United States v. Richard Kay ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 12-2554
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United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Richard Allen Kay
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the District of Minnesota - St. Paul
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Submitted: February 15, 2013
Filed: June 25, 2013
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Before SMITH, MELLOY, and BENTON, Circuit Judges.
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SMITH, Circuit Judge.
Richard Allen Kay ("Kay") pleaded guilty to charges of drug-related
conspiracy, money laundering, structuring to avoid reporting requirements, and
conspiracy to engage in the interstate transportation of stolen goods. The district court
imposed a 200-month prison sentence; a $500,000 fine; and a $300,000 restitution
award. On appeal, Kay argues that his prison sentence is procedurally and
substantively unreasonable. He also contends that the $500,000 fine is contrary to the
court's only finding of fact regarding his ability to pay. Finally, Kay argues that the
evidence does not support the court's restitution award. We affirm the district court's
sentence and restitution award, but we vacate the fine and remand for further
proceedings.
I. Background
In 1995, Kay began transporting marijuana across state lines for distribution
in Minnesota. Two years later, Kay opened a jewelry business, which he used to
launder money acquired through the sale of marijuana. Kay's jewelry business also
sold diamonds that he bought from his sister, Michelle Kay ("Michelle"). Michelle
stole two diamonds every other week for six years from her employer, Sterling
Jewelers.
Kay was arrested and charged in a superseding indictment with conspiracy to
distribute and possess with intent to distribute over 1,000 kilograms of marijuana,
three counts of money laundering, eight counts of structuring to avoid a financial
reporting requirement, and conspiracy to engage in the interstate transportation of
stolen goods. The superseding indictment alleged that Kay made five trips to Ohio to
obtain diamonds from Michelle. It alleged that Kay paid Michelle between $50,000
and $100,000 total for the stolen diamonds and that this amount represented only "a
small fraction" of the diamonds' actual value. Just before trial was set to begin, Kay
pleaded guilty, without a plea agreement, to all counts in the superseding indictment.
The district court ordered the preparation of a presentence investigation report
(PSR). The PSR assigned Kay responsibility for between 1,000 and 3,000 kilograms
of marijuana, resulting in a base offense level of 32. Kay received a four-level
enhancement for being a leader of the conspiracy pursuant to U.S.S.G. § 3B1.1(a). He
also received a two-level decrease for acceptance of responsibility pursuant to
U.S.S.G. § 3E1.1(a), resulting in a total offense level of 34. Based on a total offense
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level of 34 and a criminal history category of III, the PSR calculated a sentencing
range of 188 to 235 months' imprisonment and a fine range between $17,500 and
$10,000,000.
Sterling Jewelers prepared a victim impact statement and submitted it to the
probation office for use in preparing the PSR. The PSR reported that Sterling
Jewelers based its loss estimate on Michelle's testimony. The PSR also stated that
Sterling Jewelers conservatively estimated that Michelle had stolen 100 diamonds and
that Sterling Jewelers1 then conservatively estimated the value of each stolen diamond
at $6,000, based on the value of six loose diamonds that were recovered from
Michelle. The PSR stated that Sterling Jewelers then reduced that estimate by half,
for a value of $3,000 per stolen diamond. This resulted in a loss estimate of $300,000,
for which Sterling Jewelers requested restitution.
Paragraph 108 of the PSR stated that "[b]ased on the above financial
information and the defendant's restitution obligation, the defendant does not have
the ability to pay a fine within the established fine range at the time of sentencing."
The court adopted the PSR's factual findings as its own. The court made no other
findings regarding Kay's ability to pay a fine. The district court sentenced Kay to 200
months' imprisonment and ordered him to pay $500,000 in fines and $300,000 in
restitution to Sterling Jewelers.
1
Aaron Wichmann, a loss prevention manager for Sterling Jewelers, testified
at Kay's sentencing hearing. Wichmann stated that Sterling based its loss calculation
on Michelle's admission that she stole two diamonds every two weeks for six years.
Wichmann testified that Sterling Jewelers conservatively estimated the value of the
diamonds at $3,000 each, for a total of $832,000. Wichmann testified that its loss
estimate of $300,000 was a "conservative estimate based on [Michelle's] admission
and based on what [Sterling Jewelers] actually think[s] happened in the case."
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II. Discussion
A. The Prison Sentence
In reviewing Kay's prison sentence, this court must
first ensure that the district court committed no significant procedural
error, such as failing to calculate (or improperly calculating) the
Guidelines range, treating the Guidelines as mandatory, failing to
consider the § 3553(a) factors, selecting a sentence based on clearly
erroneous facts, or failing to adequately explain the chosen
sentence—including an explanation for any deviation from the
Guidelines range. Assuming that the district court's sentencing decision
is procedurally sound, the appellate court should then consider the
substantive reasonableness of the sentence imposed under an abuse-of-
discretion standard.
