United States v. Thurlee Belfrey

United States Court of Appeals
For the Eighth Circuit
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No. 18-1405
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United States of America
lllllllllllllllllllllPlaintiff - Appellee
v.
Thurlee Belfrey
lllllllllllllllllllllDefendant - Appellant
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Appeal from United States District Court
for the District of Minnesota - St. Paul
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Submitted: February 15, 2019
Filed: June 28, 2019
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Before LOKEN, COLLOTON, and KELLY, Circuit Judges.
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KELLY, Circuit Judge.
Thurlee Belfrey pleaded guilty to one count of conspiracy to defraud the United
States and one count of failure truthfully to account for and pay over withheld taxes.
The district court1 varied below the United States Sentencing Guidelines range and
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
sentenced him to 96 months of imprisonment. Belfrey challenges his sentence as
procedurally and substantively unreasonable. Having carefully considered the issues,
we affirm.
I
From 1994 until at least the end of 2013, Belfrey and his brother, Roylee
Belfrey, controlled several home healthcare businesses providing personal care
attendant (PCA) services. These PCA services are reimbursable by the Medicare and
Medicaid programs funded jointly by the U.S. government and the state of Minnesota.
Reimbursable PCA services include light housework, personal hygiene assistance,
and food preparation.
In 2000, the Minnesota Attorney General opened an investigation into
fraudulent billing by one of Belfrey’s companies. Criminal charges in state court
followed, and in 2003 Belfrey pleaded guilty to felony-level fraud against the
Medicaid program. He was sentenced to 60 days confinement and 20 years of
supervised probation. The following year, the U.S. Department of Health and Human
Services and the Minnesota Department of Human Services (DHS) ordered Belfrey’s
indefinite exclusion from participating in Medicare and Medicaid programs as a result
of his conviction.
Despite his exclusion, Belfrey continued to control at least one PCA business
receiving government funds for almost a decade. Belfrey’s unauthorized role within
the company was extensive. He hired and fired employees; issued policies; directed
the spending of money; controlled bank accounts; covertly directed communications
with state agencies; and dealt with vendors, banks, and payroll processors. From the
time of his exclusion until the end of 2013, the state of Minnesota paid Belfrey’s
business more than $18 million for PCA services. Belfrey’s personal profit was more
than $4.3 million.
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As part of his control of the company, Belfrey, along with his brother, who
managed a separate healthcare entity, hired Kenneth Harycki, who would then assist
the Belfrey brothers in committing tax fraud. Beginning in 2007, Harycki repeatedly
prepared and filed tax forms falsely stating that the Belfreys’ businesses were tax-
compliant. In reality, between 2007 and 2013, the Belfreys failed to pay to the federal
government more than $4 million in withheld taxes.
In 2014, Belfrey and his brother were indicted on one count of conspiracy to
defraud the federal government and one count of healthcare fraud. In February 2017,
the fourth and final superseding indictment charged the Belfrey brothers and
Belfrey’s wife with 43 counts of conspiracy to defraud, tax fraud, and money
laundering. Belfrey pleaded guilty to two counts: conspiracy to defraud the United
States, in violation of 18 U.S.C. § 286, and failure truthfully to account for and pay
over withheld taxes, in violation of 26 U.S.C. § 7202 and 18 U.S.C. § 2. The factual
basis underlying Belfrey’s conviction for conspiracy to defraud was his continued
participation in a Medicare- and Medicaid-funded business despite his exclusion.
At sentencing, the district court calculated a Guidelines range of 151 to 180
months of imprisonment—driven by Belfrey’s conspiracy conviction—and sentenced
him to 96 months for the conspiracy and 60 months for the tax offense, to be served
concurrently. It also ordered three years of supervised release and restitution of
$4,592,593.74 to the Internal Revenue Service (IRS) for the tax offense and
$4,351,443.08 to the Minnesota DHS for the conspiracy, comprising the amount of
Belfrey’s personal profit derived from that offense. Belfrey appeals, challenging his
sentence as procedurally and substantively unreasonable.
II
When reviewing a challenge to a sentence, we first ensure that the district court
committed no procedural error, such as improperly calculating the Guidelines range.
