United States v. Smith

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-4138
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
EDDIE BURL SMITH,
Defendant - Appellant.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. John T.
Copenhaver, Jr., District Judge. (2:08-cr-00056-1)
Submitted: October 27, 2009 Decided: November 30, 2009
Before WILKINSON and AGEE, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by unpublished per curiam opinion.
John E. Jessee, JESSEE & READ, P.C., Abingdon, Virginia, for
Appellant. Charles T. Miller, United States Attorney, R. Booth
Goodwin II, Assistant United States Attorney, Charleston, West
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Eddie Burl Smith (Smith) pled guilty to conspiracy to
defraud the United States, 18 U.S.C. § 371 (2006) (Count One),
and fraudulent receipt of bankruptcy property, 18 U.S.C.
§§ 152(2), 2 (2006) (Count Eight), and was sentenced to a term
of fifty-seven months imprisonment. Smith appeals his sentence,
contending that the district court clearly erred in finding that
he was an organizer or leader in the conspiracy, U.S. Sentencing
Guidelines Manual § 3B1.1(a) (2008), and that he abused a
position of trust, USSG § 3B1.3. We affirm.
Smith was president of Carl E. Smith, Inc. (CESI), a
West Virginia corporation which built pipelines for oil and gas.
The company had been started by Smith’s father; at his death in
1987, Smith and his brothers, Larry and Donald, became equal
shareholders. From 1998 to 2006, the period of the conspiracy,
Smith’s brother Donald was vice-president of CESI, and Smith’s
son, Edward Michael Smith, was secretary and treasurer. After
civil litigation initiated by Larry in 1999 revealed
questionable financial practices and a lack of proper accounting
at CESI, the IRS began an investigation, which led to Smith’s
eventual guilty plea to the instant offenses. According to
information in the presentence report, CESI’s “principals and
officers” defrauded the IRS by using corporate funds extensively
for personal vehicles and other personal purchases without
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reporting the assets acquired as personal income. In addition,
the company used color-coded checks to avoid payroll reporting
requirements. Some employees were paid with both yellow payroll
checks and blue expense checks. Wages that were paid as expense
reimbursement were not reflected in the employee’s W-2 forms and
taxes were only withheld from the payroll check. With respect
to these funds, CESI failed to meet its obligation to collect
the required “employment taxes,” 1 hold them in trust, and deposit
them in an authorized financial institution at intervals. In
2003, Smith and his son, Edward Michael Smith, filed for Chapter
11 bankruptcy on behalf of CESI and its subsidiaries. A month
later, they formed Smith Well Service (SWS), a limited liability
company unrelated to CESI and its subsidiaries. Edward Michael
Smith was the sole proprietor. During the CESI bankruptcy,
Smith and his son engaged in certain transactions which
benefitted SWS without the knowledge or approval of the
bankruptcy court.
At sentencing, the district court determined that
Smith had a leadership role in the conspiracy and that there
were at least five participants: Smith; his son, Edward Michael
Smith; his brother, Donald Smith; and Donald’s wife and
1
“Employment taxes” include both the employee’s and the
company’s share of federal income tax, Social Security, and
Medicare taxes.
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daughter, Judith and Jaclyn Smith. The court found that Smith
had the primary responsibility for manipulation of the payroll
and expense checks to carry out the fraud involving trust fund
taxes and that his position as president afforded him discretion
that facilitated the offense. Smith contests these rulings on
appeal.
The district court’s determination of the defendant’s
role in the offense is a factual finding reviewed for clear
error. United States v. Kellam, 568 F.3d 125, 147-48 (4th Cir.
2009). A four-level increase is provided under § 3B1.1(a) for a
defendant who is an organizer or leader of an offense which
involved more than five participants or was otherwise extensive.
To qualify, the defendant must have been the organizer or leader
of “one or more other participants.” USSG § 3B1.1 cmt. n.2.
Factors to be considered include:
the exercise of decision making authority, the nature
of participation in the commission of the offense, the
recruitment of accomplices, the claimed right to a
larger share of the fruits of the crime, the degree of
participation in planning or organizing the offense,
the nature and scope of the illegal activity, and the
degree of control and authority exercised over others.
USSG § 3B1.1 cmt. n.4.
Smith contends that he had “no more control or
ownership of the company” than Donald, that there was no
evidence he recruited accomplices, and that much of the benefits
went to his son or to Donald’s family and friends. He argues
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that there is little evidence as to whether he participated in
planning or organizing the scheme to defraud the IRS, and that
family members acted independently when they used the company to
pay for personal purchases. He argues that, as president and
signer of the fraudulent expense checks in the blue-check
scheme, he exercised control over property, not people, noting
that control of property alone does not warrant a four-level
leadership adjustment. USSG § 3B1.1 cmt. n.2; see also United
States v. Capers, 61 F.3d 1100, 1108-13 (4th Cir. 1995). Smith
also maintains that there were fewer than five participants
because there was no evidence either Jaclyn Smith or Brian
Tanner 2 was a “knowing culpable participant” in the conspiracy.
