United States v. Michael Lord

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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 17-30486 United States Court of Appeals
Fifth Circuit
FILED
February 15, 2019
UNITED STATES OF AMERICA,
Lyle W. Cayce
Plaintiff - Appellee Clerk
v.
MICHAEL A. LORD; RANDALL B. LORD,
Defendants - Appellants
Appeal from the United States District Court
for the Western District of Louisiana
Before STEWART, Chief Judge, and DENNIS and WILLETT, Circuit Judges.
CARL E. STEWART, Chief Judge:
Michael A. Lord and his father, Randall B. Lord, (collectively, “the
Lords”) pleaded guilty, pursuant to written agreements, to conspiracy to
operate an unlicensed money servicing business (“MSB”) (Count One). Michael
also pleaded guilty to conspiracy to distribute and possess Alprazolam, a
Schedule IV controlled substance, with the intent to distribute (Count Fifteen).
After entering into their guilty pleas, the Lords filed a joint motion to withdraw
their guilty pleas. They stated that after they entered their guilty pleas, they
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learned from other bitcoin 1 dealers and from the State of Louisiana Office of
Financial Institutions (“OFI”) that they did not need an MSB license. The
district court denied the Lords’ motion to withdraw their guilty pleas as to
Count One. The court found that the Lords’ motion contained no argument
relative to Michael’s plea to Count Fifteen and that, in any event, he was not
entitled to withdraw his plea. The Lords appeal the district court’s denial of
their motion to withdraw their guilty pleas, as well as their sentences. For the
reasons below, we AFFIRM the district court’s judgment as to Michael Lord
and Randall Lord, with the exception that we REVERSE and REMAND for
resentencing as to Michael Lord’s maintaining a premises for the purpose of
manufacturing or distributing a controlled substance enhancement and special
skills enhancement.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The Lords were charged in a single indictment with 14 counts relating
to their bitcoin business. Michael was charged with one count for a drug
offense. The Lords pleaded guilty, pursuant to written agreements, to
conspiracy to operate an MSB (Count One). Michael also pleaded guilty to
conspiracy to distribute and possess Alprazolam, a Schedule IV controlled
substance, with the intent to distribute (Count Fifteen).
MSBs are subject to 18 U.S.C. § 1960, which criminalizes the failure to
obtain a state license, when required, and to comply with federal registration
requirements. The statute provides that an MSB is unlicensed if it:
(A) is operated without an appropriate money transmitting license
in a State where such operation is punishable as a misdemeanor
or a felony under State law, whether or not the defendant knew
1 Bitcoin is a decentralized form of electronic or digital currency that exists only on
the Internet.
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that the operation was required to be licensed or that the operation
was so punishable;
(B) fails to comply with the money transmitting business
registration requirements under section 5330 of title 31, United
States Code, or regulations prescribed under such section; or
(C) otherwise involves the transportation or transmission of funds
that are known to the defendant to have been derived from a
criminal offense or are intended to be used to promote or support
unlawful activity.
18 U.S.C. § 1960. Other regulations require MSBs to register with the
Financial Crimes Enforcement Network (“FinCEN”) within 180 days of the
date the business is established. 31 C.F.R. § 1022.380(b)(3).
The indictment charged that the Lords, as part of their conspiracy, began
operating a bitcoin exchange business in 2013; the Lords and their companies
did not obtain licenses to engage in the business of money transmission by the
State of Louisiana; between 2013 and November 10, 2014, they did not register
with the United States Treasury Department; and they did not register as an
MSB with FinCEN until November 2014, by which time they had exchanged
approximately $2.6 million for bitcoin.
The Lords entered their guilty pleas on April 19, 2016. The initial
presentence reports (“PSRs”) were prepared on June 16, 2016. The Lords filed
objections to their PSRs in July 2016, asserting, inter alia, that they believed
that they were not required to obtain a Louisiana license. In support, they
attached a February 17, 2016 letter from the OFI stating the same to an
applicant whose business involved “cryptocurrency.” On August 29, 2016, the
Lords filed a joint sentencing memorandum arguing that their guilty pleas
were not knowing because the law surrounding bitcoin was confusing and had
stymied their efforts to comply with the law. On February 21, 2017, the Lords
filed a joint motion to withdraw their guilty pleas. The Government opposed
the motion, conceding that the State of Louisiana does not require virtual
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currency exchangers to have a state license, but arguing that they could be
convicted on the alternative basis that they had failed to register timely with
FinCEN.
The district court denied the Lords’ motion to withdraw their guilty
pleas. The district court sentenced Randall below the guidelines range to 46
months of imprisonment and three years of supervised release. It sentenced
Michael within the guidelines range to 46 months on Count One, 60
consecutive months on Count Fifteen, and three years of supervised release.
II. DISCUSSION
A. Withdrawal of Guilty Pleas
1. Standard of Review
A district court’s denial of a motion to withdraw a guilty plea is reviewed
for abuse of discretion. United States v. Powell, 354 F.3d 362, 370 (5th Cir.
