United States v. Coleman Carpenter , 841 F.3d 1057 ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 15-3563
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United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Coleman Carpenter
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
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Submitted: September 23, 2016
Filed: November 23, 2016
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Before WOLLMAN, BRIGHT, and KELLY, Circuit Judges.
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BRIGHT, Circuit Judge.
The government charged Coleman Carpenter with mail and wire fraud arising
from a scheme in which he overpaid for commodities to the benefit of certain
customers while managing a grain elevator for Bunge of North America (Bunge).
After Carpenter pleaded guilty to one count of mail fraud, the district court sentenced
him to twelve months and one day in prison. The district court also ordered him to
pay $1,561,516.25 in restitution to Bunge, which included $87,536.65 in attorney's
fees and expenses Bunge paid to an outside counsel during the investigation of
Carpenter's fraudulent scheme and his prosecution.
Carpenter appeals arguing the district court erred in calculating the amount of
restitution, and by including the attorney's fees from Bunge's outside counsel in the
restitution award. We affirm the portion of the district court's restitution award which
does not include attorney's fees ($1,473,980.00), but vacate the portion awarding
attorney's fees and expenses ($87,536.65), and remand to the district court for further
proceedings.
I
Bunge, a global agriculture commodities business, employed Carpenter as the
manager of a grain elevator in Hickman, Kentucky. Bunge authorized Carpenter to
purchase agricultural commodities, which included corn, wheat and soybeans, from
producers and merchants "on the spot." In addition, Carpenter could enter into
futures contracts for commodities to be delivered at a later date.
Futures contracts had two components: the futures price and the basis. The
first component – the futures price – was set by commodities markets. Bunge
provided Carpenter access to the current futures prices electronically and through a
commercial trading desk (hedge desk) located at its St. Louis, Missouri headquarters.
Carpenter was authorized to establish the futures price component of the per bushel
price for a particular futures contract based upon the current futures price as
determined by the Chicago Board of Trade (CBOT).
The second component – the basis – was set by Bunge and depended on
various market conditions, such as location of a point of purchase, operational needs
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of Bunge, and prices offered by a competitor.1 Bunge gave Carpenter the authority
to "push the basis" in order to respond to changing market conditions or the
operational needs of Bunge, but limited this authority to $.08 per bushel at the most.
So, for example, if the basis at a given time was $-.15, Carpenter had the authority to
push it to $-.07.
Between 2009 and 2013, Carpenter frequently entered into futures contracts in
excess of the combination of the CBOT current futures price and Bunge's basis, and
his limited authority to "push the basis." In fact, on some occasions Carpenter
increased the price Bunge paid for commodities by $.30, $.40, or .$50 per bushel. For
example, on August 1, 2013, Carpenter entered into a futures contract for 60,000
bushels of corn at $5.25 per bushel. Carpenter utilized a futures price of $5.63 per
bushel with a basis of $-.38, despite the fact that the hedge desk provided him with
a CBOT current futures price of only $4.9075, and the highest price paid on the
CBOT that day for corn was $4.9975.
Thus, Carpenter inflated the futures price component of the contract by $.7225
per bushel based on the CBOT current futures prices, or by $.6325 per bushel based
on the CBOT high price of the day. After adjusting for the basis, the amount Bunge
lost on this single contract was $43,350, as measured by the difference between the
$5.63 futures price utilized by Carpenter and the approved CBOT current futures
price of $4.9075 (60,000 bushels x $.7225). Carpenter then misrepresented these
unauthorized transactions in mailings to Bunge headquarters.
During the scheme, Carpenter received large payments of money from some
of the grain elevator customers. For example, in consecutive years in March 2009
1
Examples in the record report the basis as a negative number, such as $-.38.
In other words, the final price of any particular futures contract for the selling farmer
– after combining the CBOT current futures price and Bunge's basis – would likely
be below the CBOT current futures price to reflect Bunge's operating costs.
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and 2010, Carpenter received $10,000 checks from Ronnie Bates Farms, one of the
grain elevator's customers. Carpenter's bank account also showed large cash deposits
made between 2009 and 2013 totaling over $38,000. Carpenter denies the cash
deposits he made to his bank account during that time were related to the fraud
scheme.
In 2013, Bunge discovered Carpenter's fraud during an internal audit. Bunge
asked the Thompson Coburn law firm in St. Louis to assist in reviewing and assessing
Carpenter's unauthorized transactions, while at the same time providing information
to the government for potential criminal charges against Carpenter. Thompson
Coburn assisted Bunge and the government in reviewing the transactions both before
and after a federal grand jury returned an indictment against Carpenter on June 25,
2014. After being charged, Carpenter pleaded guilty to one count of mail fraud in
violation of 18 U.S.C. § 1341.