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United States v. Feemster, 572 F.3d 455, 461 (8th Cir. 2009) (en banc). In so doing,
we review the district court’s factual findings for clear error and its application or
interpretation of the Guidelines de novo. United States v. Petruk, 836 F.3d 974, 976
(8th Cir. 2016). If we find no procedural error, we then consider the substantive
reasonableness of the sentence under an abuse-of-discretion standard. Feemster, 572
F.3d at 461. Belfrey first argues that the district court committed four procedural
errors when calculating his Guidelines range, and we address each in turn.
A
The first sentencing issue that Belfrey challenges is a 20-level increase under
Guidelines § 2B1.1(b)(1)(K), which applies if the total loss amount is more than $9.5
million but not more than $25 million.2 Under the Guidelines applicable to fraud
convictions, the district court is required to “make a reasonable estimate of the loss”
that resulted from the offense. § 2B1.1 cmt. (n.3(C)). Generally speaking, “loss is
the greater of actual loss or intended loss.” Id. cmt. (n.3(A)). At the government’s
urging, the district court purported to calculate “actual loss” here, which is “the
reasonably foreseeable pecuniary harm that resulted from the offense.” Id. cmt.
(n.3(A)(i)). The Guidelines instruct district courts to use a “net loss approach” when
calculating actual loss. See United States v. Walker, 818 F.3d 416, 422 (8th Cir.
2016). Actual loss is thus “the difference between what the victim paid and what the
victim recovered plus any other forms of ‘reasonably foreseeable pecuniary harm that
resulted from the offense.’” United States v. Hartstein, 500 F.3d 790, 798 n.3 (8th
Cir. 2007) (quoting § 2B1.1 cmt. (n.3(A)(i))). When net loss “reasonably cannot be
determined,” district courts must use the “gain” that resulted from the offense as an
alternative measure of loss. § 2B1.1 cmt. (n.3(B)).
2
All citations to the Guidelines are to the November 1, 2006 version, which was
in effect at the time of Belfrey’s sentencing and was used to calculate his Guidelines
range.
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As recommended by the presentence investigation report (PSR) and urged by
the government, the district court found an actual loss amount of $18,319,436, which
comprises the gross revenues that Belfrey’s company received from Medicaid after
Belfrey’s exclusion. The court reasoned that Medicaid never would have made those
payments had it known an excluded individual was behind the business. On appeal,
Belfrey renews his argument that Medicaid was not “harmed” in the amount of $18
million because, despite his exclusion, his company rendered legitimate PCA services
to Medicaid-eligible patients and thus provided a benefit to Medicaid for which he
should have received credit under the net loss approach. And, he contends, because
the record evidence did not establish the net economic harm to Medicaid that his
offense caused, the district court should have used the amount of his personal
profit—$4,351,443.08, which the district court used for restitution purposes—as an
alternative measure of loss.
The issue of how to calculate loss in this case is a challenging one. We need
not resolve it, however, because we conclude that the government has carried its
burden of demonstrating that any error in calculating loss was harmless. See Fed. R.
Crim. P. 52(a). Had the district court calculated loss to be approximately $4 million,
as Belfrey urged, Belfrey’s offense level would have been two levels lower, resulting
in a lower Guidelines range. See § 2B1.1(b)(1)(J). But an “[i]ncorrect application
of the Guidelines is harmless error where the district court specifies the resolution of
a particular issue did not affect the ultimate determination of a sentence.” United
States v. Straw, 616 F.3d 737, 742 (8th Cir. 2010). Here, the district court stated that
whether it found loss to be $18 million or $4 million would not have an “operative
effect on the sentence.” It explained that under either figure, the Guidelines range
was still higher than the 96-month sentence it deemed appropriate. Under these
circumstances, we are convinced that any error in calculating loss amount was
harmless. See United States v. Mosley, 878 F.3d 246, 257 (8th Cir. 2017) (affirming
sentencing enhancement as harmless where district court varied downward after
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applying it and stated that the sentence “would be the same with or without” the
enhancement).