2003). “[A] district court abuses its discretion if it bases its decision on an error
of law or a clearly erroneous assessment of the evidence.” Id. (quotation
omitted) (brackets in original).
2. Applicable Law
A defendant does not have an absolute right to withdraw his guilty plea.
Id. (citation omitted). Instead, the district court may, in its discretion, permit
withdrawal before sentencing if the defendant can show a “fair and just
reason.” Id. at 370. The burden of establishing a “fair and just reason” for
withdrawing a guilty plea remains at all times with the defendant. United
States v. Still, 102 F.3d 118, 124 (5th Cir. 1996).
In considering whether to permit withdrawal of a plea, the district court
should address the seven factors set forth in this court’s opinion in United
States v. Carr, 740 F.2d 339, 343–44 (5th Cir. 1984). These include: (1) whether
the defendant asserted his actual innocence; (2) whether withdrawal would
prejudice the Government; (3) the extent of the delay, if any, in filing the
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motion to withdraw; (4) whether withdrawal would substantially
inconvenience the court; (5) whether the defendant had the benefit of close
assistance of counsel; (6) whether the guilty plea was knowing and voluntary;
and (7) the extent to which withdrawal would waste judicial resources. Id.
“[N]o single factor or combination of factors mandates a particular result,” and
“the district court should make its determination based on the totality of the
circumstances.” Still, 102 F.3d at 124. The district court is not required to
make explicit findings as to each of the Carr factors. Powell, 354 F.3d at 370.
3. Analysis
a. Assertion of Innocence
The Lords argue they asserted their innocence by stating that while they
were operating their bitcoin business, they believed that they did not have to
obtain a Louisiana license. They acknowledge that § 1960 allows the
Government to convict if an MSB fails to register but argue that they
registered with FinCEN in November 2014 and “have defenses available to
them with respect to this element.”
The district court found that the Lords did not assert their actual
innocence. The court reasoned that the failure to obtain a state license was but
one theory on which Count One was based and that the evidence presented at
the Lords’ re-arraignment was sufficient to prove that they were an MSB and
that they failed to register timely with FinCEN.
The Lords’ arguments do not go to their factual innocence; rather, they
amount to an assertion of their legal innocence based on perceived potential
defenses to the offense. In Carr, the defendant argued his legal innocence,
asserting that he was entitled to withdraw his guilty plea because trial counsel
failed to inform him that he could use an “advice of counsel” defense to the
conspiracy charge he faced. 740 F.2d at 343. The court found that, although
the defendant had asserted his innocence, “this claim alone is far from being
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sufficient to overturn denial of a withdrawal motion. Otherwise, the mere
assertion of legal innocence would always be a sufficient condition for
withdrawal, and withdrawal would effectively be an automatic right.” Id. at
344. Likewise, the Lords’ proffered legal innocence, realized after their pleas,
is not grounds to withdraw their pleas. See id.; United States v. McKnight, 570
F.3d 641, 649 (5th Cir. 2009) (finding that an assertion of innocence was not
supported by claims of “legal innocence based on insanity and entrapment”);
United States v. Meza-Jacquez, 671 F. App’x 340, 341 (5th Cir. 2016) (per
curiam) (unpublished) (finding no abuse of discretion where innocence claim
was based on “a ‘colorable defense’ to the charged offense”).
b. Prejudice to the Government
The Lords argue that “it is difficult to understand” how the Government
would be prejudiced by their plea withdrawal because the Government is
required to prove the indictment’s allegations in every trial. The district court
found that the Government would suffer “some” prejudice if the Lords’ motion
were granted because it would require the Government to prove the indictment
allegations at trial. Regardless of whether the Government would suffer
prejudice, “Carr made clear that the absence of prejudice to the Government
does not necessarily justify reversing the district court’s decision to deny a
motion to withdraw a guilty plea.” McKnight, 570 F.3d at 649 (citing Carr, 740
F.2d at 344).
c. Delay
The Lords maintain that “there were significant discussions” before they
filed their motion to withdraw “to examine the options available” to them and
that the delay was “appropriate.” The district court found that the Lords were
aware in August 2016 that Louisiana does not require a license for operating
a bitcoin exchange business but delayed filing their motion to withdraw their
pleas for six months.
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“[T]he longer a defendant delays in filing a withdrawal motion, the more
substantial reasons he must proffer in support of his motion.” Carr, 740 F.2d
at 344. The Lords’ assertion that the delay was “appropriate” is non-specific
and conclusory. Moreover, the record supports the district court’s finding that
the Lords waited almost six months from learning they did not need a license
to file the motion to withdraw. Much shorter delays have been deemed
unacceptable. See, e.g., United States v. Thomas, 13 F.3d 151, 153 (5th Cir.
