United States v. Stephen Erhart ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-1414
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United States of America, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Stephen Erhart, also known as *
Stephen Anthony Erhart, *
*
Appellant. *
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Submitted: February 11, 2004
Filed: July 29, 2005
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Before MELLOY, SMITH, and COLLOTON, Circuit Judges.
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SMITH, Circuit Judge.
Stephen Erhart pleaded guilty to twenty-nine counts, including conspiracy,
false statements, health-care fraud, and money laundering charges. The district court1
also found Erhart guilty of two separate drug and gun charges, and sentenced him to
a term of 108 months' imprisonment and three years' supervised release. He was also
required to pay a $3,100 special assessment to the crime-victims fund, and required
to pay restitution in the amount of $1,234,270. On appeal, Erhart argues that the
1
The Honorable Donovan W. Frank, United States District Judge for the
District of Minnesota.
district court erred (1) in its conclusion that he was guilty of the firearm offense, (2)
erred in setting the fraud rate at seventy-five percent, (3) erred in not granting an
acceptance of responsibility adjustment, (4) erred in granting an abuse of a public
trust and a role enhancement, and (5) erred in its restitution calculation. Finding no
error, we affirm Erhart's conviction and sentence.
I. Background
The substantive facts of the case are not in dispute. Advantage Plus
Chiropractic Clinic (APCC) was formed in 1996 by Stephen Erhart and Coral
Peterson. Erhart, a licensed Doctor of Chiropractic, treated individual patients and
drafted treatment notes for the care provided.
Sometime in 2000, the Federal Bureau of Investigation ("FBI") commenced a
health-care fraud investigation of APCC. The FBI used two cooperating witnesses,
Tyrone Robinson and Mollie Robinson. Audio and video devices were used to
conduct an undercover surveillance of APCC for several months. Based upon its
investigation, the FBI concluded that Erhart had engaged in extensive health-care
fraud schemes through APCC. The fraud schemes included paying "runners" to refer
patients, falsifying documents, and submitting fraudulent bills to insurance companies
for services not rendered.
In October 2001, a grand jury indicted Erhart on thirty-one counts of illegal
conduct involving his chiropractic billing, cocaine possession, and unlawful
possession of a firearm2. In March 2002, Erhart entered guilty pleas to most of the
charges. Specifically, he confessed to his involvement in a fraudulent billing scheme,
acknowledged Peterson's involvement, provided the names of the runners involved
2
During Tyrone Robinson's second visit, Erhart sold Robinson a sawed-off
shotgun. The gun was operable, and the barrel measured less than eighteen inches in
length.
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in the fraud, admitted that ninety-five percent of his business was fraudulent, and
provided the names of individual patients who participated in the scheme. Erhart also
pleaded guilty to one count of conspiracy to defraud health-care benefit programs,
four counts of false statements related to health-care matters, ten counts of health-care
fraud, and fourteen counts of money laundering.
Peterson signed a plea agreement acknowledging that seventy-five percent of
APCC's business was fraudulent, which amounted to $1.2 million. Erhart was offered
a similar agreement, but declined. He also elected to contest the drug and firearm
possession charges. After a bench trial, Erhart was convicted on all offenses. In
addition to the counts to which Erhart pleaded guilty, the district court also found him
guilty of one count of possession with intent to distribute cocaine, and one count of
unlawful possession of a firearm.
At sentencing, Erhart disputed the seventy-five percent fraud figure, arguing
that it should have been lower. Erhart stated that he did not recall admitting to a
ninety-five percent fraud rate and contended that any estimate that he may have given
resulted from FBI pressure. The government presented evidence that Erhart was
responsible for $3.7 million in reasonably foreseeable losses sustained by insurance
companies. In rebuttal, Erhart introduced evidence that the amount of fraudulent
business that he conducted was actually around forty percent or about $400,000. The
district court sentenced Erhart to 108 months' incarceration, three years' supervised
release, a special assessment to the crime-victims fund, and ordered him to pay
restitution of $1.2 million. Erhart timely appealed the issues set out above.