Gall v. United States, 552 U.S. 38, 51 (2007).
Kay argues that his "sentence was procedurally unreasonable because the
district court failed to provide adequate explanation for why ten years was not a
sufficient sentence to punish [him] for his crimes." Kay did not assert procedural error
below, so we review this issue for plain error. United States v. Phelps, 536 F.3d 862,
865 (8th Cir. 2008) ("If a defendant fails to timely object to a procedural sentencing
error, the error is forfeited and may only be reviewed for plain error."). Kay also
contends that a sentence of 200 months is substantively unreasonable because the
court "ignored compelling mitigation arguments." Kay offered two mitigation
arguments to the district court. First, Kay argued that a prison sentence has an
extraordinary deterrent effect on a person such as himself, who had previously served
no more than 30 days in jail. Second, he argued that the Guidelines fail to take into
account the nation's growing public acceptance of marijuana.
"The sentencing judge should set forth enough to satisfy the appellate court that
he has considered the parties' arguments and has a reasoned basis for exercising his
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own legal decisionmaking authority." Rita v. United States, 551 U.S. 338, 356 (2007)
(citing United States v. Taylor, 487 U.S. 326, 336–37 (1988)). "Where the defendant
or prosecutor presents nonfrivolous reasons for imposing a different sentence,
however, the judge will normally go further and explain why he has rejected those
arguments. Sometimes the circumstances will call for a brief explanation; sometimes
they will call for a lengthier explanation." Id. at 357.
The record reveals that the district court actually did consider Kay's mitigation
arguments. The court even lowered Kay's prison sentence as a result of his first
argument. The district court stated:
I have considered the fact that you've never done significant time
before or been incarcerated before. Usually for a crime of this duration
and significance I would be at the upper end of the box. I've cut back on
that. I think you need to be closer to the middle of the appropriate
guideline.
Furthermore, as for Kay's "growing public acceptance of marijuana" argument, the
district court stated:
Well, this is a crime that took place over a long period of time and
involves a massive amount of marijuana. I won't address all of the
sentencing arguments that have been made and it may be that some day
some portions of marijuana use will be legalized, but this case is much
more than use of marijuana. This is massive dealing over a period of
time involving money laundering, structured financial transactions,
interstate transportation of stolen goods. The sort of crime that it became
may have started small with a little marijuana, but it grew and grew and
grew.
It doesn't take long sitting in my position and talking to
defendants, including those in your case, to see how drug dealing and
crime has ruined lives. I think you, yourself, you've benefit[t]ed from
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treatment and have done well, as I understand, through treatment as have
many of the other defendants, and some of them are happy to have
broken the chain that may have been more profitable, but less satisfying
in life. So I'm not going to talk further about legalization of marijuana,
but this case raises entirely different issues than are discussed by public
opinion polls on marijuana use.
The record reveals that the district court appropriately considered Kay's mitigation
arguments. We hold that the district court did not plainly err or abuse its discretion
in sentencing Kay to 200 months' imprisonment. This is not "'the unusual case when
we reverse a district court sentence . . . as substantively unreasonable.'" United States
v. San-Miguel, 634 F.3d 471, 476 (8th Cir. 2011) (alteration in San-Miguel) (quoting
United States v. Feemster, 572 F.3d 455, 464 (8th Cir. 2009) (en banc)).
B. The $500,000 Fine
Kay argues that the district court erred in imposing a $500,000 fine because the
court's own findings showed that he had no ability to pay the fine. "A district court's
imposition of a fine and the determination of the amount of the fine will not be
reversed unless clearly erroneous." United States v. Allmon, 500 F.3d 800, 807 (8th
Cir. 2007). Nevertheless, plain error review is appropriate when the defendant failed
to object below. Id. The government argues that we should review for plain error. The
government avers that because Kay "objected to the imposition of a fine but did not
object to the district court's failure to make any findings concerning his ability to pay,
. . . his claim on appeal concerning any alleged lack of findings is reviewed for plain
error." But Kay's claim on appeal is not that the district court made no findings
regarding his ability to pay. Rather, Kay argues that the district court actually found
that he had no ability to pay. Paragraph 108 of the PSR, which the court adopted as
its own finding of fact, stated that "[b]ased on the above financial information and the
defendant's restitution obligation, the defendant does not have the ability to pay a fine
within the established fine range at the time of sentencing." We find that Kay's timely
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objection to the court's imposition of the $500,000 fine preserved this issue for
appeal, and plain error review is not appropriate.