1994) (describing a six-week delay as “significant”); United States v. Rinard,
956 F.2d 85, 88–89 (5th Cir. 1992) (holding that a 69-day delay weighed against
defendant); United States v. Hurtado, 846 F.2d 995, 997 (5th Cir. 1988)
(holding that a seven-week delay weighed against withdrawal); Carr, 740 F.2d
at 345 (finding that the motion “was not promptly filed” 22 days after the plea).
d. Inconvenience to the Court
The Lords rely on the court’s statement that withdrawal would not
substantially inconvenience the court. The district court also stated, however,
that withdrawal would require the court to hold a multi-day trial on 15
separate counts. When, as here, the district court has already reviewed the
PSR and other materials, a motion to withdraw is disruptive to the trial docket
and inconveniences the court. See, e.g., United States v. Grant, 117 F.3d 788,
790 (5th Cir. 1997); see also United States v. Adams, 275 F. App’x 298, 300 (5th
Cir. 2008) (per curiam) (unpublished).
e. Close Assistance of Counsel
The Lords deem whether they had close assistance of counsel “irrelevant”
in their case “because no legal authority could be obtained by counsel prior to
the guilty hearing to support the Lords[’] defense.” The district court found
that the close assistance of counsel was available to the Lords throughout the
proceeding.
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The Lords’ treatment of this Carr factor is more theoretical than it is
probative—whether a defendant had close assistance of counsel does not turn
on whether counsel found legal authority to support a viable defense. In
weighing this factor, we look to whether counsel was available to the defendant
throughout the proceedings, see, e.g., United States v. Benavides, 793 F.2d 612,
617–18 (5th Cir. 1986), including whether counsel negotiated the defendant’s
plea agreement, McKnight, 570 F.3d at 646–47, and whether a defendant was
satisfied with his defense counsel, United States v. Herrod, 595 F. App’x 402,
411 (5th Cir. 2015) (unpublished). Whether a defendant received close
assistance of counsel is “a fact-intensive inquiry.” United States v. Urias-
Marrufo, 744 F.3d 361, 365 (5th Cir. 2014) (quotation omitted).
The Lords received the quintessential type of assistance that this factor
contemplates. They were represented by retained counsel throughout the
proceedings, including their initial appearance, their plea agreements, and at
re-arraignment. At re-arraignment, they confirmed that they were satisfied
with counsel’s representation. As such, the Lords had the benefit of close
assistance of counsel.
f. Knowing and Voluntary Nature of the Pleas
The Lords assert that it was “impossible” for them to have made a
knowing plea because at the time of the plea, all parties and the district court
believed that Louisiana required money transmitters to obtain a license.
Because a guilty plea involves the waiver of constitutional rights, it must
be voluntary, knowing, and intelligent. Brady v. United States, 397 U.S. 742,
748 (1970). To enter a knowing and voluntary guilty plea, a defendant must
have full knowledge of what the plea connoted and of its consequences. Boykin
v. Alabama, 395 U.S. 238, 244 (1969). “A guilty plea is invalid if the defendant
does not understand the nature of the constitutional protection that he is
waiving or if he has such an incomplete understanding of the charges against
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him that his plea cannot stand as an admission of guilt.” James v. Cain, 56
F.3d 662, 666 (5th Cir. 1995) (citation omitted).
In addition, the district court must “determine that the factual conduct
to which the defendant admits is sufficient as a matter of law to constitute a
violation of the statute.” United States v. Marek, 238 F.3d 310, 314 (5th Cir.
2001) (en banc) (emphasis omitted). The district court must compare “(1) the
conduct to which the defendant admits with (2) the elements of the offense
charged in the indictment or information” to ensure that the defendant
understands not only the nature of the charge but also that his conduct falls
within the charge. Id. at 315; see also United States v. Castro-Trevino, 464 F.3d
536, 540 (5th Cir. 2006) (“The factual basis for the guilty plea must appear in
the record . . . and must be sufficiently specific to allow the court to determine
that the defendant’s conduct was within the ambit of that defined as criminal.”
(quotation omitted) (alteration in original)). The underlying purpose of the rule
“is to protect a defendant who may plead with an understanding of the nature
of the charge, but without realizing that his conduct does not actually fall
within the definition of the crime charged.” United States v. Reasor, 418 F.3d
466, 470 (5th Cir. 2005) (quotation omitted).
The district court found that the Lords’ guilty pleas were knowing and
voluntary based on the colloquy at re-arraignment. The indictment against the
Lords charged both means of violating the statute. While the Government
could not prove a § 1960 violation by relying on a state licensing requirement,
the evidence supporting the guilty plea established the Lords’ guilt under the
second method, a premise they do not dispute on appeal. At the guilty plea
hearing, an IRS agent testified that a regulation issued in March of 2013
required bitcoin exchangers to register with FinCEN. The agent further
testified that the Lords did not register with FinCEN until November of 2014,
by which time they had already exchanged $2.6 million dollars for bitcoins.
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After the witness testified, the court asked both Randall and Michael if either
had “any substantial disagreement with [that testimony].” Both stated they
did not. Given that § 1960 is disjunctive, the Lords’ admissions with respect to
FinCEN registration were sufficient for the district court to determine that
they knowingly and voluntarily entered their pleas.
g. Waste of Judicial Resources
The Lords admit that some time may be considered wasted, but that such
waste cannot be avoided when the Government’s allegations in the complaint
are based on an incorrect knowledge of the law. They add that the prejudice
resulting from the district court’s denial of their motion substantially
outweighs any inconveniences to the court or the Government.