II. Discussion
A. Firearm Conviction
Erhart first argues that the district court erred in convicting him of possession
of a firearm with a barrel less than eighteen inches. Specifically, he argues that there
was insufficient evidence to show that he knew the characteristics of the prohibited
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weapon. "In passing upon the sufficiency of the evidence to sustain an ultimate
finding of guilt following a bench trial, we apply the same standard of review that is
applied where a defendant has been found guilty by a jury; that is to say, the finding
must be sustained if it is supported by substantial evidence." United States v. Barletta,
565 F.2d 985, 991 (8th Cir. 1977). On review, we will consider the evidence in the
light most favorable to the guilty verdict. United States v. Carter, 270 F.3d 731, 734
(8th Cir. 2001).
We begin our analysis by noting that it is unlawful for any person to receive
or possess certain firearms that are not registered to him in the National Firearms
Registration and Transfer Record or that are not identified by serial number. 26
U.S.C. § 5861(d). One weapon prohibited by this statute is "a shotgun having a barrel
or barrels of less than 18 inches in length." 26 U.S.C. § 5845(a)(1). Although the
statute is silent as to the requisite mens rea for illegal possession, we have concluded
that the "only knowledge required to support a conviction under the [National
Firearms] Act is knowledge that the weapon is a 'firearm' as that term is generally
defined." United States v. Barr, 32 F.3d 1320, 1323 (8th Cir. 1994) (emphasis in
original). The Supreme Court has held that to violate the National Firearms Act, the
owner of the weapon must have known that the weapon he possessed had the
characteristics that brought it within the statutory definition of a firearm. Staples v.
United States, 511 U.S. 600, 602 (1994). Following the logic of Staples, we have
further concluded that if the characteristics of the weapon render it "quasi-suspect,"3
then the owner of the weapon does not have to know the specific characteristics to
violate the Act. Barr, 32 F.3d at 1324.
3
Our "quasi-suspect" classification requires only a common-sense evaluation.
A finding of knowledge of the weapon's incriminating characteristics is unnecessary
because, unlike the firearm described in Staples, a sawed-off shotgun is not a
traditionally-lawful weapon and Erhart "had no legitimate expectation that the
weapon was not subject to regulation." Barr, 32 F.3d at 1324.
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The government argues that Erhart's weapon was "quasi-suspect," and he had
knowledge that it was a sawed-off shotgun. Erhart responds that he did not know that
the shotgun barrel was less than eighteen inches.4 Erhart claims that "there is no
principled reason to suggest that Congress intended the eight categories of firearms
listed in the definition section of the [National Firearms] statute to have different
mens rea elements." United States v. Reyna, 130 F.3d 104, 109 n.5 (5th Cir. 1997).
We disagree.
The Staples decision involved a fully-automatic machine gun. Staples, 511 U.S.
at 602 (1994). However, to discover its automatic firing capacity, one had to fire it.
Id. Staples testified that he had never fired the gun, and the Court found that,
essentially, Staples innocently owned a machine gun. Id. The Court decided that it
would be unfair to convict Staples of possessing the firearm because he had no way
of knowing that it was illegal. Id.
In contrast, Erhart possessed a sawed-off shotgun that was visibly altered to
such a degree that the weapon was "quasi-suspect." Further, Erhart made several
admissions demonstrating that he knew the weapon unlawfully shortened. He
acknowledged his nervousness about owning the gun, and he repeatedly referred to
it as a "sawed-off." Erhart described the gun's usefulness by stating, "Well, I'll tell
you what. This is some definite protection." He also told Tyrone Robinson that a prior
owner has "shot it a couple [of] times . . . [and] said he blew a hole right through the
damn door." When Robinson inquired if the gun would be useful for hunting, Erhart
responded "I don't know [], I don't think it works for ducks though. I think you need
a longer barrel though."
4
Erhart's argument is premised on his assertion that our court's Barr precedent
should be overturned because it interpreted Staples incorrectly. Passing judgment on
the controlling law of this circuit, however, is beyond our panel's reach. Therefore,
we do not address the merits of this argument.