Kay argues that the findings in the PSR, which the court adopted as its own,
showed that he had no ability to pay and that no facts in the record contradicted that
finding. Furthermore, he maintains that the government effectively conceded that it
could offer nothing but speculation to support its request that the court impose a fine.
The government responds that the PSR's determination of Kay's ability to pay reflect
only those assets that the government was able to locate. It argues that Kay's history
of drug trafficking, dealing in stolen diamonds, and money laundering shows that he
has access to resources that are not reflected in the PSR.
"The court shall impose a fine in all cases, except where the defendant
establishes that he is unable to pay and is not likely to become able to pay any fine."
U.S.S.G. § 5E1.2(a). "A sentencing court must make specific factual findings on the
record demonstrating that it has considered the defendant's ability to pay the fine."
United States v. Patient Transfer Serv., Inc., 465 F.3d 826, 827 (8th Cir. 2006) (citing
United States v. Walker, 900 F.2d 1201, 1206 (8th Cir. 1990)). "It is an incorrect
application of the [G]uidelines to impose a fine that a defendant has little chance of
paying." United States v. Granados, 962 F.2d 767, 774 (8th Cir. 1992).
The government cites United States v. Berndt, 86 F.3d 803 (8th Cir. 1996), to
bolster its argument that Kay's history of concealing assets supports an inference that
he is currently concealing assets that are not reflected in the PSR. In Berndt, the PSR
indicated that the defendant had "a negative net worth of -$95,255.00 with a net
monthly cash flow of $440.00." Id. at 807. Nevertheless, the court imposed a $30,000
fine, and the defendant appealed. Id.The government alleged that Berndt was hiding assets and
overstating his debts. Specifically, the government disputed the
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defendant's claims that he owed a friend, Scott Keller, $50,000 and his
grandfather $10,000 in business loans. The government also believed
that the defendant transferred almost $25,000 worth of assets to Keller
and hid $30,000 in his attic. The government contended that the total
amount of undisclosed assets was $78,950.
Id. This court affirmed, finding that "there is substantial evidence that the defendant
attempted to conceal assets from the government for the purpose of reducing the
amount of fine he would be required to pay." Id. at 808. Similarly, here, the
government argued at sentencing:
With respect to Mr. Kay and the massive amount of money that he was
able to accumulate through the continued sale, the daily sale of
marijuana his entire adult life, the Government is convinced, as it has
laid out in its position pleading, that there are assets that Mr. Kay has
available to him that we just simply don't know about, can't locate and
probably won't find.
Moreover, the government's sentencing memorandum stated:
Much of the money [Kay] made selling marijuana was used to purchase
and improve [Kay's] lavish home, pay for luxury automobiles and
finance foreign travel. The government is pursuing forfeiture of the
items that can be recovered. Still, the government cannot account for
large amounts of money and believes that [Kay] has stashed away
resources he has not disclosed. This would be consistent with prior
behavior. Officers recovered $5000.00 cash, some loose diamonds and
[Kay's] passport in a search warrant executed on [Kay's] brother's
property in 2010. [Kay] has previously utilized foreign bank accounts.
[Kay] has likely hoarded other resources that could be retrieved once he
has finished serving his sentence.
But the difference between this case and Berndt is that in Berndt the government
alleged specific facts regarding the defendant's various means of concealment and
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alleged specific dollar amounts of concealed assets. Berndt, 86 F.3d at 807. Here, in
contrast, the government has offered only vague allegations of its own inability to
"account for large amounts of money" and its mere "belie[f] that [Kay] has stashed
away" or "likely hoarded other resources" because "[t]his would be consistent with
[Kay's] prior behavior." Such allegations do not rise to the same level of "substantial
evidence that the defendant attempted to conceal assets from the government for the
purpose of reducing the amount of fine he would be required to pay." See id. at 808.
Consequently, this case differs substantially from Berndt.
Here, the only finding in the record regarding Kay's ability to pay is in
paragraph 108 of the PSR, which states that "[b]ased on the above financial
information and the defendant's restitution obligation, the defendant does not have
the ability to pay a fine within the established fine range at the time of sentencing."
This case is similar to United States v. Bauer, where we vacated the fine because "the
district court did not expressly find that [the defendant] had the ability to pay a
$2,500,000 fine," the court's other findings suggested that the defendant actually had
no "ability to pay a $2,500,000 fine," and "the court [failed to] explain how it took
this and the other § 5E1.2 factors into account in determining the amount of the fine."