The district court found that allowing the Lords to withdraw their guilty
pleas would waste “some” judicial resources. However, this court in Carr
explained that the district court is in the best position to know the effect that
withdrawal has on its resources. 740 F.2d at 345; see also McKnight, 570 F.3d
at 650 (noting the same). We find no reason to dispute the district court’s
finding on this factor.
Based on the totality of circumstances, the evidence presented weighs
against the withdrawal of the Lords’ guilty pleas. We affirm the district court’s
judgment on this issue.
B. Sentencing Calculations
1. Standard of Review
In considering the procedural reasonableness of a sentence, we review
the district court’s interpretation and application of the sentencing guidelines
de novo and its findings of fact for clear error. United States v. Cisneros-
Gutierrez, 517 F.3d 751, 764 (5th Cir. 2008). Findings are not clearly erroneous
if they are plausible based on the record as a whole. United States v. Ochoa-
Gomez, 777 F.3d 278, 282 (5th Cir. 2015) (per curiam).
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However, determinations regarding whether the defendant is entitled to
a reduction for acceptance of responsibility are reviewed with particular
deference. The court of appeals will affirm the denial of a reduction for
acceptance of responsibility unless it is “without foundation, a standard of
review more deferential than the clearly erroneous standard.” United States v.
Juarez-Duarte, 513 F.3d 204, 211 (5th Cir. 2008) (per curiam).
2. Relevant Facts
Between 2013 and November of 2014, the Lords deposited $2,656,491.37
into their MSB accounts for the exchange of bitcoin. While the Lords were
being investigated, Michael was implicated in the shipment of a controlled
substance from China to Alhasnat Laghari (“Laghari”) in Springhill,
Louisiana. After a controlled delivery to Laghari, Laghari stated he accepted
the package for Michael. Further investigation revealed that Laghari was
involved in online drug purchases and met Michael in the fall of 2014 to
purchase bitcoin, which he used to buy drugs online.
According to Laghari, Michael told him that he wanted to create a Xanax
manufacturing operation and become a vendor on the black market and
Laghari agreed. They planned to manufacture hundreds and thousands of
Xanax pills, stockpile them, sell them for bitcoin through an internet shop as
quickly as possible, and split the profits. Michael bought a pill press and
shipped it to Laghari. Michael and Laghari used a locked storage room in a tire
shop Laghari’s father owned to produce at least 10,000 Xanax tablets over a
period of two to three weeks. In May 2015, Michael delivered between 8,000
and 10,000 Xanax tablets to an acquaintance of Laghari’s for distribution.
3. Offense Levels
The probation officer assigned Michael and Randall each a base offense
level of six for the bitcoin conspiracy. Sixteen levels were added under
§ 2S1.3(b)(1) and the table at § 2B1.1 based on the Lords’ deposits of more than
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$1,500,000 but less than $3,500,000. Two more levels were added under
§ 2S1.3(b)(1) because the Lords knowingly exchanged monetary proceeds from
the distribution of a controlled substance, steroids, for bitcoin. Randall and
Michael each had adjusted offense levels of 24 for the bitcoin conspiracy
offense. Each defendant had a level I criminal history category.
On the drug count, Michael’s base offense level of 24 for the Xanax
tablets was based on a drug quantity between 100 and 400 kilograms of
marijuana. Two levels were added under § 2D1.1(b)(12), based on Michael
maintaining a premises for the purpose of manufacturing or distributing a
controlled substance, for an adjusted offense level of 26. A multiple count
adjustment was made to reach a combined adjusted offense level of 28. The
Government objected, arguing, inter alia, that Michael’s offense level should
be enhanced another two levels under § 3B1.3 because he used a special skill
to commit his drug offense.
4. Sentencing Hearing
Laghari testified for the Government at sentencing as follows. He met
Michael after using a website called “localbitcoins” and purchased bitcoin from
him. After he was arrested for drug activity, Laghari cooperated with law
enforcement in recorded communications with Michael. Michael and Laghari
communicated in “encrypted chats” on their laptop computers. The
Government’s exhibits reflected other special applications that Laghari and
Michael communicated over other applications, that Michael had working
knowledge of several sites on the “darknet marketplace,” and that Michael and
Laghari discussed which of those sites was the best place to advertise their
manufactured Xanax. Laghari told the court that Michael’s skill set included
the “[t]ech work” with respect to the “darknet” and encryption and that Michael
intended to train Laghari. Laghari described Michael as “a very intelligent
computer skills set-type person.”
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Laghari also identified in a photograph the substances he and Michael
used to manufacture Xanax and the pill press that Michael bought. Laghari
explained that the drugs and the pill press were hidden in his father’s business
in Arkansas because Laghari and Michael needed a location for their
operation. At one point, after Laghari began cooperating with law enforcement,
Michael became concerned that they were under investigation in Arkansas and
directed Laghari to move the pill press, unbeknownst to Randall, to Randall’s
office in Shreveport. Michael assured Laghari that his father would accept
cash, would not make Laghari sign anything, and that Laghari could use the
pill press undisturbed at night when the building was empty.