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Sufficient evidence supported the finding that Erhart knew that the gun he
possessed was an illegal sawed-off shotgun. We affirm Erhart's conviction under §
5861(d).
B. Booker Error
After his case was submitted for oral argument, but before we issued an
opinion, the United States Supreme Court issued its ground shifting decision in
Blakely v. Washington, 542 U.S. 296 (2004). The Blakely decision was extended to
the United States Sentencing Guidelines in United States v. Booker, 125 S. Ct. 738
(2005), which rendered the Guidelines advisory. Nonetheless, the Court explained
that a Booker claim not argued at the district court would be subject to application of
the plain error test. Booker, 125 S. Ct. at 769. In United States v. Pirani, 406 F.3d
543, 550 (2005) (en banc), we held that there must be "a specific reference to
Apprendi or Blakely or the Sixth Amendment" to preserve a Booker claim. Under our
plain error analysis, Erhart is required to show "a 'reasonable probability,' based on
the appellate record as a whole, that but for the error he would have received a more
favorable sentence" to show that his substantial rights were affected. Id. at 552
(applying the third prong of the plain error test found in United States v. Olano, 507
U.S. 725 (1993)).
In this case, Erhart did not argue Apprendi, Blakely, or the Sixth Amendment
to the district court, and, thus, we review his Booker argument for plain error.
Nothing in the record indicates that the district court would have given Erhart a lesser
sentence had it viewed the Guidelines in an advisory capacity. See Pirani, 406 F.3d
at 553. As such, Erhart's Booker claim fails.
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C. Loss Determination
Erhart argues next that the district court erred in setting the fraud rate at
seventy-five percent. Specifically he argues that the court discounted all evidence
regarding the fraud rate and decided to adopt the rate from the pre-sentence report
("PSR").We review Erhart's claim that the district court erred in its calculation of the
loss determination for clear error. United States v. Dolan, 120 F.3d 856, 870 (8th Cir.
1997); see also United States v. Mashek, 406 F.3d 1012, 1017 (8th Cir. 2005)
(explaining that, post Booker, we still review factual findings made by the district
court for clear error).
We note that, although the sentencing court is not expected to determine the
fraud rate and attributable loss with precision, it should make a reasonable estimate
of the loss, given available information. United States v. Wells, 127 F.3d 739, 748
(8th Cir. 1997). It is the government's burden to prove the amount of fraud loss by a
preponderance of the evidence. United States v. Coon, 187 F.3d 888, 899 (8th Cir.
1999). However, the district judge "is in a unique position to assess the evidence and
estimate the loss based upon that evidence. For this reason, the court's loss
determination is entitled to appropriate deference." U.S.S.G. § 2B1.1, app. n.2(c).
The crux of Erhart's argument is that the district court cannot discount the
evidence Erhart introduced and rely solely on the PSR. Erhart correctly notes that the
PSR is not evidence and is not legally sufficient for making findings of fact on
contested issues. While Erhart is accurate in his statement of the law, he is inaccurate
in his characterization of the district court's finding. The district court did not rely
solely on the PSR to reach a reasonable fraud rate.
Due to the nature of the business, it was virtually impossible for the court to
determine the precise fraud rate. The court, therefore, was required to make a
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reasonable estimate of the loss based on the evidence submitted. Erhart himself
originally admitted that ninety-five percent of his business was fraudulent. Peterson,
Erhart's co-conspirator, acknowledged that over seventy-five percent of the business
was fraudulent. Erhart later provided evidence that the fraud rate was actually only
about forty percent.
Erhart argues that the district court improperly discounted the evidence
establishing the rate at forty percent in its entirety. However, had the court completely
discarded Erhart's evidence, it is likely that the fraud rate would have been set
somewhat higher—in the range between seventy-five and ninety-five percent.
Because there was no definitive evidence that could be used to determine an exact
fraud rate, the court was required to factor in all relevant evidence and set a
reasonable rate. We hold the court set a reasonable rate based upon the record.