19 F.3d 409, 413 (8th Cir. 1994); see also Walker, 900 F.2d at 1206 (vacating fine
where "the presentence report noted 'it appears the defendant is unable to pay a fine[,]'
[y]et the record in the district court d[id] not indicate that any of this information was
considered when assessing a $2 million fine"); United States v. Patient Transfer
Serv., Inc., 413 F.3d 734, 745 (8th Cir. 2005) (vacating fine where the district court
failed to make findings "show[ing] that it considered the defendant's ability to pay the
fine and its burden on the defendant," "and the financial information in the PSR
suggest[ed] that [the defendant] may not be able to pay the large sum assessed against
it"). "Because the record does not reflect how the district court [balanced the U.S.S.G.
§ 5E1.2 factors] in imposing [Kay's] large fine, we are unable to provide meaningful
appellate review. Therefore, we conclude that we must vacate [Kay's] fine and
remand for redetermination of this portion of [his] sentence." Bauer, 19 F.3d at 413.
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C. The $300,000 Restitution Award
Kay argues that the district court erred in imposing a $300,000 restitution
award. "We review the district court's decision to award restitution for an abuse of
discretion and the district court's finding as to the amount of loss for clear
error."United States v. Frazier, 651 F.3d 899, 903 (8th Cir. 2011) (citing United
States v. Chalupnik, 514 F.3d 748, 752 (8th Cir. 2008)). The Mandatory Victims
Restitution Act (MVRA) provides that
the court shall order . . . that the defendant make restitution to the victim
of the offense . . .
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in all sentencing proceedings for convictions of, or plea agreements
relating to charges for, any offense . . . that is . . . an offense against
property under this title, . . . including any offense committed by fraud
or deceit . . . and . . . in which an identifiable victim or victims has
suffered a physical injury or pecuniary loss.
18 U.S.C. § 3663A(a)(1) and (c)(1)(A)(ii) & (B).
Here, Kay pleaded guilty and was convicted of, among other things, conspiracy
to engage in the interstate transportation of stolen goods, in violation of 18 U.S.C.
§§ 371 and 2314. This is an offense against property under Title 18. Hence, the
MVRA required "the [district] court . . . [to] order . . . that [Kay] make restitution to
[Sterling Jewelers]." Id. at § 3663A(a)(1). Furthermore, orders of restitution under the
MVRA are independent of a defendant's ability to pay. See id. at § 3664(f)(1)(A) ("In
each order of restitution, the court shall order restitution to each victim in the full
amount of each victim's losses as determined by the court and without consideration
of the economic circumstances of the defendant.") Hence, Kay's urging that the
district court made no effort to determine whether he had the ability to pay a
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restitution award is unavailing. The district court's decision to award restitution was
not an abuse of discretion.
"The government bears the burden of proving by a preponderance of the
evidence 'the amount of the loss sustained by a victim as a result of the offense.'"
United States v. Gregoire, 638 F.3d 962, 972 (8th Cir. 2011) (quoting United States
v. Young, 272 F.3d 1052, 1056 (8th Cir. 2001)). Here, the district court found that the
government met its burden of proving a $300,000 loss. The court found that "there
could have been a claim for a much greater amount than that given the statements of
both [Kay] and [Michelle] with regard to Sterling's original evaluation that it may be
closer to $800,000 in loss."
Kay argues that the only evidence the government offered to justify the
restitution award was the testimony of Sterling Jewelers' loss prevention manager
regarding its estimate of the loss caused by Michelle's theft. Kay argues that this
testimony was a combination of self-serving speculation and hearsay based on
Michelle's untrustworthy admissions. Furthermore, Kay argues that the government
never attempted to prove that Michelle turned over to him all, or even most, of the
diamonds that she stole from Sterling Jewelers. We disagree. The testimony of
Sterling Jewelers' loss prevention manager was not the only evidence supporting the
amount of loss. Rather, Kay's own admissions were also very important. In pleading
guilty to the superseding indictment, Kay confessed his involvement in a conspiracy
to engage in the interstate transportation of the stolen diamonds. In addition, he also
admitted that he paid Michelle between $50,000 and $100,000 for the pilfered gems.
Kay further admitted that his payments to her were only "a small fraction" of the
diamonds' actual value. Thus, Kay's own admissions corroborated Sterling Jewelers'
$300,000 loss estimate.
Based on this evidence, we conclude that the district court did not clearly err
in imposing a restitution award in the amount of $300,000.
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III. Conclusion
Accordingly, we affirm the district court's sentence of 200 months'
imprisonment and the restitution award. However, "we . . . vacate [Kay's] fine and
remand for redetermination of this portion of [his] sentence." Bauer, 19 F.3d at 413.
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