United States v. Neal ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 24, 2008
No. 07-11047 Charles R. Fulbruge III
Clerk
UNITED STATES OF AMERICA
Plaintiff – Appellee
v.
ROBERT DAVID NEAL also known as, Albert Davis also known as, Michael
Skinner
Defendant – Appellant
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:06-CR-335-ALL
Before KING, DeMOSS, and PRADO, Circuit Judges.
PER CURIAM:*
Robert David Neal appeals his 327-month sentence for wire fraud, alleging
(1) that his offense was “partially completed,” see U.S.S.G. § 2X1.1, and (2) that
the sentence is unreasonable under 18 U.S.C. § 3553(a). For the reasons stated
herein, we affirm the district court’s sentence.
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
No. 07-11047
I. FACTUAL AND PROCEDURAL BACKGROUND
Neal concocted a scam through which he intended to collect millions in
worker’s compensation insurance premiums from employers, and then bilk the
workers when it came time to pay claims. To pull this off, Neal claimed to be a
legitimate broker from an established company with adequate funding and
reinsurance. He created shell companies to further his fraud, aliases for
fictitious individuals who supposedly ran such companies, and through these
companies, underbid legitimate competitors. He created forms for the “policies”
he issued and collected premiums. Neal hired a third-party administrator,
ostensibly to pay claims, but provided it with token funding. Neal also had in
place an exit strategy: in the event of a catastrophic claim, he intended to take
the money he had collected as premiums and flee the country.
Additionally, Neal forged the signature of U.S. District Judge Barbara
Lynn. Neal had previously been convicted of filing false tax returns, for which
he served a twenty-seven month term of imprisonment. At the time of the
instant offenses, Neal was serving a three-year term of supervised release. A
special condition of release prevented Neal from working in the insurance
business. To circumvent this, Neal drafted a court document indicating that the
condition had been vacated, and affixed Judge Lynn’s signature.
Neal sold his bogus worker’s compensation policies to several professional
employment organizations (“PEOs”). PEOs provide outsourced employee-related
services to businesses, including personnel management, health benefits, and
worker’s compensation coverage. In 2006, Neal convinced Employers Consortium
Inc. (“ECI”), a PEO, to purchase worker’s compensation insurance through him.
At the sentencing hearing, Andrew Cory, the former president of ECI, testified
that his company had cancelled the worker’s compensation for many of its clients
and was in the process of enrolling them in Neal’s worker’s compensation
scheme. Specifically, ECI intended to enroll a large client, Doctors Community
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No. 07-11047
Health Care (“Doctors Community”), in Neal’s insurance programs. Negotiations
were at an advanced stage, but a final contract had not been signed. Had the
FBI not informed ECI of the nature of Neal’s fraud, Cory testified that the
company would have begun paying premiums on behalf of Doctors Community
within days. Prior to the FBI interceding, Neal had collected some $401,170.51
in premiums from the victims of his frauds.
On October 26, 2006, Neal was indicted for the scam. He was charged with
wire fraud and aiding and abetting in Counts 1 through 4, and wire fraud in
Counts 5 and 6. Count 7 was a forfeiture charge which was later dropped.
Following indictment, Neal sent numerous letters from prison in which he
attempted to coerce testimony from witnesses concerning the scope of the deal
with ECI and Doctors Community. Neal wrote to Lawrence Hoover, who had
helped Neal to incorporate his bogus companies, stating that if they were able
to “lift [the ECI deal] off of us, the dollar amount of fraud they have on us is
minimal.” According to the testimony of FBI Special Agent Jody Windle, Neal
also threatened the life of the Assistant U.S. Attorney prosecuting the case,
attempted to recruit people to continue the scheme after he was arrested, and
planned to engage in insurance fraud after serving his sentence. His letters
detailed plans to have his fingerprints permanently altered, so that he could flee
the country and commit frauds with impunity from an offshore location.
Neal pleaded guilty—without a plea agreement—to Counts 1 through 6 on
April 27, 2007, three days before his trial was to begin.
The presentence investigation report (PSR) attributed to Neal an actual
and intended loss of $11,205,034.66. The PSR took the $401,170.51 which Neal
had received at the time the FBI interceded, and added to that amount the
projected premiums that would have been paid by the PEOs over the course of
their one-year policies. The PSR also attributed a loss of $8,000,000 to Neal
arising from the insurance policies with ECI on behalf of Doctors Community.
