United States v. McMahon

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v. No. 99-4239
NORWOOD MCMAHON, a/k/a Woody,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
T. S. Ellis, III, District Judge.
(CR-95-82)
Argued: May 1, 2000
Decided: July 28, 2000
Before WILKINSON, Chief Judge, and LUTTIG and
MICHAEL, Circuit Judges.
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Affirmed in part and vacated in part by unpublished per curiam opin-
ion.
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COUNSEL
ARGUED: Nina Jean Ginsberg, DIMURO, GINSBERG & LIEBER-
MAN, P.C., Alexandria, Virginia, for Appellant. Mark Anthony
Exley, Assistant United States Attorney, Norfolk, Virginia, for Appel-
lee. ON BRIEF: Helen F. Fahey, United States Attorney, Dennis M.
Kennedy, Assistant United States Attorney, Norfolk, Virginia, for
Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Norwood McMahon appeals his conviction for criminal contempt
for refusing to cooperate with the United States Probation Office and
for wilfully siphoning assets away from Associated Health Services,
all in an effort to prevent that company from paying a fine imposed
upon it as part of a criminal sentence. In a related matter, McMahon
also appeals the district court's order modifying the payment schedule
for the restitution ordered in his own sentence. We affirm the convic-
tion for criminal contempt and vacate the modification order because
the district court lacked jurisdiction.
I.
Between 1987 and 1991 Norwood McMahon and Associated
Health Services (AHS), d/b/a the Health Development Center,
engaged in a fraudulent scheme to obtain reimbursement from Medi-
care, Medicaid, and various other insurance programs and companies
for patient services that were not ordinarily reimbursable. In May
1991, after the illegal activity had concluded, McMahon sold his
interest in AHS's Annandale, Virginia, office and bought the entire
interest in the company's Manassas office. AHS was dissolved and
McMahon established a new corporation, Health Development Cen-
ter, PC (HDC), in which he was the sole shareholder. HDC assumed
the assets, liabilities, and goodwill of AHS's Manassas office.
The insurance scheme was discovered in 1993, and in June 1995
McMahon and AHS were convicted for conspiracy to defraud the
United States, false claims, mail fraud, money laundering, and struc-
turing financial transactions. In November 1995 the district court sen-
tenced McMahon to 44 terms of 51 months imprisonment (to be
served concurrently), a three-year term of supervised release, restitu-
tion in the amount of $100,000, and a special assessment of $2,200.
2
With respect to McMahon's restitution, $37,400 was due and payable
immediately, with the balance to be paid according to a schedule set
at the direction and discretion of the probation officer. The district
court sentenced AHS to one year of probation, a fine of $32,000, and
a special assessment of $6,400. The amount of AHS's fine was based
on the determination in the presentence report that HDC had a net
worth of $32,000. The fine and the special assessment were due in
full immediately. McMahon and AHS appealed their convictions, and
we affirmed. See United States v. McMahon, 151 F.3d 1031 (4th Cir.
1998) (table).
AHS did not pay the fine or the special assessment. The probation
officer assigned to AHS contacted McMahon, who was AHS's corpo-
rate representative. McMahon informed the officer that AHS had been
dissolved and that his new business, HDC, was in no way affiliated
with AHS. Consequently, McMahon asserted that he had no obliga-
tion to furnish information about the finances of AHS or HDC.
On April 11, 1996, the district court directed McMahon to cooper-
ate with the probation office by answering its questions regarding
AHS. The probation officer then sent McMahon a list of fourteen
questions about AHS and an additional twelve questions about HDC.
McMahon provided cursory answers to the questions about AHS, but
again refused to provide any information concerning HDC on the
ground that information concerning HDC's finances was relevant
only in determining his own ability to pay restitution. On August 28,
1996, the district court determined that HDC was a mere continuation
and successor of AHS and ordered McMahon "to respond and answer
fully all of the Probation Officer's questions concerning the assets and
operation of HDC, PC." United States v. Associated Health Servs.,
Crim. No. 95-0082-A (E.D. Va. Aug. 28, 1996). The probation officer
then submitted a list of twenty questions concerning HDC's finances
and assets. McMahon's responses generally pled ignorance of HDC's
finances and assets.
Throughout the period after sentencing, but before he was required
to surrender to the United States Marshal, McMahon continued to
operate HDC, using HDC funds to loan himself money, to reimburse
his own automobile expenses, and to pay a psychic. On reference
from the district court, the magistrate judge determined that
3
McMahon had "fraudulently and wilfully secreted, transferred, and
otherwise disposed of the corporate Defendant's assets with the intent
to hinder, delay, or defraud" the United States in its efforts to obtain
the $32,000 fine and $6,400 special assessment. The magistrate judge
then returned the matter to the district court for a determination
whether McMahon's conduct constituted criminal contempt. The dis-
trict court found McMahon guilty and sentenced him to 90 days
imprisonment.