Laghari told the court that he used the pill press in Arkansas only twice,
once with Michael and once while alone. Laghari nevertheless confirmed that
he and Michael actually manufactured Xanax pills at Laghari’s father’s place
of business in Arkansas.
5. District Court Ruling
The district court overruled the Lords’ objection that the absence of an
“actual loss” precluded the 16-level enhancement under §§ 2S1.3(b)(1) and
2B1.1. The district court declined to award either defendant a deduction for
acceptance of responsibility. The court overruled Michael’s objection to his
§ 2D1.1(b)(1) enhancement, finding that he and Laghari exercised a form of
dominion and control over the premises where the pill press and the raw
materials for the pills were stored. The court also sustained the Government’s
objection to the lack of a § 3B1.1 enhancement, agreeing that Michael used
self-taught computer skills to commit his drug offense.
C. Use of the Value of Exchanged Funds
1. Applicable Law
The guideline governing violations of 18 U.S.C. §§ 1960(a), (b)(1), and
(b)(2) is U.S.S.G. § 2S1.3. This section provides that the base offense level is “6
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plus the number of offense levels from the table in § 2B1.1 . . . corresponding
to the value of the funds.” U.S.S.G. § 2S1.3(a)(2). The Application Notes provide
that “‘value of the funds’ means the amount of the funds involved in the
structuring or reporting conduct,” U.S.S.G. § 2S1.3, cmt n.1, because “[t]he
relevant statutes require monetary reporting without regard to whether the
funds were lawfully or unlawfully obtained.” Id.
2. Analysis
The Lords argue that their base offense levels were incorrect because
they did not cause the requisite “actual loss” for § 2B1.1 to apply. They point
to § 2B1.1’s commentary, which states that “‘[a]ctual loss’ means the
reasonably foreseeable pecuniary harm that resulted from the offense.”
U.S.S.G. § 2B1.1, cmt. n.3(A)(i). They also point to its definition of “pecuniary
harm” as “harm that is monetary or that otherwise is readily measurable in
money,” but which does not include “emotional distress, harm to reputation, or
other non-economic harm.” Id. at cmt. n.3(A)(iii). The Lords assert that none
of their clients lost money, there is no evidence that the Lords intended for any
money to be lost, stolen or defrauded, and their business, except for the
FinCEN registration violation, was lawful. The Lords also suggest that the
district court should have departed below the guidelines range of
imprisonment that resulted from applying § 2S1.3.
The district court’s calculation represents a straightforward application
of § 2S1.3(a)(2) and its commentary. See United States v. Caro, 454 F. App’x
817, 879 (11th Cir. 2012) (unpublished) (“Insofar as Caro alleged that his
sentence was procedurally unreasonable due to the application of U.S.S.G. §
2S1.3 and the corresponding [§ 2B1.1] loss calculation, that guideline explicitly
contemplated his offense of conviction, and the District Court calculated the
loss according to its plain language.”). Nowhere does § 2S1.3 suggest that there
must be a “loss” associated with the structuring or reporting offense. The
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district court duly noted that it is “not necessary under the guidelines for a
specific person or business entity to lose money for the calculation to apply,” as
“the process itself and the failure to register properly are so-called societal-type
crimes with harm resulting from transactions which are not adequately
tracked and registered in accordance with law.” The First Circuit has explicitly
rejected the argument that an enhancement under § 2S1.3 is inappropriate if
there was no “loss” in the crime. See United States v. Beras, 183 F.3d 22, 27
(1st Cir. 1999). Consequently, the enhancement was proper.
The district court also did not err in declining to depart below the
guidelines range of imprisonment. The district court assured the Lords at
sentencing that it was open to downward departures but indicated that in light
of the evidence presented at the sentencing hearing, it was not inclined to do
so. Because the district court knew it could depart downwardly but chose not
to, this court lacks jurisdiction to review the Lords’ argument that they were
entitled to a downward departure. See United States v. Fillmore, 889 F.3d 249,
255 (5th Cir. 2018).
D. Acceptance of Responsibility
1. Applicable Law
A defendant who “clearly demonstrates acceptance of responsibility for
his offense” receives a two-level reduction in his offense level. U.S.S.G. §
3E1.1(a). Such a defendant can receive an additional one-level reduction if his
offense level prior to any acceptance-of-responsibility reduction is 16 or
greater, and the United States so moves, representing “the defendant has
assisted authorities in the investigation or prosecution of his own misconduct
by timely notifying authorities of his intention to enter a plea of guilty, thereby
permitting the government to avoid preparing for trial and permitting the
government and the court to allocate their resources efficiently. ” Id. § 3E1.1(b).
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“The defendant bears the burden of demonstrating that he is entitled to the [§
3E1.1] reduction.” United States v. Flucas, 99 F.3d 177, 180 (5th Cir. 1996).