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No. 07-11047
At sentencing, Neal objected to the loss calculation. After hearing the
testimony of Cory and various FBI agents concerning the scope of the fraud and
the probable loss had the fraud continued unimpeded, the district court
overruled Neal’s objections. The court adopted the PSR and stated:
I am persuaded . . . on the basis of testimony presented today as
well as the sentencing exhibits that the intended loss should be used
and that the amounts of intended loss used by the probation officer
in calculating the Guidelines in the [PSR] are an accurate
calculation of the intended loss with the information that is
currently available in the record.
The PSR yielded an offense level of 37 and a criminal history category of
III, for a Guideline range of 262–327 months. Neal contended that a sentence in
this range would be unreasonable in light of the factors of 18 U.S.C. § 3553(a).
The district court noted that it had considered each of the § 3553(a) factors and
sentenced Neal to the statutory maximum of 240 months on each count. The
court ordered that the counts were to run consecutively, so as to produce an
aggregate sentence of 327 months.
II. STANDARD OF REVIEW
Sentencing issues raised for the first time on appeal are reviewed for plain
error. United States v. Peltier, 505 F.3d 389, 391-92 (5th Cir. 2007). At
sentencing, a defendant need not cite specific Guideline provisions, so long as a
general objection alerts the sentencing court of the defendant’s disagreement
with a particular application. See United States v. Ocana, 204 F.3d 585, 589 (5th
Cir. 2000). Nevertheless, this circuit adheres to the requirement that defendants
must object to error, in order to “encourag[e] informed decisionmaking and giv[e]
the district court an opportunity to correct errors before they are taken up on
appeal.” Peltier, 505 F.3d at 392. In Ocana, the defendant filed an objection to
the use of unadjudicated “relevant conduct” as a basis for an upward adjustment
in her offense level. 204 F.3d at 589. The court held that the defendant’s
objection “clearly notified” the sentencing court of her disagreement with an
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No. 07-11047
upward adjustment under § 1B1.3 of the Guidelines, notwithstanding her failure
to provide a citation to that provision. Id.
Neal argues that the district court should have applied a three-level
downward adjustment to his offense level because his fraud was a “partially
completed offense.” See U.S.S.G. § 2X1.1.1 However, Neal did not make this
argument in his objections to the PSR or at sentencing. The government argues
that because Neal first raises this issue on appeal, the court should review for
plain error. Neal acknowledges that he did not previously raise the argument.
However, he contends that because the sentencing hearing largely focused on the
fairness of holding him accountable for the $8,000,000 intended loss to ECI and
Doctors Community, he preserved the issue. In the alternative, in the event he
has not preserved the issue, he asks the court to apply a “more searching
standard than plain error.”
Loss calculation and the “partially completed” nature of an offense are
distinct matters. Compare U.S.S.G. § 2B1.1 (loss calculation), with U.S.S.G. §
2X1.1 (partially completed offense). It is not reasonable to contend that by
challenging the relevance and accuracy of loss calculation under § 2B1.1, Neal
gave the district court an opportunity to consider whether the crime should be
treated as a “partially completed offense” under § 2X1.1, and correct errors in its
calculation of the Guideline range. Cf. Peltier, 505 F.3d at 392. This is not a case
where the defendant merely failed to provide a citation to a given provision, but
the district court was “clearly notified” of the substance of the objection. Cf.
Ocana, 204 F.3d at 589. Therefore, Neal did not raise this objection.
Neal does not persuade when he argues that a “more searching” standard
of review than plain error is appropriate when reviewing a sentence. First, he
cites United States v. Brown for the proposition that “closer scrutiny may also
1
The 2006 edition of the Guidelines was used in the preparation of the PSR. Therefore,
all references to the Guidelines in this memorandum are to the 2006 edition.
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No. 07-11047
be appropriate when the failure to preserve the precise grounds for error is
mitigated by an objection on related grounds.” 555 F.2d 407, 420 (5th Cir. 1977)
(quotation and internal punctuation omitted). Brown concerned constitutional
errors and therefore its ruminations on the level of scrutiny are of diminished
salience in the sentencing context. Second, the basic principle of Brown is
evident in Ocana: an objection may preserve error despite being phrased in
general or non-technical terms, so long as the substance of the objection is
reasonably apparent. As discussed above, Neal’s objections to loss calculation
simply did not alert the district court to potential arguments under § 2X1.1.