With respect to the number of participants,
Application Note 1 to § 3B1.1 states that “[a] ‘participant’ is
a person who is criminally responsible for the commission of the
offense, but need not have been convicted.” Smith acknowledged
at sentencing that he knew Jaclyn was on the CESI payroll and
was paid for work she did not do. He did not dispute the
information in the presentence report on which the district
court relied in deciding that Judith and Jaclyn were
participants; specifically, that in addition to being paid as
2
Brian Tanner pled guilty to income tax evasion. The
district court did not find him to be a participant in the
conspiracy.
5
CESI employees, Judith and Jaclyn used a CESI car and credit
card, that CESI paid the expenses for the horse farm where they
lived, and that they did not report these benefits as income,
which caused each of them to file a false tax return, and also
caused “the inflation of corporate expenses and the filing of
false corporate tax returns.” We conclude that these facts were
sufficient for the district court to find that Jaclyn was a
criminally responsible participant. In addition, as the
government argues, the blue-check/yellow-check scheme required
the participation of CESI employees such as payroll clerks and
in-house accountants. 3
By virtue of his position as president of the company,
Smith had the authority to endorse or to stop the scheme to
defraud the IRS. Smith’s statements at the Rule 11 hearing
disclose that he actively engaged in and thus promoted the
fraudulent scheme. Therefore, the district court did not
clearly err in finding that he had a leadership role.
A two-level adjustment should be made “[i]f the
defendant abused a position of public or private trust . . . in
3
This argument was not made in the district court, but is
an alternative ground for finding the required number of
participants. We may affirm for any reason appearing in the
record. United States v. Smith, 395 F.3d 516, 519 (4th Cir.
2005) (“We are not limited to evaluation of the grounds offered
by the district court to support its decision, but may affirm on
any grounds apparent from the record.” (citation omitted)).
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a manner that significantly facilitated the commission or
concealment of the offense.” USSG § 3B1.3. A position of
“[p]ublic or private trust” means a position “characterized by
professional or managerial discretion (i.e., substantial
discretionary judgment that is ordinarily given considerable
deference).” USSG § 3B1.3 cmt. n.1. The district court’s
decision that a defendant had a position of trust is a factual
determination reviewed for clear error. United States v.
Bollin, 264 F.3d 391, 415 (4th Cir. 2001). The question must be
examined from the perspective of the victim. United States v.
Godwin, 272 F.3d 659, 671 (4th Cir. 2001).
Smith contends that no relationship of trust existed
between him and the IRS, which was identified as the victim of
the offense in the presentence report. He relies on two tax
evasion decisions from other circuits where the adjustment was
not applied. In United States v. Guidry, 199 F.3d 1150, 1160
(10th Cir. 1999), the appeals court held that the defendant
“[d]id not occupy a position of trust vis-à-vis the government,
the victim in his case.” In United States v. Barakat, 130 F.3d
1448, 1455-56 (11th Cir. 1997), the appeals court held that the
defendant occupied a position of trust, but did not use it to
commit or conceal his tax evasion.
In this case, however, as an employer, Smith was
placed in a position of trust by the government. He was
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entrusted with collecting, holding, and depositing funds
designated in part for Social Security and Medicare and his
failure to carry out this responsibility victimized taxpayers.
United States v. Adam, 70 F.3d 776, 781-82 (4th Cir. 1995)
(victims of Medicaid fraud are American taxpayers). Similarly,
in United States v. Turner, 102 F.3d 1350 (4th Cir. 1996), we
held that mine operators occupied a position of public and
private trust, which they abused by declining to follow mine
safety laws or provide adequate safety training for miners.
Their abuse of that trust victimized both the miners and “the
rest of society.” Id. at 1360.
We have held that physicians and medical care
providers who defraud Medicaid abuse a position of trust. See
United States v. Bolden, 325 F.3d 471, 504-05 (4th Cir. 2003).
In Bolden, we observed that, “[b]ecause of the discretion
Medicaid confers upon care providers . . . such providers owe a
fiduciary duty to Medicaid. Indeed, we see it as paramount that
Medicaid be able to ‘trust’ its service providers.” Id. at 505
n.41. Similarly, it is essential that the government be able to
trust employers to collect, hold in trust, and deposit the
“employment taxes” owed by the employees and the company. The
government maintains that Smith had both a fiduciary obligation
to the IRS to carry out this responsibility, and a fiduciary
relationship with the employees of CESI which carried the same
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obligation, notwithstanding the willingness of some employees to
participate in the scheme to defraud. We agree, and conclude
that the district court did not clearly err in applying the
adjustment for abuse of a position of trust.
We therefore affirm the sentence imposed by the
district court. We dispense with oral argument because the
facts and legal contentions are adequately presented in the
materials before the court and argument would not aid the
decisional process.
AFFIRMED
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