A defendant who “falsely denies, or frivolously contests, relevant conduct
that the court determines to be true has acted in a manner inconsistent with
acceptance of responsibility.” U.S.S.G. § 3E1.1, cmt. n.1(A). Further, a
defendant who pleads guilty, initially admitting the conduct underlying his
guilty plea, but then later attempts to withdraw his plea, asserting innocence,
does not demonstrate “sincere contrition” for purposes of § 3E1.1. United States
v. Espinoza, 62 F. App’x 557, 557 (5th Cir. 2003) (per curiam) (unpublished);
see also United States v. Bastian, 603 F.3d 460, 465 (8th Cir. 2010) (“A
defendant’s attempt to withdraw his guilty plea may be evidence that he did
not accept responsibility for his offense.”).
2. Analysis
The Lords argue that the district court erred when it denied them
reductions for acceptance of responsibility. In denying the Lords any reduction
for acceptance of responsibility, the district court cited Randall’s erroneous
contention that he never actually operated the exchange business and did not
profit from it. The court also pointed to the Lords’ objections to the
determination that they exchanged $2.6 million for bitcoin; their objections to
their base offense levels based on their assertion that there were no victims;
and their attempt to withdraw their guilty pleas.
The record supports the district court’s assessment that the Lords had
not accepted responsibility for their bitcoin conspiracy offense. As such, the
Lords fail to show that the district court’s denial of a reduction for acceptance
of responsibility was without foundation. See United States v. Anderson, 174
F.3d 515, 525 (5th Cir. 1999).
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E. Maintaining a Premises for the Purpose of Manufacturing or
Distributing Controlled Substances
1. Applicable Law
Section 2D1.1(b)(12) of the guidelines provides a two-level enhancement
if the defendant “maintained a premises for the purpose of manufacturing or
distributing a controlled substance.” According to the commentary,
“[m]anufacturing or distributing a controlled substance need not be the sole
purpose for which the premises was maintained, but must be one of the
defendant’s primary or principal uses for the premises, rather than one of the
defendant’s incidental or collateral uses for the premises.” U.S.S.G. § 2D1.1,
cmt. n.17. In making our determination, we consider whether the defendant
held a possessory interest in the property and “the extent to which [he]
controlled access to, or activities at, the premises.” Id.
2. Analysis
Michael argues that the district court erred by enhancing his sentence
under § 2D1.1(b)(12) because he lacked an ownership interest in Laghari’s
father’s tire shop, he had no access to the shop or control over the activities,
and was only on the premises one time.
The Government relies on the following undisputed evidence to support
the enhancement: (1) Michael and Laghari acquired a pill press and the raw
materials needed to manufacture Xanax pills; (2) they stored the pill press and
the materials in a locked storage room in Laghari’s father’s business in
Arkansas; and (3) they met on one occasion in that room, spent ten to twelve
hours calibrating the pill press, and produced a batch of “dummy” pills to test
the machine. The Government adds that in furtherance of their agreement to
produce pills for sale, Laghari used that room to produce 10,000 pills
containing Alprazolam, a controlled substance. Finally, the Government
maintains that when Michael grew concerned that law enforcement was
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investigating them, he directed Laghari to move the pill press to a new
location—his father’s business.
While it is true Michael neither personally owned nor rented the building
or room where the pill press was stored and the pills were produced, formal
ownership is not dispositive. See United States v. Guzman-Reyes, 853 F.3d 260,
265 (5th Cir. 2017) (“Although Guzman’s name may not have been on a formal
lease agreement or ownership documents . . . it would defy reason for a drug
dealer to be able to evade application of the enhancement by the simple
expedient of maintaining his stash house under someone else’s name.”
(quotation omitted)); United States v. Rodney, 532 F. App’x 465, 472–73 (5th
Cir. 2013) (per curiam) (unpublished) (upholding application of the
enhancement where the defendant neither rented nor owned the shed that
stored his drugs).
In Guzman-Reyes, the defendant gave the shop owner about one ounce
of methamphetamine per month, a value of approximately $1,000, in exchange
for storage of his drugs at the shop. 853 F.3d at 263. Guzman-Reyes did not
have keys to the shop, but contacted his co-conspirator whenever he needed
access. Id. This court upheld the application of the enhancement, relying on
Guzman-Reyes’ “unrestricted access to the premises” through his co-
conspirator. Id. at 264–65. Most of the cases that Guzman-Reyes cites concern
defendants who occupied or paid the rent for premises, United States v.
Roberts, 913 F.2d 211, 221 (5th Cir. 1990), coordinated the acquisition and
financial management of the property, United States v. Carter, 834 F.3d 259,
263 (3d Cir. 2016), or were at least frequently present at a relative’s place and
had coordinated drug activities there over a considerable period of time, United
States v. Morgan, 117 F.3d 849, 855–57 (5th Cir. 1997).
In this case, it is undisputed that Michael and Laghari were to split the
profits of whatever drugs were sold after manufacturing was complete at the
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tire shop. However, we do not have any evidence that Michael could have
gained or did gain “unrestricted access to the premises” through Laghari.