II.
McMahon argues that the evidence of criminal contempt was insuf-
ficient to support his conviction. When assessing the sufficiency of
the evidence of a criminal conviction on direct review, "[t]he verdict
. . . must be sustained if there is substantial evidence, taking the view
most favorable to the Government, to support it." Glasser v. United
States, 315 U.S. 60, 80 (1942). "To support a conviction of criminal
contempt for violation of a court order, it must be proved beyond a
reasonable doubt, that a person willfully, contumaciously, intention-
ally, with a wrongful state of mind, violated a decree which was defi-
nite, clear, specific, and left no doubt or uncertainty in the minds of
those to whom it was addressed." United States v. McMahon, 104
F.3d 638, 642 (4th Cir. 1997) (quoting Richmond Black Police Offi-
cers Assoc. v. City of Richmond, 548 F.2d 123, 129 (4th Cir. 1977)).
We find that the evidence of McMahon's criminal contempt was
indeed substantial, and we affirm.
The sentencing order clearly and unambiguously required that AHS
immediately pay a fine of $32,000. The district court arrived at the
$32,000 figure based on HDC's net worth and ability to pay, as indi-
cated by the presentence report. McMahon's assertion that HDC was
not affiliated with AHS and consequently was not liable for the fine
simply was not credible. As the district court found, HDC was the
clear successor to AHS. It assumed AHS's assets, liabilities, and
goodwill. It operated out of the same office and even used the same
taxpayer identification number. Faithful compliance with the sentenc-
ing order required that McMahon, as AHS's corporate representative,
use HDC's existing assets to pay the fine. Instead, McMahon used
HDC's funds to loan himself money, pay himself automobile
expenses, and consult a psychic. Even as he dissipated the company's
4
meager assets, he failed to use its revenues to pay any amount toward
the fine.
At the same time, the government's efforts to trace AHS and
HDC's assets were frustrated to a considerable extent by McMahon's
refusal to provide meaningful information about HDC's assets and
liabilities. Instead, he provided answers that,"charitably character-
ized, were evasive," in the words of the district court. For example,
of the $21,257 in loans receivable to HDC, McMahon claimed he
only knew of a single loan to his ex-wife. He provided almost no
information about the disposition of HDC's medical equipment, furni-
ture, and fixtures, some (if not all) of which apparently was sold. In
short, McMahon did not provide specific information in response to
a single question asked of him.
The district court found that McMahon's conduct fell into "a pat-
tern and practice of siphoning funds away and avoiding paying the
fine and special assessment." In light of HDC's clear obligation (as
AHS's successor) to pay the fine, McMahon's continued dissipation
of HDC assets and his evasive responses to the probation officer's
questions provide substantial evidence of criminal contempt. We
therefore affirm.
III.
McMahon's original sentence directed that he pay restitution in the
amount of $100,000, with $37,400 due and payable immediately. The
balance of the restitution was to be paid on a schedule set by the pro-
bation officer. Shortly before sentencing in this case, we held that a
federal court may not delegate the judicial function of setting the
amount of restitution and schedule of repayment. See United States
v. Johnson, 48 F.3d 806, 808-09 (4th Cir. 1995); see also United
States v. Blake, 81 F.3d 498, 507 (4th Cir. 1996). Recognizing that
the district court's restitution order was in error, the government
moved to modify it. The district court granted the motion and ordered
a payment schedule.
McMahon appeals the district court's modification order, arguing
that his original sentence was a final judgment that the district court
lacked jurisdiction to alter. We agree. It is, of course, beyond question
5
that courts have the power to modify restitution orders in appropriate
circumstances. Indeed, Congress has expressly conferred that author-
ity. See 18 U.S.C. § 3613A (permitting court to enter or adjust a pay-
ment schedule "[u]pon a finding that the defendant is in default on a
payment of a fine or restitution"); id.§ 3664(k) (permitting court to
"adjust the payment schedule, or require immediate payment in full,"
upon receiving notice of a material change in defendant's economic
circumstances); id. § 3664(n) (requiring a defendant who receives
substantial resources during a period of incarceration to apply the
value of those resources to any restitution owed). 1
However, the government did not move to modify the restitution
order on the basis of any of these changed circumstances. Rather, it
moved to modify the sentence on the ground that it was illegal. A sen-
tencing court's authority to correct a sentence because of legal error,
however, is limited. For seven days after the imposition of sentence,
the court retains the power to "correct a sentence that was imposed
as a result of arithmetical, technical, or other clear error." Fed. R.