Neal also cites United States v. Saro, in which a circuit court noted that
the interests of finality and judicial economy are lessened when a defendant
seeks re-sentencing, as opposed to a new trial. 24 F.3d 283, 287-88 (D.C. Cir.
1994). However, in Saro the district court had misapplied the Guidelines, and
the appellate court considered only how to apply the plain error standard. See
id. As will become apparent, the district court in this case did not misapply the
Guidelines—there was simply no error. Therefore Saro is not on point.
In sum, Neal did not adequately present his § 2X1.1 objection to the
sentencing court. Our review is for plain error. Under this standard, the court
“may correct the sentencing determination only if (1) there is error (and in light
of Booker, an ‘unreasonable’ sentence equates to a finding of error); (2) it is plain;
and (3) it affects substantial rights.” Peltier, 505 F.3d at 392. If Neal makes this
showing, this court may correct the error, but should not exercise its discretion
to do so unless the error “seriously affect[s] the fairness, integrity or public
reputation of judicial proceedings.” Id. (quoting United States v. Olano, 507 U.S.
725, 732 (1993)). In determining whether the district court committed an error,
the court reviews the application of the Guidelines de novo, and will overturn
findings of fact only if they are clearly erroneous. United States v. Ikechukwu,
492 F.3d 331, 333 (5th Cir. 2007); United States v. Smith, 440 F.3d 704, 706 (5th
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No. 07-11047
Cir. 2006). The court treats Guidelines commentary as authoritative, applying
the plain, ordinary and commonly understood meaning of the words. United
States v. Gonzalez-Ramirez, 477 F.3d 310, 312 (5th Cir. 2007).
III. DISCUSSION
A. Partially Completed Offense
Neal argues that his fraud against ECI and Doctors Community was a
“partially completed offense,” and therefore, the district court should have
applied a three-point downward adjustment in his offense level under § 2X1.1
of the Guidelines.2
Neal notes that he never obtained a cent of the $8,000,000 in premiums
attributed to him under the deal with ECI and Doctors Community. He admits
that negotiations were at an advanced stage, but emphasizes that no contract
was signed. He also contends that several important events had not yet occurred
which would have been essential to Neal’s ability to obtain the premiums:
Doctors Community had not signed the deal with ECI; Neal had not yet provided
certain documentation to ECI; and “most importantly, Mr. Neal could have
changed his mind and elected not to continue with the fraudulent activity.” The
government responds that because Neal pleaded guilty to the completed offense
of wire fraud, the adjustment under § 2X1.1 is per se inapplicable, despite the
fact that Neal never received funds under the deal with ECI and Doctors
Community. Alternately, the government contends that, under the plain
language of § 2X1.1, this particular fraud was too far along to be considered
“partially completed.”
Wire fraud is complete when a defendant makes a communication to
advance what he knows to be a fraudulent scheme. 18 U.S.C. § 1343; see United
States v. Nguyen, 504 F.3d 561, 568 (5th Cir. 2007), cert. denied, 128 S. Ct. 1324
2
Neal does not appeal loss calculation or the upward adjustments which initially
yielded an offense level of 37, nor his criminal history category of III.
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No. 07-11047
(2008); United States v. Lemons, 941 F.2d 309, 317-18 (5th Cir. 1991); United
States v. Tulaner, 512 F.3d 576, 580 (9th Cir. 2008). Because the actus reus is
the communication, whether the defendant actually obtains the funds or
property he sought is immaterial to his criminal liability. See United States v.
Wharton, 320 F.3d 526, 538 (5th Cir. 2003); Tulaner, 512 F.3d at 580. For
sentencing purposes, the offense level for wire fraud is to be determined in
accordance with § 2B1.1 of the Guidelines. When a defendant is prosecuted
before realizing the fruits of his frauds, courts must grapple with the proper loss
calculation. See § 2B1.1, app. n. 3(A) (stating that “loss is the greater of actual
loss or intended loss”). Additionally, application note 17 directs the sentencing
court to apply § 2X1.1 in the case of a “partially completed offense (e.g. an
offense involving a completed theft or fraud that is part of a larger, attempted
theft or fraud).” § 2B1.1, app. n. 17. This rule applies “whether the conviction is
for the substantive offense, the inchoate offense . . . or both.” Id.
