United States v. Doyle Sheets

Case: 15-10555 Document: 00513374664 Page: 1 Date Filed: 02/10/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 15-10555 United States Court of Appeals
Fifth Circuit
FILED
UNITED STATES OF AMERICA, February 10, 2016
Lyle W. Cayce
Plaintiff - Appellee Clerk
v.
DOYLE BRENT SHEETS,
Defendant - Appellant
ELIZABETH SHEETS; JORDAN PAIGE SHEETS; KRISTIN WHITNEY
SHEETS; TATUM ELIZABETH SHEETS,
Appellants
Appeal from the United States District Court
for the Northern District of Texas
Before STEWART, Chief Judge, and REAVLEY, and DAVIS, Circuit Judges.
CARL E. STEWART, Chief Judge:
Defendant-Appellant Doyle Brent Sheets (“Sheets”) pleaded guilty to an
offense related to a scheme to defraud the United States Department of
Education (“DOE”). The district court ordered each defendant involved in the
scheme to pay restitution in various amounts. When the district court
indicated that it intended to return certain garnished funds to Michael Otto
(“Otto”), one of Sheets’ co-defendants, the Government requested that Otto’s
garnished funds be applied to the overall outstanding restitution obligation.
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The district court denied the Government’s request and returned the garnished
funds to Otto. Sheets appeals the district court’s denial of the Government’s
proposed application of restitution payments. We REVERSE.
I. BACKGROUND
Sheets, the former president of American Commercial Colleges, Inc.
(“ACC”), was convicted of misprision of a felony in violation of 18 U.S.C. § 4 for
concealing knowledge of ACC’s theft of government funds in violation of 18
U.S.C. § 641. 1
A.
Beginning in 2005, ACC, on behalf of its students, submitted hundreds
of claims to the DOE for Federal Student Aid (“FSA”) program funds and
received millions of dollars in student loans and grants. The DOE is charged
with the responsibility of operating, administering, and regulating the various
FSA programs throughout the country. Students who are eligible for financial
assistance may apply for assistance in the form of grants and loans to pursue
post-secondary education. Once a student is deemed eligible for aid, an
educational institution may use the student’s FSA program funds to cover
tuition and fees for the academic year. Under Title IV of the Higher Education
Act of 1965, as amended, institutions like ACC are required to derive at least
10 percent of their revenues from sources other than FSA program funds (the
“90/10 Rule”). 2 In 2007 and earlier, if a school did not meet the 90/10 Rule, it
1 ACC, a proprietary institution, pleaded guilty to the theft of government funds in
violation of 18 U.S.C. § 641 for its misuse and conversion of fraudulently obtained federal
student loan and grant funds while Sheets was ACC’s President. As a corporation, ACC acted
by and through its employees, who are co-defendants in related cases: Sheets, Otto, Bruce
Alan Reed, Brenda Richardson, Trecia McNelly, and Mary Angelyn Summers. Merrill Lynch,
Pierce, Fenner & Smith, Inc. serves as the garnishee in this case.
2 Congress enacted the 90/10 Rule to address perceived issues of widespread fraud by
proprietary schools. See 138 Cong. Rec. E. 2152 (July 9, 1992) (statement of Rep. Ballenger).
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was automatically ineligible to receive FSA program funds during the next
fiscal year. In 2008, during the reauthorization process, the penalty for a
school’s failure to meet the 90/10 Rule was revised so that a noncompliant
institution’s eligibility to participate in the FSA programs became provisional
for the next two years. Any failure to meet the 90/10 Rule thereafter resulted
in the automatic termination of funds.
In 2010, an investigation revealed that ACC continuously
misrepresented its 90/10 Rule compliance to the DOE by constructing a
fraudulent scheme in order to mischaracterize the actual portion of funds each
of its campuses received as FSA versus non-FSA program funds. Had ACC not
misrepresented that it was compliant with the 90/10 Rule, it would have been
ineligible for FSA program funds from fiscal year 2006 until fiscal year 2010.
B.
In separate proceedings, Sheets and his co-defendants were convicted
and sentenced for their involvement in the scheme. Each was ordered to
immediately pay the following to the DOE, jointly and severally:
Defendant Sentencing Special Fine Restitution
Date Assessment
ACC Oct. 2, 2014 $400 $1,200,000 $972,794.70
Sheets Oct. 2, 2014 $100 $5,000 $972,794.70
Otto Sept. 19, 2014 $100 $5,000 $66,606.48
Reed Sept. 19, 2014 $100 $5,000 $66,606.48
Richardson Oct. 9, 2014 $25 $1,000 $87.02
McNelly Sept. 23, 2014 $25 $1,000 $87.02
Summers Sept. 23, 2014 $25 $1,000 $87.02
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The Presentence Investigation Reports (“PSR”) in Otto’s case and in
Reed’s case attributed the $66,606.48 loss to the same conduct, with neither
party making objections to the PSRs.