Accordingly, we affirm the district court's fraud rate determination and the resulting
sentence of restitution in the amount of $1,234,270.5
D. Acceptance of Responsibility
Erhart argues next that the district court erred when it did not apply a three-
level downward adjustment for acceptance of responsibility. In support of his claim,
Erhart points out that he surrendered to the authorities, cooperated with the officers,
and entered a plea of guilty. We review the district court's decision to grant or deny
an acceptance of responsibility adjustment for clear error. United States v. Gonzalez-
Rodriguez, 239 F.3d 948, 954 (8th Cir. 2001).
5
Erhart also argues that because the district court erred in its fraud-rate
determination, it also abused its discretion in ordering Erhart to pay restitution in the
amount—based on the seventy-five percent fraud rate—of $1,234,270. Because we
have already rejected Erhart's assertion that the district court erred in its attributable-
loss calculation, this dependent claim also fails.
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A defendant is entitled to an acceptance of responsibility reduction when the
defendant has shown a recognition and affirmative acceptance of responsibility for
relevant conduct, and remorse for that conduct. U.S.S.G. § 3E1.1(a). However, under
this Guideline, the defendant must accept responsibility for all of the conduct that is
part of his conviction. The defendant may not minimize conduct or partially accept
responsibility. United States v. Ngo, 132 F.3d 1231, 1233 (8th Cir. 1997). Special
emphasis is placed on the defendant's honesty about the factual basis for the offense,
rather than an emphasis on whether the defendant pleaded guilty or took the matter
to trial. United States v. Schultz, 917 F. Supp. 1343, 1354 (N.D. Iowa 1996). Thus,
a person who shows recognition and affirmative responsibility for his own conduct,
and remorse for that conduct, should be granted a sentence reduction. Id.
Additionally, even a person who pleads guilty to an offense, and then goes to trial on
that offense because of a dispute of law, may still receive an acceptance of
responsibility reduction in sentence. Id.
Erhart claims that his decision to contest the fraud rate was an attempt to
resolve a dispute of law, not fact, and he should still be entitled to a reduction for his
cooperation. However, Erhart was not merely contesting the applicable law, he was
(as the district court noted) "minimizing what really happened." He contested the
scope of his crime and disavowed a prior statement in order to minimize his role in
the scheme. Additionally, Erhart's guilty plea was one of the "last hour" variety,
offered on the eve of trial, after the government had invested substantial time in
preparation of litigation. Further, Erhart's confession was incomplete; he contested
two of the charges, and, on appeal, he continues to contest one of the charges.
The acceptance of responsibility reduction is "not intended to apply to a
defendant who puts the government to its burden of proof at trial by denying the
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essential factual elements of guilt." Id. at 1347. We affirm the ruling of the district
court.
E. Abuse of Private Trust
For his next assignment of error, Erhart argues that the district court improperly
increased—by two levels—his sentence for abusing a private trust. He claims that
because he was not granted discretionary authority by the victim insurers, he was not
afforded a "professional" level of trust. We review the district court's conclusion that
Erhart occupied a position of trust for clear error. United States v. Trice, 245 F.3d
1041, 1042 (8th Cir. 2001).
If a defendant abuses a position of public or private trust in a manner that
significantly facilitates his offense, then the Guideline's offense calculation should
be increased by two levels. U.S.S.G. § 3B1.3. A public or private trust refers to a
position characterized by professional or managerial discretion, whereby the offender
is subject to significantly less supervision than employees whose responsibilities are
primarily non-discretionary in nature. United States v. Jankowski, 194 F.3d 878, 884
(8th Cir. 1999). The abuse of trust enhancement applies only where the offender has
abused discretionary authority entrusted to the defendant by the victim. In our
application of the private trust standard, we simply consider "whether trust is inherent
to the nature of the position." United States v. Brelsford, 982 F.2d 269, 272 (8th Cir.
1992).
Erhart argues that the insurance companies permitted him little professional
discretion. He claims that because the insurance companies were exacting in their
examination of his bill submissions, he was not in a position of trust. However, this
argument is unpersuasive. If the insurance companies had exercised more control
over Erhart, then it is likely the fraud would have been discovered. The fraud
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continued as it did precisely because the insurance companies trusted Erhart and the
accuracy of the claims that he supplied them. Erhart was a licensed chiropractor and,
as such, he exercised substantial discretion in preparing and submitting bills and
treatment notes.