The basic rule of § 2X1.1 is that inchoate offenses (conspiracies, attempts,
and solicitations) receive the same base offense level as the substantive offense,
“plus any adjustments from such guideline for any intended offense conduct that
can be established with reasonable certainty.” § 2X1.1(a). To illustrate: when a
defendant is convicted of an attempt, the court shall decrease the offense level
by three points, “unless the defendant completed all the acts the defendant
believed necessary for successful completion of the substantive offense or the
circumstances demonstrate that the defendant was about to complete all such
acts but for apprehension or interruption by some similar event beyond the
defendant’s control.” § 2X1.1(b)(1).3 Thus, the language of § 2X1.1 contemplates
situations in which a substantive fraud offense is complete, but is a part of a
“larger, attempted theft or fraud.” In such a case, loss is calculated under §
3
Similar rules apply to conspiracies and solicitations. See U.S.S.G. § 2X1.1(b)(2)-(3).
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No. 07-11047
2B1.1, with a three-level downward adjustment under § 2X1.1. Conversely, even
if the defendant has been convicted of the inchoate offense for theft or fraud (and
not the substantive offense), a downward adjustment under § 2X1.1 is
inappropriate if the defendant was close to completing the substantive offense.
The Background Commentary to § 2X1.1 confirms the inference that this
adjustment is to be used sparingly:
In most prosecutions for conspiracies or attempts, the substantive
offense was substantially completed or was interrupted or prevented
on the verge of completion by the intercession of law enforcement
authorities or the victim. In such cases, no reduction of the offense
level is warranted. Sometimes, however, the arrest occurs well
before the defendant or any co-conspirator has completed the acts
necessary for the substantive offense. Under such circumstances, a
reduction of 3 levels is provided under § 2X1.1(b)(1) or (2).
The Fifth Circuit has never addressed the application of § 2X1.1 to a wire
fraud conviction. The Circuit has applied this particular provision in the context
of bank fraud, which, like wire fraud, does not require that a defendant actually
obtain any of the targeted money or property. See 18 U.S.C. § 1344; United
States v. Oates, 122 F.3d 222 (5th Cir. 1997); United States v. Blackburn, 9 F.3d
353 (5th Cir. 1993). However, in this appeal we expressly decline to address
whether, and under what circumstances, substantive wire fraud convictions
should be eligible for a reduction under § 2X1.1. Rather, the facts of this case
demonstrate that the offense was not “partially completed” for purposes of §
2X1.1. Cory’s undisputed testimony demonstrated that Neal was within days of
receiving the first premium payment on the deal with ECI and Doctors
Community.4 Neal places great weight on the absence of a final signed contract,
as well as the assertion that due diligence had not ended when the FBI alerted
4
Neal contends that Cory’s statements are not reliable because Cory had a “significant
financial interest” in this case—presumably because he was a victim. However, Neal has not
demonstrated that reliance on Cory’s testimony was clearly erroneous.
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No. 07-11047
ECI of the fraud. However, this is of little consequence: Neal had convinced ECI
to cancel its clients’ existing worker’s compensation insurance in anticipation of
switching over to Neal’s “insurance.” Moreover, Neal’s suggestion that he might
have pulled out of his fraud rings hollow: he attempted to recruit others to
continue his scheme after arrest and indictment.
The evidence at sentencing amply demonstrated that Neal was “on the
verge of completion” of his fraud, see § 2X1.1 cmt. background, and would have
begun receiving worker’s compensation premiums from ECI “but for
apprehension or interruption” by the FBI, see § 2X1.1 app. n. 4. Thus, Neal’s
conduct falls short of meeting the plain language of the application notes to §
2X1.1. Because there was no error on the part of the district court, we reject
Neal’s argument that he is entitled to a three-level reduction in his offense level.
B. Reasonableness
We now turn to Neal’s argument that his 327-month sentence is
unreasonable under 18 U.S.C. § 3553(a). Following the Supreme Court’s
decisions in Rita v. United States, 127 S. Ct. 2456 (2007), and Gall v. United
States, 128 S. Ct. 586 (2007), this court applies a two-step procedure when
reviewing a sentence for substantive reasonableness. United States v. Rodriguez-
Rodriguez, 530 F.3d 381, 384-85 (5th Cir. 2008). First, the court determines
whether the sentencing court has committed a significant procedural error, such
as miscalculating the proper Guideline range, treating the Guidelines as
mandatory, or failing to consider the factors of 18 U.S.C. § 3553(a) when making
an individualized assessment of the proper sentence. See Gall, 128 S. Ct. at 597.