Guzman-Reyes, 853 F.3d at 265. The storage room here was explicitly owned
by Laghari’s father. Though Laghari had his own key and could open and use
the room without his father’s permission, Michael did not. There is no
indication that Michael was able to access the storage room without Laghari’s
express permission and physical assistance unlocking the door. In fact, Michael
went there only once, when Laghari permitted him access and worked in there
with him.
In Rodney, this court reasoned that the defendant had “unimpeded
access to the shed and used it as he wished.” 532 F. App’x at 473. Again, there
is no evidence that Michael exercised control over the “access to, or activities
at, the premises.” U.S.S.G. § 2D1.1, cmt. n.17. Michael’s control appears to be
demonstrated more so through his possessory interest in the pill press than
the premises itself. Consequently, the enhancement is improper.
F. Use of a Special Skill
1. Applicable Law
Section 3B1.3 of the guidelines provides a two-level enhancement if the
defendant “used a special skill, in a manner that significantly facilitated the
commission or concealment of the offense.” U.S.S.G. § 3B1.3. According to the
commentary, a “special skill” is one “not possessed by members of the general
public and usually requiring substantial education, training, or licensing.
Examples would include pilots, lawyers, doctors, accountants, chemists, and
demolition experts.” 2 Id. § 3B1.3, cmt. n.4.
2 The sentencing guidelines do not provide any advisory or explanatory information
beyond this commentary.
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2. Analysis
Michael argues that the district court erred when it enhanced his
sentence under § 3B1.3 because he had no formal education, training, or
licensing in regard to his computer skills, and there was no evidence as to any
self-taught education. He asserts that people his age (31) possess extensive
computer skills. Michael maintains that the ability to download a “special
software” and install it on one’s computer to access the “dark web” can be
completed with “a simple Google search and requires average computer
competency.”
In applying § 3B1.3, the district court relied on an Eleventh Circuit case
upholding the enhancement where, in furtherance of a drug conspiracy, the
defendant used his self-taught skills as an advanced-level radio operator to
contact the source of cocaine in Colombia. See United States v. Malgoza, 2 F.3d
1107, 1108–09, 1111–12 (11th Cir. 1993). The PSR in that case indicated that
the defendant had used a radio to Colombia so many times that he had become
an expert. Id. at 1109.
While this circuit has applied the enhancement to skills obtained outside
of college-level or other formal education, these cases do not provide analogous
facts. Two of the most relevant cases both concerned defendants who obtained
specialized credentials requiring at least an informal course of study. See, e.g.,
United States v. Villafranca, 844 F.3d 199, 199–200 (5th Cir. 2016) (per
curiam), cert. denied, 137 S. Ct. 1393 (2017) (finding “the ability to drive a
tractor trailer truck as evidenced by the possession of a commercial driver’s
license constitutes a special skill for purposes of § 3B1.3”); United States v.
Rorex, 16 F.3d 1214, 1214 (5th Cir. 1994) (per curiam) (unpublished) (affirming
application of the enhancement to a defendant who never finished high school
and learned tax preparation skills in a three month program at H & R Block).
The record does not indicate Michael ever engaged in any course of study with
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regard to computers, nor was he certified in this pursuit. This suggests the
enhancement does not apply, and case law out of our sister circuits that have
dealt with similar computer skills issues confirms this result.
In United States v. Green, 962 F.2d 938 (9th Cir. 1992), the Ninth Circuit
reversed a special skills enhancement. Green took graphic design classes,
learned from an instructor about paper that could be used for currency and
about how it could be properly cut, ordered the special paper, and took
numerous photographs of currency in the course of his counterfeiting scheme.
Id. at 940. The Ninth Circuit held that the printing and photographic skills
were not so “special” as to permit the district court to impose the enhancement,
stating it’s not enough that “the offense was difficult to commit.” Id. at 944.
The Ninth Circuit in United States v. Petersen, 98 F.3d 502 (9th Cir.
1996) distinguished Green and applied the enhancement to an expert hacker,
providing helpful guidance on the application of the enhancement to computer
skills. Petersen hacked into a national credit reporting agency’s computer
system and stole personal information that he used to order fraudulent credit
cards. Id. at 504. Then he hacked into a telephone company’s computers, seized
control of the telephone lines to a radio station, and arranged for himself and
his confederates to be the callers who “won” two Porsches, $40,000, and two
trips to Hawaii in a radio call-in contest. Id. Then he hacked into a national
commercial lender’s computer and had it wire $150,000 to him through two
other banks. Id. at 505. “This goes far beyond the computer skills of a clever
high school youth or even many people who earn their livings as computer
technicians and software engineers.” United States v. Lee, 296 F.3d 792, 796
(9th Cir. 2002) (holding that developing a basic website does not require
“special skills” as established in Petersen).