Prior to sentencing, a probation officer prepared a Presentence Investigation
Report (PSR) which, in part, calculated the amount of loss that resulted from
Carpenter's fraud pursuant to United States Sentencing Guidelines Manual (U.S.S.G.)
§ 2B1.1. The PSR determined loss using a "one-day Chicago Board of Trade high
price" as the number to be subtracted from the inflated price paid by Carpenter. For
its part, the government recommended loss should be calculated by comparing a
"two-day" CBOT high price to the price of Carpenter's unauthorized transactions,
which was more conservative than the method recommended by the PSR and resulted
in a lower loss amount. Using this two-day method of calculation, the government
determined Bunge overpaid its customers approximately $937,000 as the result of
Carpenter's unauthorized transactions. In Carpenter's plea agreement, he admitted his
fraud scheme resulted in "approximately $937,000" in overpayments by Bunge to
various customers.
At sentencing, the district court adopted the parties' agreement as to amount of
loss to calculate Carpenter's advisory guidelines range, and then turned to the separate
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issue of determining the amount of loss for purposes of restitution. The district court
agreed the precise amount of restitution was difficult to calculate because the market
price at the exact time of day Carpenter entered into each of his fraudulent
transactions was unknown. The district court ultimately adopted the PSR's one-day
method to determine restitution, however, because Bunge's losses would be
underestimated using either the one- or two-day method based on the CBOT high
price of the day. Under the one-day method of calculation, the district court set the
amount of Bunge's loss for restitution purposes at $1,473,980.00.
Bunge also sought restitution for the attorney's fees it paid to outside counsel
prior to and during the government's investigation. Carpenter objected to the
attorney's fees arguing, in part, that fees incurred after the government started its
investigation were not "necessary." See 18 U.S.C. § 3663A(b)(4) ("The order of
restitution shall require that such defendant—in any case, reimburse the victim for
. . . necessary . . . expenses incurred during participation in the investigation or
prosecution of the offense."). The district court reviewed the billing statements
provided by Bunge's counsel and then awarded 90% of the claimed fees, reflecting
a 10% reduction for specific fees associated with a press release, reproduction
charges, punitive damages issues, correspondence, and courier services, to which
Carpenter had also objected. After the reduction, the fees and associated expenses
totaled $87,536.65. Including the attorney's fees, the total restitution the district court
awarded to Bunge was $1,561,516.25. Bunge filed this timely appeal challenging the
amount of restitution.
II
We review the district court's decision to award restitution for abuse of
discretion, but any fact findings as to the amount are reviewed for clear error. United
States v. Chalupnik, 514 F.3d 748, 752 (8th Cir. 2008). "The government bears the
burden of proving the amount of restitution based on a preponderance of the
evidence." United States v. Frazier, 651 F.3d 899, 903 (8th Cir. 2011).
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A. The Overpayments
Carpenter contends the district court erred in awarding the initial
$1,473,980.00 in restitution (the amount less the attorney's fees) for two reasons.
First, Carpenter contends the amount of restitution is difficult, if not impossible, to
determine and is not warranted. See 18 U.S.C. § 3663A(c)(3)(B) ("This section shall
not apply . . . if the court finds . . . that determining complex issues of fact related to
the . . . amount of the victim's losses would complicate or prolong the sentencing
process to a degree that the need to provide restitution to any victim is outweighed
by the burden on the sentencing process"). Second, Carpenter argues that Bunge did
not sustain a loss because Bunge factored in his overpayments when it ultimately sold
the commodities he purchased.
With respect to Carpenter's first argument, we have consistently held that "the
district court has wide discretion in ordering restitution." United States v. DeRosier,
501 F.3d 888, 897 (8th Cir. 2007). When determining restitution, "the district court
need make only a reasonable estimate of the loss, and we accord particular deference
to the loss determination because of the district court's unique ability to assess the
evidence and estimate the loss." Id. at 895 (quoting United States v. Scott, 448 F.3d
1040, 1044 (8th Cir. 2006)). In cases where the amount of loss (and by extension the
amount of restitution) caused by fraud is difficult to calculate, "a district court is
charged only with making a reasonable estimate of the loss." United States v. Parish,
565 F.3d 528, 534 (8th Cir. 2009) (internal quotation marks and citation omitted).
Carpenter's claim that the loss was impossible to calculate is belied by his own
admission in the plea agreement that his fraud scheme resulted in "approximately
$937,000" in overpayments by Bunge to various customers using the government's
more conservative two-day CBOT high price method of calculating the loss. Thus,
the real issue presented in this appeal is limited to whether the district court erred by
choosing the one-day method over the two-day method when calculating loss and
restitution. The two-day method assumed that some of Carpenter's fraudulent
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transactions were actually agreed to at the high price of one day, but due to
administrative delays at the Hickman facility, may not have been completed until the
next day. Using this method, the highest price over any given two-day period was
used to compute loss. In contrast, the one-day method used the CBOT high price of
the day a commodity purchase was made. Carpenter objects to the district court's use
of the one-day method because it resulted in a higher loss than that calculated under
the two-day method.
