United States v. Daniel Thody ( 2016 )

Case: 14-50904 Document: 00513336301 Page: 1 Date Filed: 01/08/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 14-50904 United States Court of Appeals
Fifth Circuit
FILED
January 8, 2016
UNITED STATES OF AMERICA, Lyle W. Cayce
Clerk
Plaintiff - Appellee
v.
DANIEL ISAIAH THODY,
Defendant - Appellant
Appeals from the United States District Court
for the Western District of Texas
USDC No. 5:13-CR-153
Before DAVIS, PRADO, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Defendant-Appellant appeals his sentence imposed by the district court
following a conviction on multiple counts of tax evasion. We VACATE the
sentence and REMAND for further proceedings.
I.
Daniel Isaiah Thody contracted to make and sell airplane parts to the
United States Government (Government). He then hid the income created by
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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these sales from the IRS. Thody funneled his income, and thereby avoided
reporting it to the IRS, through two corporate entities, WET Publishing (WET)
and Middle Creek Construction (MCC).
The owners of WET and MCC authorized Thody to enter into
Government contracts on their behalf. The airplane parts were sold pursuant
to contracts between these entities and the Government, and the profits from
the sales then went to the entities. Initially, Thody split the profits from the
contracts with the owners. However, at some point, Chandler—who owned
MCC—ordered Thody to stop using the MCC name. The record does not show
whether MCC had contracts outstanding with the Government, at that time,
whether Thody received money from these contracts, or whether Thody failed
to pay Chandler any profits owed.
Thody believed he was a “sovereign citizen” not subject to federal law.
He therefore believed that the Internal Revenue Code did not require him to
pay taxes. The Government investigated Thody’s business dealings and
discovered that he concealed his income from the IRS. The Government
therefore indicted him on five counts of tax evasion, and a jury convicted him
on all counts.
In determining its sentence, the district court first calculated Thody’s
sentencing range under the Guidelines. His conviction for tax evasion
established a base offense level of sixteen. The district court then applied
adjustments totaling six levels: two for obstruction of justice, two for
sophistication of the offense, and two for failing to identify the source of income
from criminal activity. This provided a combined offense level of twenty-two,
which had a corresponding sentencing range of forty-one to fifty-one months
imprisonment and one to three years of supervised release.
After considering the Guidelines, the district court stated that “the
guideline range is appropriate.” It then imposed the following sentence:
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[imprisonment] for a term of 45 months on Count One and Two to
run consecutive to each other for a total of 90 months. And 41
months on Counts three, four, and five to run concurrently with all
other counts. . .[Thody] shall pay restitution in the amount of
$162, 857. . .And upon release from imprisonment, [Thody] shall
be placed on supervised release for a term of three years on each
of counts one through five to run concurrently.
The court also imposed an employment restriction on his supervised release,
prohibiting Thody from entering into contracts with the Government.
Thody now appeals this sentence arguing that it was not warranted by
statute, or alternatively, that it was not reasonable.
II.
Thody first argues that his sentence was not authorized by statute. His
sentence consisted of three parts: imprisonment, restitution, and supervised
release. Each is discussed below:
A.
We first evaluate whether the district court had statutory authority to
impose consecutive sentences on counts one and two. We review de novo
whether the district court imposed an illegal sentence. 1
The statutory maximum sentence on a single count of tax evasion is sixty
months. 2 However, 18 U.S.C. § 3584 gives the district court discretion to order
consecutive sentences on multiple counts of conviction. 3 In particular, it
authorizes that on multiple counts “the terms may run concurrently or
consecutively.” 4 Therefore, under 18 U.S.C. § 3584, the district court had
1 See United States v. Nolen, 472 F.3d 362, 382 n.52 (5th Cir. 2006) (“[A]n illegal
sentence always constitutes plain error.”).
2 26 U.S.C. § 7201.
3 18 U.S.C. § 3584(a).; see, e.g, United States v. Simpson, 796 F.3d 548, 557 (5th Cir.
2015) (“[T]he district court acted within its discretion in imposing consecutive sentences for
[multiple counts].”).
4 18 U.S.C. § 3584.
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discretion to impose ninety-months of imprisonment by ordering consecutive
terms of forty-five months on two counts of conviction.
B.
Thody also argues, and the Government concedes, that the district court
improperly ordered restitution as a part of his tax evasion sentence. We have
held that restitution cannot be imposed as part of a tax evasion sentence. 5
Although the district court may order restitution as a condition of supervised
release, it may do so only if the defendant admits the amount of the tax liability
or the Government establishes the amount of the tax liability at trial. 6 As both
parties recognize, the district erred when it imposed restitution as a part of
Thody’s sentence for tax evasion, and we vacate that portion of the sentence.
Nonetheless, we remand to allow the district court to consider whether to
impose restitution as a condition of supervised release.
C.