Chiropractors are providers of professional medical services. Plainly, trust
inhered in Erhart's relationship with the insurance companies, and he abused this trust
for the specific purpose of committing fraud. Finding no clear error, we affirm the
district court's determination that Erhart abused a position of trust.
F. Role Enhancement
Erhart also alleges that there was insufficient evidence to establish his role as
an organizer, leader, manager or supervisor in this fraud scheme. He claims that
because he was equal partners with Ms. Peterson, and their fraudulent business was
conducted in equal shares, he should have been (like Ms. Peterson) classified as an
average participant. We review the district court's role determination for clear error.
United States v. Gelinas, 299 F.3d 978, 979 (8th Cir. 2002).
We construe the terms "manager" or "supervisor" broadly under U.S.S.G. §
3B1.1. United States v. Schwarck, 961 F.2d 121, 123 (8th Cir. 1992). So much so,
that the simple fact that a defendant recruits new members into a conspiracy supports
a finding of the defendant being a manager or supervisor. United States v. Pierce, 907
F.2d 56, 57 (8th Cir. 1990) (per curiam). Here, Erhart recruited and supervised over
six "runners" who provided him with referrals and assisted in perpetuating the
fraudulent scheme. This undisputed fact alone provides sufficient support for the
imposition of a three-level role enhancement. We therefore affirm the district court's
finding that Erhart was a manager or supervisor of a criminal activity involving five
or more participants.
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G. Restitution
Lastly, Erhart contends that the district court's restitution order–issued in
accordance with the Mandatory Victims Restitution Act (MVRA)—violates the Ex
Post Facto Clause because during the beginning of Erhart's fraud scheme the MVRA
was not in effect. Because Erhart raises this claim for the first time on appeal, we will
review the district court's order only for plain error. United States v. Williams, 128
F.3d 1239, 1243 (8th Cir. 1997).
The Mandatory Victims Restitution Act (MVRA) requires a sentencing court
to order a defendant to make restitution to the victim of the offense in the full amount
of the victim's loss without consideration of the defendant's ability to pay. 18 U.S.C.
§ 3664 (f)(1)(A). Prior the MVRA, sentencing courts were required to make a finding
regarding a defendant's ability to pay. The district court made no such finding in its
restitution order.
The indictment charging Erhart stated that his crimes occurred "[f]rom in or
about January 1996 to in or about April 2001." The MVRA became effective April
24, 1996. Erhart claims that because his crime commenced before the MVRA's
enactment, he is not subject to its modifications. Specifically, he argues that, in his
case, the sentencing court is not relieved of its duty to make a finding as to Erhart's
ability to pay prior to the award of restitution.
The Ex Post Facto Clause does indeed prohibit the retrospective application of
criminal laws that prejudice a defendant, by providing a shelter from being convicted
for a crime that did not exist at the time that the then-legal activity was carried out.
However, Erhart is not eligible for ex post facto shelter. Erhart conducted his
fraudulent business for approximately five years after the MVRA was enacted. He
was not prejudiced by a statutory change that occurred after he first committed his
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crime because he continued to commit the crime for several years after the enactment
of the MVRA. In fact, based on Erhart's own admission, the fraudulent billing began
in the later part of 1996, which was subsequent to the MVRA's effective date.
Accordingly, we believe that five years of fraudulent activity was fair warning to strip
Erhart of any shelter from the Ex Post Facto Clause. Finding no error, plain or
otherwise, we affirm the district court.
III. Conclusion
In sum, we are satisfied that Erhart's firearm conviction was supported by
sufficient evidence. We see no error in the district court's determination that
$1,234,270 was the amount of loss attributable to Erhart—based on seventy-five
percent fraud rate. Further the district court correctly denied Erhart an acceptance of
responsibility adjustment. Finally, we affirm the abuse of a private trust and role
enhancements the district court applied to Erhart's sentence. For the foregoing
reasons, we affirm the conviction and conclude that the resulting sentence is
reasonable.
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