If the first step reveals no error and the sentence is within the Guideline range,
the court then applies a presumption of reasonableness and reviews the sentence
under a deferential abuse-of-discretion standard. See Rodriguez-Rodriguez, 530
F.3d at 384-85, 389; see also Gall, 128 S. Ct. at 597 (“The fact that the appellate
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No. 07-11047
court might reasonably have concluded that a different sentence was appropriate
is insufficient to justify reversal of the district court.”).
For a within-Guidelines sentence, the court may “infer that the judge has
considered all the factors for a fair sentence set forth in the guidelines.” United
States v. Mares, 402 F.3d 511, 519-20 (5th Cir. 2005). A presumption of
reasonableness may normally only be overcome if the sentence “falls so far afoul”
of the following standards as to demonstrate that the sentencing court abused
its broad discretion: the sentence “(1) does not account for a factor that should
have received significant weight; (2) gives significant weight to an irrelevant
factor; or (3) represents a clear error of judgment in balancing the sentencing
factors.” United States v. Nikonova, 480 F.3d 371, 376 (5th Cir.) (quoting Smith,
440 F.3d at 708), cert. denied, 128 S. Ct. 163 (2007).
First, Neal contends that the sentence grossly overstates the seriousness
of the offense. He argues that holding him accountable for over $11,000,000 in
actual and intended loss is wholly disproportionate with the true loss he caused,
which he calculates to be $151,392.91. He emphasizes that $8,000,000 of the loss
attributed to him arises from the deal with ECI and Doctors Community, and is
a “speculative amount.” Neal notes that without the $8,000,000 added to the loss
calculation, his Guideline range would have been 210–262 months. Neal argues
that because this one figure vastly increased his Guideline range, the 327-month
sentence, the maximum under the Guidelines, is unreasonable. Neal provides
no authority to show how inclusion of the loss can be proper under § 2B1.1 of the
Guidelines but yield an unreasonable result in light of the seriousness of the
offense. It was proper to increase the offense level in light of Neal’s audacious
scheme, which had the potential to leave thousands without worker’s
compensation insurance. The sentencing court’s consideration of these matters
is amply reflected in the record of the sentencing hearing; therefore, the court’s
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No. 07-11047
decision to sentence Neal to the high end of the Guideline range was not an
abuse of discretion for this reason.
Second, Neal contends that the sentence is greater than necessary to
incapacitate him, to deter future crimes (by Neal or others), or to promote
respect for the law. He notes that he will be well over eighty before he serves his
full sentence. He contends that the length of his sentence disregards any chance
or hope of rehabilitation. Neal notes that he first became involved in criminal
enterprises after the age of fifty, when his marriage dissolved and he became
severely depressed. While the government agrees that recidivism might
generally decline with age, it posits that Neal is different: his criminal activities
have all come after age fifty, he demonstrated no intent to give up unlawful
activity after indictment, and he even devised future frauds to carry out after he
served his sentence.
Advanced age does not preclude a long sentence. See U.S.S.G. § 5H1.1
(“Age (including youth) is not ordinarily relevant in determining whether a
departure is warranted. Age may be a reason to depart downward in a case in
which the defendant is elderly and infirm . . . .”) (emphasis added); United States
v. Simmons, 470 F.3d 1115, 1130-31 (5th Cir. 2006) (holding that a sentencing
court must explain a decision to grant a downward departure based solely on
advanced age), cert. denied, 127 S. Ct. 3002 (2007). Here, it is not clear whether
the district court considered Neal’s age. However, the court heard evidence not
only regarding Neal’s pre-indictment conduct, but also his efforts to obstruct
justice, coerce witnesses, and continue his scheme after he was indicted. While
Neal might spend the rest of his life incarcerated, his flagrant disregard for the
law suggests that a long sentence is the best way to incapacitate him. His
sentence also makes clear that wire fraud is not a victimless crime, but here, had
the potential to disrupt the lives of thousands of individuals. Neal’s lengthy
sentence demonstrates that such behavior is intolerable.
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Finally, Neal contends that the sentencing judge did not consider the fact
that his guilty plea saved resources by avoiding a lengthy trial. This argument
is specious. The government still had to prepare for a lengthy trial because Neal
pleaded guilty on the brink of trial, over six months after he was indicted. What
is more, the government’s job was complicated by Neal’s efforts to influence
witness testimony and threaten those prosecuting him.
In sum, the district court committed no significant procedural error and
considered the § 3553(a) factors. We cannot say that the district court’s sentence
should be vacated as an abuse of discretion.
AFFIRMED.
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