Crim. P. 35(c) (codifying rule of United States v. Cook, 890 F.2d 672,
674-75 (4th Cir. 1989), but adding stricter time limit). Once those
seven days have passed, the sentencing court cannot modify a restitu-
tion order on grounds of illegality.2 See United States v. Lussier,
104 F.3d 32, 34 (2d Cir. 1997).
In Lussier the defendant was convicted of various banking crimes.
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1 The government also cites 18 U.S.C. § 3572(d)(1), which states that
"A person sentenced to pay a fine or other monetary penalty, including
restitution, shall make such payment immediately, unless, in the interest
of justice, the court provides for payment on a date certain or in install-
ments. If the court provides for payment in installments, the installments
shall be in equal monthly payments over the period provided by the
court, unless the court establishes another schedule." This last clause,
"unless the court establishes another schedule," simply allows the sen-
tencing court to make an exception from the presumptive rule of equal
monthly payments when it initially imposes the sentence. It does not con-
fer upon the court the authority to modify the sentence at a later date by
establishing another payment schedule.
2 Since the correction in this case took place over three years after
imposition of the sentence, Rule 35(c) clearly does not apply.
6
His sentence required, as a condition of his supervised release, that he
make restitution for the losses caused by those offenses. In addition,
he was required to make restitution for losses caused by a check kit-
ing scheme for which he was not convicted, but which was considered
by the court as relevant conduct. After unsuccessfully appealing his
conviction and sentence on other grounds, Lussier moved the district
court to modify the conditions of his supervised release under 18
U.S.C. § 3583(e)(2) by amending the restitution order. Modification
was warranted, Lussier argued, because restitution may only be
imposed based on losses directly traceable to a count of conviction.
See Hughey v. United States, 495 U.S. 411 (1990). The district court
held that it lacked jurisdiction to consider Lussier's claim that his sen-
tence was illegal, and the court of appeals affirmed. Section
3583(e)(2) does permit a district court to modify the conditions of
supervised release, but only upon a showing of changed circum-
stances. See Lussier, 104 F.3d at 35; 18 U.S.C. § 3553(a)(1)-(6).
Since Lussier did not allege changed circumstances, the district court
lacked jurisdiction to consider his challenge to his sentence. See Lus-
sier, 104 F.3d at 36. Moreover, permitting a defendant to challenge
the legality of his sentence in the district court, after he had already
pursued a direct appeal, would disrupt "the established statutory
scheme governing appellate review of illegal sentences." Id. at 34.
The statutes permitting modification of restitution orders, like 18
U.S.C. § 3583(e)(2), permit such modification only for changed cir-
cumstances, not because the underlying sentence is illegal. Once the
seven days allowed by Fed. R. Crim. P. 35(c) have passed, the only
means of challenging an illegal sentence is through direct appeal or,
where appropriate, a collateral attack under 28 U.S.C. § 2255. There-
fore, we hold that the district court exceeded its jurisdiction when it
granted the government's motion to modify the restitution order.3
McMahon thus prevails, but gains nothing. The substantive terms
of the modified sentencing order appear to be identical to those of the
original order; neither the total amount of restitution, nor the amount
that was due immediately has been changed. Although the original
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3 If there has been change in circumstances such that 18 U.S.C.
§§ 3613A, 3664(k), or 3664(n) does apply in this case, either party may
of course move for a modification of the restitution order.
7
order clearly contained an improper delegation, McMahon waived
any challenge to that order when he failed to raise the error in his
direct appeal. See McMahon, 151 F.3d 1031 (4th Cir. 1998). At this
stage, any challenge to the legality of McMahon's sentence must be
pursued through a section 2255 petition, if at all. Since no such peti-
tion is before us, we express no opinion on its possible merits.
For the reasons stated, we hold that the district court exceeded its
jurisdiction when it modified its restitution order on grounds of ille-
gality. We therefore vacate the district court's order of March 5, 1999,
which directed McMahon to make restitution according to a pre-
scribed schedule.
IV.
McMahon's conviction for criminal contempt is affirmed. The dis-
trict court's modification of its restitution order is vacated. That
court's sentencing order of November 9, 1995, and the related sen-
tencing memorandum of November 14, 1995, are therefore reinstated.
AFFIRMED IN PART AND VACATED IN PART
8