The district court found that Petersen had “extraordinary knowledge of
how computers work and how information is stored, how information is
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retrieved, and how the security of those systems can be preserved or invaded,”
and imposed the special skills enhancement. Petersen, 98 F.3d at 506. The
Ninth Circuit affirmed, holding that “[d]espite Petersen’s lack of formal
training or licensing, his sophisticated computer skills reasonably can be
equated to the skills possessed by pilots, lawyers, chemists, and demolition
experts” for purposes of the special skills enhancement. Id. at 507. In a
footnote, the Ninth Circuit went out of its way to caution against routine
application of the special skills enhancement to people with computer skills:
We do not intend to suggest that the ability to use or access
computers would support a “special skill” adjustment under all
circumstances. Computer skills cover a wide spectrum of ability.
Only where a defendant’s computer skills are particularly
sophisticated do they correspond to the Sentencing Commission’s
examples of “special skills”—lawyer, doctor, pilot, etc. Courts
should be particularly cautious in imposing special skills
adjustments where substantial education, training, or licensing is
not involved.
Id. at 507 n.5; see also Lee, 296 F.3d at 798 (“[T]his adjustment becomes open-
ended to the point of meaninglessness if the phrase ‘special skill’ is taken out
of its context.”).
In United States v. Godman, 223 F.3d 320 (6th Cir. 2000), the Sixth
Circuit considered Petersen and quoted and followed the limiting footnote. Id.
at 322–23. Like Green, Godman was a counterfeiter, but Godman used an off-
the-shelf professional page publishing program, Adobe PageMaker, with a
scanner and a color inkjet printer. Id. at 322. He had learned PageMaker in a
week, and had specialized computer experience preparing and repeatedly
updating a color catalog. Id. Godman held that the special skills enhancement
could not properly be imposed because Godman’s level of computer skills was
not analogous to the level of skill possessed by lawyers, doctors, pilots, and
other specialized professionals. Id. at 323. The Sixth Circuit held that the
district court erred by stressing “overmuch” that Godman’s skills were not
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shared by the general public: “As the Application Note’s reference to the
substantial training of such professionals as doctors and accountants suggests,
emphasis is better placed on the difficulty with which a particular skill is
acquired.” Id. at 322. The Sixth Circuit emphasized that “[s]uch skills are
acquired through months (or years) of training, or the equivalent in self-
tutelage.” Id. at 323. A defendant’s self-taught skills must be “particularly
sophisticated.” Id.
The Sixth Circuit later expanded on the self-taught skills discussed in
Godman and applied the special skills enhancement to a defendant’s sentence
for trafficking circumvention technology. See United States v. Reichert, 747
F.3d 445 (6th Cir. 2014). Although Reichert argued that he was a truck driver
with only a high school diploma, building on skills learned in a high school
vocational program that taught him how to build his own computer systems
from components, he continued to modify consoles for almost half of a decade.
Id. at 455. Reichert was lauded within the gaming community as one of a very
few individuals who knew the work-around for one of the most complicated
modifications. Id. His expert assistance was actively sought out and paid for
by gamers who had attempted to modify consoles but were unable to do so or
who were trying to prevent manufacturers from detecting that consoles had
been modified. Id.
As set forth above, Laghari’s testimony established that Michael was
adept at using the darknet in connection with selling illicit drugs and that he
personally believed that Michael was skilled at using computers. Michael’s
PSR reflects, however, that he withdrew from high school in the tenth grade
and obtained his Graduate Equivalency Diploma in 2008. Further, his
employment history included only the bitcoin exchange business at issue here
and working as a movie extra from 2008 to 2010. Michael did not have a
college-level or higher education, did not possess a license or certificate
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pertaining to computers, and had never worked in a field that even
tangentially related to computers. Accordingly, Michael’s background does not
demonstrate any education, training or licensing in the skills at issue. See
United States v. Gill, 642 F. App’x 323, 326 (5th Cir. 2016) (finding defendant’s
commercial driver’s license provided him a special skill for transporting
undocumented aliens); United States v. Stalnaker, 571 F.3d 428, 441 (5th Cir.
2009) (holding defendant attorney performing mortgage closing possessed
special skill warranting enhancement for convictions arising out of mortgage
fraud); United States v. Olis, 429 F.3d 540, 549 (5th Cir. 2005) (affirming
defendant accountant’s enhancement for use of his special skills in accounting
and tax matters to advance “extremely sophisticated, but fraudulent, scheme”).
Neither Michael’s skills nor their results come close to the “expert
hacker” in Peterson or the technology trafficker in Reichert. Petersen and
Reichert had acquired extraordinary knowledge that allowed them to
circumvent sophisticated systems. Michael’s self-taught skills were more like
Green’s or Godman’s, and not in the class of “pilots, lawyers, doctors,
accountants, chemists, and demolition experts.” 3 Thus, the district court’s
imposition of the special skills enhancement was not supported by the findings.
We reverse and remand for resentencing solely on this issue.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment as
to Michael Lord and Randall Lord, with the exception that we REVERSE and
REMAND for resentencing as to Michael Lord’s maintaining a premises for the
3 We stress that our holding here is limited to the specific facts and circumstances of
this case and should in no way be interpreted to routinely apply to every case in which
internet searches are used to aid in the perpetration of a crime.
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purpose of manufacturing or distributing a controlled substance enhancement
and special skills enhancement.
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