Finally, Thody argues that the district court lacked authority to prohibit
him from contracting with the Government as a condition of his supervised
release. Thody asserts that this occupational restriction is neither reasonably
related to tax evasion nor necessary to protect the public. We review conditions
on supervised release for an abuse of discretion. 7
A district court has discretion to impose conditions on supervised
release, but only if the condition is reasonably related to: the nature and
circumstances of the offense, the need to afford adequate deterrence, the need
to protect the public from future crimes, and the need to provide treatment to
5 Nolen, 472 F.3d at 382 (“Restitution is not allowed under § 3663 as part of the
sentence in a federal tax evasion case.”).
6 United States v. Smith, 430 F. App’x 357, 358 (5th Cir. 2011).
7 United States v. Coenen, 135 F.3d 938, 940 (5th Cir. 1998).
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a defendant. 8 Moreover, if a condition is required, it must be imposed to the
“minimum extent necessary.” 9
Restricting Thody from entering into Government contracts meets none
of these criteria. The employment restriction is not reasonably related to
Thody’s offense of tax evasion. The restriction necessarily focuses on how
Thody earns income, whereas his conviction had nothing to do with the source
of Thody’s income or how he earned it. Instead, tax evasion related to his
fraudulent refusal to pay taxes on his earnings. Moreover, the restriction is not
needed to protect the public from further tax evasion by Thody. The restriction
cannot impede him from fraudulently failing to pay his taxes—Thody might
refuse to pay taxes on his income, regardless of the source of that income. Thus,
we must vacate the district court order to the extent it imposes this
employment restriction as a condition of supervised release.
III.
Thody also argues that the district court’s sentence is not reasonable.
Procedural reasonableness requires that the district court properly calculate
the Guidelines range, consider the factors in 18 U.S.C. § 3553(a), and
adequately explain its sentence. 10 Thody asserts that the district court neither
adequately explained its reasons for its sentence nor properly calculated his
Guidelines range.
A.
Thody argues that the district court did not adequately explain its
reasons for its sentence. Because Thody did not contemporaneously object to
8 United States v. Weatherton, 567 F.3d 149, 153 (5th Cir. 2009) (citing 18 U.S.C. §
3583 (d)); United States v. Paul, 274 F.3d 155, 164 (5th Cir. 2001).
9 U.S. Sentencing Guidelines Manual § 5F1.5(b).
10 United States v. Rhine, 637 F.3d 525, 527 (5th Cir. 2011).
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the district court’s explanation at trial, we review for plain error. 11 An error is
plain only if it (1) was clear, (2) affected a defendant’s substantial right, and
(3) seriously affected the fairness, integrity, and public reputation of the
proceeding. 12
Thody contends that the district court erred when it failed to explain its
reasons in a written statement. We disagree. We do not impose such formulaic
rules on the district court: an explanation may be given in open court, a written
judgment, or in a statement of reasons. 13 The purpose of an explanation is to
allow for meaningful appellate review and to promote the perception of fair
sentencing. 14 Accordingly a transcript of oral statements allows for thorough
review just as a written statement would.
Alternatively, Thody makes a conclusory statement that the oral reasons
for his sentence were inadequate. The degree of explanation that a district
court must give will depend on the type of sentence. 15 A within-Guidelines
sentence requires little explanation. 16 However, a non-Guidelines sentence
requires more. 17 If the district court imposed a non-Guidelines sentence, it
must articulate its reasons based on the statutory factors of 18 U.S.C. §
3553(a). 18
11 United States v. Ferguson, 369 F.3d 847, 849 (5th Cir. 2004); see also United States
v. Lopez-Velasquez, 536 F.3d 804, 806 (5th Cir. 2014).
12 United States v. Andino-Ortega, 608 F.3d 305, 309 (5th Cir. 2010).
13 See 18 U.S.C. § 3553(c) (“The court, at the time of sentencing, shall state in open
court the reasons for its imposition of the particular sentence.” (emphasis added)); United
States v. Powell, 402 F. App’x 930, 932 (5th Cir. 2010) (noting that there was a “lack of reasons
in the written judgment.”); United States v. Gonzalez, 445 F.3d 815, 820 (5th Cir. 2006)
(explaining that both the explanations made “in open court and in its statement of reasons,
satisfied the requirements of § 3553(c)(2).”).
14 Gall v. United States, 552 U.S. 38, 50 (2007).
15 See United States v. Mares, 402 F.3d 511, 519 (5th Cir. 2005).
16 United States v. Mondrago-Santiago, 564 F.3d 357, 362 (5th Cir. 2009).
17 See United States v. Peterson, 552 F. App’x 389, 392 (5th Cir. 2014).
18 United States v. Fraga, 704 F.3d 432, 438-49 (5th Cir. 2014).
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Here, the district court imposed a non-Guideline sentence. The
Guidelines, with exceptions not here relevant, require that a sentence on
multiple counts run concurrently. 19 In this case, when the district court
imposed a ninety-month sentence, by imposing two terms of forty-five months
to run consecutively, it varied from the Guidelines recommendation of a forty-
one to fifty-one month sentence.
Because it imposed a non-Guidelines sentence, the district court needed
to provide a more detailed explanation of its reasoning. The court gave the
following reasons:
the defendant is a person that questions and challenges the
jurisdiction of the Court, [and] does not acknowledge the validity
of the statute of which he was convicted of. [Therefore][,] [w]ithout
an adequate and sufficient sentence, the defendant will not be
deterred and will continue his unlawful activities in an identical
or similar fashion.