We see no grounds for reversing the district court's decision to choose the one-
day method over the two-day method. As we previously stated, exact precision is not
necessary when determining loss, only a reasonable estimate. Either method the
district court would have chosen here would have been reasonable, as both methods
underestimated Bunge's actual loss. The times when Carpenter made unauthorized
transactions occurred throughout each day, not necessarily every time the CBOT price
was at its highest. For example, in the August 2013 purchase of corn discussed
above, the CBOT current futures price provided to Carpenter at the time of sale was
$4.9075, while the highest price paid on the CBOT that day for corn was $4.9975, a
difference of $.09 per bushel, or a total of $5400 for the 60,000 bushel sale. The one-
day method used by the district court did not capture the additional $5400 Bunge lost
on this particular sale (as reflected in the PSR at ¶ 20, which only reported a loss of
$37,950 on this particular transaction rather than the $43,350 Bunge actually lost),
or the similar amounts Bunge lost on Carpenter's many other fraudulent transactions.
Because the exact times of the unauthorized trades could not be determined, the use
of the CBOT daily high price automatically ensured that Bunge's actual loss would
be underestimated under both methods of calculation.
Carpenter next argues that Bunge did not sustain a loss (and by extension was
not entitled to restitution) because Bunge recouped his overpayments at the time of
its sale. The district court used the correct standard of lost profits to determine
Bunge's loss. See United States v. Chalupnik, 514 F.3d 748, 755 (8th Cir. 2008).
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Here, Bunge's lost profits were based on the difference between the authorized
purchase price and the amount of Carpenter's unauthorized purchases. The lost
profits remained constant regardless of the resale price. Finally, Bunge does not have
exclusive control over the sale price as Carpenter seems to contend. The
commodities market is a global market that dictates the sale price. The district court
properly determined that the loss sustained by Bunge was the total amount of lost
profits and that the lost profits remain constant regardless of the sale price.
B. The Attorney's Fees
Carpenter contends that attorney's fees incurred by Bunge's outside counsel
after the government took over the investigation were not "necessary" under 18
U.S.C. § 3663A(b)(4). Carpenter relies primarily upon United States v. Papagno, 639
F.3d 1093 (D.C. Cir. 2011), which reversed a restitution order awarding expenses
incurred by a victim during its own internal investigation of an employee's fraud
where there was no evidence the investigation was ever requested by criminal
investigators or prosecutors, holding that under those circumstances the victim's
'"participation in the investigation or prosecution of the offense'" was not
'"necessary.'" Id. at 1095 (quoting 18 U.S.C. § 3663A(b)(4)).
Our circuit has taken a somewhat broader view of the loss that can be included
in a restitution award, and have "specifically approved of the inclusion of attorney's
fees and investigative costs in a restitution award when these losses were caused by
the fraudulent conduct." DeRosier, 501 F.3d at 897 (citing United States v. Akbani,
151 F.3d 774, 780 (8th Cir. 1998); United States v. Piggie, 303 F.3d 923, 928 (8th
Cir. 2002)). As Carpenter contends, however, the fact that there is no per se
prohibition on awarding restitution for attorney's fees or investigative costs does not
relieve the government from satisfying the statutory requirement of showing such
costs were "necessary . . . expenses incurred during participation in the investigation
or prosecution of the offense." 18 U.S.C. § 3663A(b)(4).
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Carpenter's specific objection in the district court was that outside attorney's
fees incurred by Bunge after the government initiated its own investigation were
unnecessary. The record does not show the district court ever directly addressed that
claim, or made a specific finding that the fees were necessary. Instead, the district
court only appears to have addressed Carpenter's other objections to the attorney's
fees submitted by outside counsel. We therefore vacate the district court's award of
attorney's fees and expenses and remand to the district court to specifically address
whether the attorney's fees incurred after the government initiated its own
investigation were "necessary" under § 3663A(b)(4). If the district court determines
that any portion of the fees were not "necessary," those fees should not be included
in the restitution award.2
III
We affirm that portion of the district court's restitution order awarding
$1,473,980.00. We vacate the portion of the district court's restitution order awarding
attorney's fees and remand for further proceedings consistent with this opinion.
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2
If read liberally, Carpenter's objection to the attorney's fees in the district court
also raised a claim that he should be entitled to a "set off" from the total amount of
restitution awarded if Bunge's insurance company pays for any claim related to
Carpenter's fraudulent conduct. To the extent Carpenter renews that claim on appeal,
we reject it. When an insurer makes payments for a victim's loss, a defendant is
required to pay restitution back to the insurance provider under the Mandatory
Victims Restitution Act, and is not entitled to a set off. United States v. Mancini, 624
F.3d 879, 882 (8th Cir. 2010).
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