In November 2014, following sentencing, the Government applied for a
writ of garnishment for substantial nonexempt property belonging to Sheets,
Otto, and Reed. On November 24, 2014, the district court ordered that writs
of garnishment be issued to recover $50,969.46 from each of Otto and Reed’s
retirement funds, and $957,257.68 from Sheets’ investment accounts.
The Government filed a Final Order of Garnishment seeking to obtain
funds from the defendants. In addition, on February 5, 2015, the Government
filed a Motion for Order Regarding Application of Payment (the “Restitution
Motion”), describing the proposed collection of restitution under the Mandatory
Victim Restitution Act (“MVRA”) 3 and confirming that payments would not
end until either a defendant paid to the upper limit of the liability established
by the court or the DOE was fully compensated. 4 On February 6, 2015, the
district court granted the Government’s Restitution Motion. 5 The court noted
that because judgments for Reed, Richardson, McNelly, and Summers were
already satisfied, any receipts from garnishment in the Otto case would be
applied to satisfy Otto’s fine ($5,000), and then applied toward the joint and
3 The MVRA authorizes a court to order restitution to a person directly and
proximately harmed as a result of the commission of a defendant’s offense. See 18 U.S.C. §
3363A(a)(2).
4 As counsel for Sheets notes, the Government’s Restitution Motion appears to have
been filed only in the ACC, Otto, and Reed cases, presumably by accident, as the order
granting the motion (as well as the later order vacating it) was filed in each of the seven
cases.
5 Through garnishment proceedings, the Government obtained payment of Reed’s
$100.00 mandatory special assessment, $5,000.00 fine, and $66,606.48 in restitution. See
Satisfaction and Release of Judgment filed Feb. 9, 2015, in Criminal No. 5:14-CR-082-01-C,
United States v. Bruce Alan Reed.
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several restitution imposed on ACC ($972,794.70). The Otto payment would
therefore not count as an overpayment and would help to diminish any
remaining payment required by Sheets and ACC.
On February 24, 2015, and acting sua sponte, the district court vacated
its prior order and denied the Government’s Restitution Motion. The court
ordered that instead of applying payments received on behalf of Otto to the
joint and several liability of ACC, it would return the garnished funds to Otto’s
garnishee. The court also ordered the Government to show cause as to why
funds garnished should not be returned to the garnishee.
On March 24, 2015, in the case solely involving Otto, the district court
ordered that any funds held for the benefit of Otto and subsequently garnished
beyond the amount owed as a fine by him, were to be returned to the garnishee,
instead of applied to the overall restitution sum remaining for all defendants.
Sheets and his intervening family members timely appealed.
The main issue on appeal is whether the district court erred in denying
the Government’s Restitution Motion, thereby failing to apply the restitution
sum garnished from Otto against the total loss suffered by the DOE.
II. STANDARD OF REVIEW
In reviewing an order of restitution, if the restitution was imposed in
violation of the MVRA, it is illegal, and the proper standard of review is de
novo. See United States v. Maturin, 488 F.3d 657, 659 (5th Cir. 2007) (citing
United States v. Adams, 363 F.3d 363, 365 (5th Cir. 2004)). Once we have
determined that an award of restitution is permitted by the appropriate law,
we review the propriety of a particular award for an abuse of discretion.
Adams, 363 F.3d at 365.
In the alternative, where the defendant has failed to object to either the
amount of restitution recommended in the pre-sentence investigation report or
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the district court’s restitution order, thereby denying the court the opportunity
to identify and correct any errors, we review for plain error. See Maturin, 488
F.3d at 660. Under the plain error standard, we will correct an error in the
district court proceeding only if the error was (1) “clear” or “obvious,” and (2)
affected the substantial rights of the defendant. Id. Where both elements are
established, we may exercise our discretion to notice a forfeited error, but only
if the error “seriously affects the fairness, integrity or public reputation of the
judicial proceedings.” Johnson v. United States, 520 U.S. 461, 467 (1997)
(internal quotation marks omitted). A restitution order that fails to comply
with statutory requirements, such as a failure to properly apply the restitution
provisions of the MVRA, may constitute plain error. See, e.g., United States v.