The district court’s reasons adequately explained the basis for Thody’s
sentence. First, the court explained that Thody’s sovereign citizen beliefs
caused him to reject federal law and also reject the notion that it applied to
him. Second, because Thody continued to believe that federal taxes were
voluntary, the district court explained that an above-guideline sentence was
needed to motivate him to pay taxes in the future. Thus, even applying the
19U.S. Sentencing Guidelines Manual § 5G1.2; see, e.g., United States v. Johns, 732
F.3d 736, 738-39 (7th Cir. 2013) (“[T]he guideline range [was] 97 to 121 months” but “[t]he
court imposed an above-guidelines range sentence: 120 months concurrent on Counts One
and Two, and 40 months consecutive on Count Three, for a total of 160 months.” (emphasis
added)); see also United States v. Nikolovski, 565 F. App’x 397, 400, 403 (6th Cir. 2014)
(considering a sentence with “a total imprisonment of 216 months” when the “advisory
guideline range was 87 to 108 months” the appellate court explained that “a [district] court
may vary upward…by imposing a substantive sentence that exceeds the guidelines range or
by having the sentence run consecutively” (emphasis added)); cf. United States v. Aguilar-
Martinez, 405 F. App’x 812, 813 (5th Cir. 2010) (noting that “the 14-month consecutive
sentence falls squarely within the bounds of the eight to 14-month Guideline range.”).
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more burdensome standard of a non-Guideline sentence, under plain error
review, the district court gave an adequate explanation.
B.
Thody next argues that the court should not have adjusted his offense
level based on § 2T1.1(b)(1). 20 This Guideline requires a two-level adjustment
“[i]f the defendant failed to report or to correctly identify the source of income
exceeding $10,000 in any year from criminal activity.” 21 Generally, “criminal
activity” is any conduct that is an offense under federal or state law. 22
The Government argued on appeal that Thody procured his income by
defrauding Chandler through either identification fraud or wire fraud by
continuing to use the MCC name to acquire Government contracts after
Chandler withdrew his consent for this practice. 23 Identification fraud requires
using the identification of another without authority to commit an unlawful
act. 24 Similarly, wire fraud requires a scheme to defraud, the use of wire
communications, and a specific intent to defraud. 25 The record does not support
this argument because the Government presented insufficient evidence to
establish that Thody defrauded Chandler. Chandler testified that he withdrew
consent from Thody to use the MCC name. But he did not specify when this
occurred; whether MCC still had contracts outstanding with the Government;
20 We review application of § 2Tb1.1(b)(1) for clear error. United States v. Heard, 709
F.3d 413, 423 (5th Cir. 2013).
21 U.S. Sentencing Guidelines Manual § 2T1.1(b)(1).
22 Id. at cmt. n.4.
23 The district court held that Thody failed to report income from criminal activity
because of his underlying offense of tax evasion. However, the government abandoned this
argument on appeal. And rightly so because, as recognized by our sister circuit, tax evasion
may not serve as the “criminal activity” that justifies the enhancement. See United States v.
Ford, 988 F.2d 347, 350 (9th Cir. 1993); United States v. Ladum, 141 F.3d 1328, 1342-43 (9th
Cir. 1998).
24 18 U.S.C. § 1028(a)(7); see also United States v. Pejouhesh, 603 F. App’x 347, 348
(5th Cir. 2015).
25 18 U.S.C. § 1343; see also United States v. Benns, 740 F.3d 370, 375 (5th Cir. 2014).
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or if contracts were outstanding, whether Thody deprived him of any profits.
Thus, insufficient evidence exists to show that Thody defrauded Chandler by
using the MCC name, and the court erred in applying this adjustment.
An incorrect Guidelines calculation, including an improper adjustment,
“will usually invalidate a sentence.” 26 If the district court makes such a
procedural error, we must remand for resentencing unless the error was
harmless. 27 An error is harmless only if it “did not affect the district court’s
selection of the sentence imposed.” 28 Here, the two-point adjustment for failure
to report income from criminal activity may well have affected the district
court’s sentence. The district court purported to make a sentence consistent
with “the guideline range.” Moreover, to calculate the guideline range, it relied
on the two-level adjustment for criminal income. Without the two-level
adjustment, the Guideline range would have been thirty-three to forty-one
months, and therefore, the district court may not have imposed the sentence
that it did. Accordingly, we must vacate the sentence to this extent and remand
for resentencing.
IV.
For the above reasons, we VACATE the sentence and REMAND for
resentencing for the district court to: (1) remove the employment restriction as
a condition of Thody’s supervised release, (2) reconsider whether restitution
should be imposed as a condition of Thody’s supervised release, and (3)
reconsider its sentence without application of the two-level adjustment under
§ 2T1.1(b)(1).
26 United States v. Ibarra-Luna, 628 F.3d 712, 717 (5th Cir. 2010).
27 United States v. Delgado-Martinez, 564 F.3d 750, 753 (5th Cir. 2009).
28 Id. (quoting Williams v. United States, 503 U.S. 193, 203 (1992)).
9