the occurrence of any event
affecting (1) his initial or continued right to any
payment under this subchapter, or (2) the initial or
continued right to any payment of any other individual
in whose behalf he has applied for or is receiving
such payment, conceals or fails to disclose such event
with an intent fraudulently to secure payment either
in a greater amount than is due or when no payment is
authorized shall be guilty of a felony.”
19
whether or not a profit is realized.” 20 C.F.R.
§ 416.972(a)-(b) (emphasis added). In this case, Cline owned,
operated and managed a chain of nightclubs and adult
entertainment establishments through a complex corporate
structure involving a number of entities. The record indicates
that Cline was “very active” in the operation of his clubs,
monitoring nightly alcohol sales and door revenues vigilantly
and conducting weekly reviews of reports detailing dancers’
individual sales. J.A. 954, 957-961. Whether and how he was
compensated is irrelevant -- the operative facts are that he was
engaged in significant physical or mental activity that is
usually done for pay or profit, thereby making him ineligible
for DIB payments, and that he failed to disclose this activity.
Because the nature of the compensation is not part of the
offense conduct, Cline’s Social Security fraud conviction did
not require a factual finding as to whether the compensation was
a salary or a dividend. Therefore, no conflicting findings of
fact exist between the Social Security fraud and tax evasion
counts.
IV.
For the foregoing reasons, the sentence imposed on Cline by
the district court is
AFFIRMED.
20