Ollison, 555 F.3d 152, 164 (5th Cir. 2009); United States v. Trigg, 119 F.3d 493,
501 n.7 (7th Cir. 1997).
III. DISCUSSION
Sheets challenges the district court’s denial of the Government’s
Restitution Motion. He argues that the district court committed error in failing
to apply the restitution sum garnished from Otto against the total loss suffered
by the DOE.
A victim of a crime has “[t]he right to full and timely restitution as
provided in law.” See 18 U.S.C. § 3771(a)(6). Under the MVRA, the United
States may collect restitution owed to victims of criminal offenses. See 18
U.S.C. § 3664(f)(1)(A); United States v. Phillips, 303 F.3d 548, 550–51 (5th Cir.
2002). Congress directed the Attorney General to aggressively enforce
restitution orders with the intent that the Department of Justice would commit
the resources necessary to ensure that the rights of victims are enforced. See
18 U.S.C. § 3612(c); Phillips, 303 F.3d at 550–51.
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If the court finds that more than one defendant has contributed to a
victim’s loss, the court has the discretion to find each defendant liable for
payment of the full amount of restitution, i.e., joint and several liability among
the defendants. See 18 U.S.C. § 3664(h). In the alternative, the court may
apportion liability among the defendants to require contribution from a
defendant solely based on the loss the defendant caused to the victim and the
economic circumstances of each defendant. See 18 U.S.C. § 3664(h); United
States v. Scott, 270 F.3d 30, 52–53 (1st Cir. 2001); Trigg, 119 F.3d at 501
(finding that multiple defendants may be held jointly and severally liable for
restitution in different amounts, but victims may not recover an amount in
excess of their loss).
In some instances, courts apply a hybrid approach in imposing
restitution—frequently employing a combination of the apportionment of
liability approach while concurrently making all of the defendants jointly and
severally liable. See, e.g., United States v. Bogart, 576 F.3d 565, 573–76 (6th
Cir. 2009); United States v. Hunt, 521 F.3d 636, 640, 649 (6th Cir. 2008); United
States v. Nucci, 364 F.3d 419, 423-24 (2d Cir. 2004); Scott, 270 F.3d at 52-53;
United States v. Diaz, 245 F.3d 294, 312 (3d Cir. 2001); Trigg, 119 F.3d at 500-
01 (affirming restitution orders for full amount made joint and several with co-
defendants who had been ordered to pay restitution for some, but not all of full
amount).
However, in doing so, courts may not award restitution that would result
in the payment to the victim of an amount greater than the victim’s loss, nor
may the district court award restitution to victims that have not been “directly
and proximately harmed” by a defendant’s offense. See 18 U.S.C. §
3663A(a)(2); United States v. De Leon, 728 F.3d 500, 506 (5th Cir. 2013).
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As we have stated, we review the legality of a restitution order de novo.
Maturin, 488 F.3d at 659–60. Sheets argues that the district court erred when
it denied the Government’s Restitution Motion, thereby preventing any further
payment from Otto to apply to the overall restitution amount. We agree.
In denying the Government’s Restitution Motion, the court stated that it
must treat previously garnished funds belonging to Reed as satisfying the
restitution ordered from both Otto and Reed and required the court to return
the sum garnished from Otto to the garnishee. The district court relied
primarily on the Supreme Court’s decision in Paroline v. United States, 134 S.
Ct. 1710 (2014). In Paroline, the defendant pleaded guilty to possession of child
pornography, which included depictions of the sexual exploitation of a young
girl, “A.” 134 S. Ct. at 1716. After the district court declined to award
restitution to A., who sought restitution for damages suffered as a result of the
trafficking of the pornographic images depicting her, this court reversed the
district court’s decision and awarded A. restitution. Id. at 1718. Thereafter,
the Supreme Court reversed this court’s decision and concluded that A. was
not entitled to restitution because her remedy is limited to losses suffered by a
victim that are a proximate result of the offense. Id. at 1730.
In addressing the Government’s response to the district court’s order to
show cause in the instant case, the court correctly noted that restitution may
only be ordered in response to a defendant’s conduct that actually caused the
injury. The court cited Paroline for the proposition that “a court must assess
as best it can from available evidence the significance of the individual
defendant’s conduct in light of the broader causal process that produced the
victim’s losses.” See id. at 1727–28. Using Paroline as a backdrop, the court
reasoned that because the amount attributable to Otto and Reed’s conduct
together is $66,606.48, Otto and Reed cannot in turn pay more than this
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amount combined. The court found that the garnishment of Reed’s account for
the full $66,606.48 satisfied the restitution amount owed by both defendants.
Paroline, however, did not address the proper apportionment of
restitution payments where multiple defendants are jointly and severally
liable for restitution arising from a single scheme. Paroline solely involves the
issue of whether restitution may be imposed under the circumstances of that
case, particularly where there is an issue of whether an actual and proximate
causal link exists, and if so, how the court may determine the necessary
restitution amount.
A more appropriate mechanism for this court to apply is a hybrid
approach to restitution payments where multiple defendants are held liable
for injuries caused by a common scheme. For example, United States v. Scott
directly addresses the issue currently before the court. In Scott, the
government’s total loss was $37,970.68. Scott, 270 F.3d at 52. The district
court ordered three co-defendants to pay restitution in different amounts for
the same loss: $37,970.68, $8,253, and $7,479. Id. The court found that if “the
defendants are each made liable for the full amount, but the victim may recover
no more than the total loss, the implication is that each defendant’s liability
ends when the victim is made whole.” Id. Thus, even where liability of each
defendant overlaps and the total amount that they are held liable for exceeds
the victim’s total injury, the MVRA permits the Government to hold any
individual defendant liable for as much as the court ordered as to that
defendant, but the government may not collect more from all defendants
together than will make the victim whole. Id.; see also Trigg, 119 F.3d at 500–
05 (affirming a restitution order where multiple co-defendants were ordered to
pay restitution in different amounts for their involvement in a theft scheme,
some of which involved overlapping conduct, but where none of the defendants
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was individually ordered to pay an amount greater than the total loss caused
by the conspiracy). The court did not hold that payment by the defendant who
owed $8,253, for instance, would extinguish any payments owed by the
defendant required to pay $7,479, merely because liability extended to cover
conduct under the same scheme. Scott, 270 F.3d at 52.
Similarly, as the Government noted below, United States v. Osborne is
instructive. In Osborne, the defendant sought credit for restitution payments
made by his co-defendants. See Osborne, No. 1:06-CR-00006-R, 2010 WL
4788169, *2 (W.D. Ky Nov. 17, 2010). In declining to hold that the obligation
was partially or fully satisfied, the court found that the defendant’s obligation
to pay restitution for damages incurred was not extinguished merely because
his co-defendants satisfied a part of the judgment arising from their joint
involvement in a conspiracy. Id.
Sheets seeks the exact collection methodology as provided in Scott and
Osborne. Here, the district court found that Otto’s obligation was fully
satisfied based on the earlier payments by Reed. The district court’s concern—
that requiring payment from Otto would render both Otto and Reed
responsible for restitution in excess of the loss attributable to their conduct—
is misplaced. As in Osborne, payments requested from Sheets, Otto, Reed, and
the remaining defendants encompass overlapping injuries due to each
defendant’s conduct. Because the DOE has not yet been fully repaid for its
damages and Otto’s payments have failed to “eclipse the ceiling for his own
restitution amount,” Otto’s obligation to repay has not lapsed. See id. Thus,
any funds received by his co-defendants should be applied to the total sum
owed by all defendants. In doing so, payments from Otto would also reduce
the overall sum owed by Sheets.
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The district court’s analysis similarly does not align with the MVRA’s
rules regarding liability apportionment. If followed, the decision would
preclude the Government from apportioning liability using the hybrid
approach while concurrently making all of the defendants jointly and severally
liable—an approach which multiple circuits have previously upheld. Bogart,
576 F.3d at 573; Hunt, 521 F.3d at640, 649; Nucci, 364 F.3d at 423-24; Scott,
270 F.3d at 52-53; Diaz, 245 F.3d at 312; Trigg, 119 F.3d at 500-01. Ensuring
that restitution payments from all defendants contribute toward the victim’s
overall recovery is a simple and uniform means to have victims receive full and
timely restitution as provided by law and otherwise ensure that decisions of
our district courts align with the purpose of the MVRA. See, e.g., Phillips, 303
F.3d at 550–51. Apportioning liability in this way is not solely a benefit to
Sheets but aids the DOE in promptly recovering for its injuries.
Accordingly, the district court erred in ordering that any funds garnished
for the benefit of Otto by the garnishee, beyond the amount owed by Reed, be
returned to the garnishee. 6
IV. CONCLUSION
For the reasons stated herein, we REVERSE the district court’s denial
of the Government’s Restitution Motion and REMAND the case to the district
court for further proceedings.
6 We need not review the district court’s failure to properly apply the MVRA in its
restitution order for plain error. Sheets failed to object to the court’s denial of the
Government’s Restitution Motion because he had no opportunity to do so.
11