B
Next, Belfrey challenges the four-level aggravating role enhancement under
§ 3B1.1(a). To justify that enhancement, the government must prove two elements
by a preponderance of the evidence: (1) that “the defendant organized or led at least
one other participant in the criminal activity,” and (2) that “the criminal activity
involved at least five participants or was ‘otherwise extensive.’” United States v.
Musa, 830 F.3d 786, 788 (8th Cir. 2016) (quoting § 3B1.1(a)). At sentencing,
Belfrey conceded that he was an organizer or leader within the meaning of the
Guidelines, and the district court found that the criminal activity involved at least five
participants. We need not determine if the district court clearly erred in that finding,
as the record shows by a preponderance of the evidence that the criminal activity here
was “otherwise extensive.” See United States v. Garrido, 995 F.2d 808, 813 (8th Cir.
1993) (explaining that we may affirm sentencing issues on any ground supported by
the record).
“A scheme may be ‘otherwise extensive’ if it involves a large loss amount and
covers a period of years.” United States v. Sethi, 702 F.3d 1076, 1080 (8th Cir.
2013). For example, in Morphew v. United States, we upheld as not clearly erroneous
the application of the four-level aggravating role enhancement where the offense
involved “a ‘take’ of over a quarter million dollars.” 909 F.2d 1143, 1145 (8th Cir.
1990); see also United States v. Washington, 255 F.3d 483, 486 (8th Cir. 2001)
(holding that “‘otherwise extensive’ provision was easily met” where defendants “had
at least two other participants and utilized at least 11 logging companies to defraud
at least 41 families in 13 states for over $800,000 over three years”). Here, the
uncontested evidence showed that Belfrey’s criminal conspiracy lasted for almost a
decade and led to losses in the millions. See United States v. Senty-Haugen, 449 F.3d
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862, 864 (8th Cir. 2006) (holding that an offense involving 29 fraudulent income tax
returns resulting in approximately $71,000 of loss was “otherwise extensive”). In
addition, according to the unobjected-to portions of the PSR, Belfrey repeatedly lied
to numerous employees about his exclusion to continue perpetrating his fraud. See
§ 3B1.1 cmt. (n.3) (“[A] fraud that involved only three participants but used the
unknowing services of many outsiders could be considered extensive.”). He also
managed multiple corporate entities, signed binding agreements with others, and
negotiated with creditors. In a word, his scheme was far-reaching. See Sethi, 702
F.3d at 1080 (explaining that the “otherwise extensive” aspect of the enhancement
asks “how far” the offense went and accounts for the overall “number of other people
that were used in the process”). Accordingly, the district court properly applied the
§ 3B1.1(a) four-level enhancement, as Belfrey was an organizer or leader of an
otherwise extensive criminal scheme.
C
Belfrey next argues that the district court engaged in impermissible “double
counting” by applying a two-level enhancement under § 2B1.1(b)(9)(C) for “a
violation of a[] prior, specific . . . administrative order,” namely, the order excluding
him from participating in Medicare and Medicaid programs. We review questions of
double counting de novo. United States v. Clark, 780 F.3d 896, 898 (8th Cir. 2015)
(per curiam). Double counting, which “is prohibited only if the guidelines at issue
specifically forbid it,” id. (quoting United States v. Pappas, 715 F.3d 225, 229 (8th
Cir. 2013)), occurs “when one part of the Guidelines is applied to increase a
defendant’s punishment on account of a kind of harm that has already been fully
accounted for by application of another part of the Guidelines,” id. at 897 (quoting
United States v. Hipenbecker, 115 F.3d 581, 583 (8th Cir. 1997)). We agree with
Belfrey that § 2B1.1(b)(9)(C) specifically prohibits double counting. See
§ 2B1.1(b)(9)(C) (enhancement can only apply if administrative-order violation is
“not addressed elsewhere in the guidelines”); § 2B1.1 cmt. (n.8(C)) (“[E]nhancement
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does not apply if the same conduct resulted in an enhancement pursuant to a provision
found elsewhere in the guidelines . . . .”). But we disagree that any such double
counting occurred in this case.
Belfrey contends that the court double counted when it applied the enhance-
ment because his violation of the administrative order had already been accounted for
in his criminal history score, which included four points related to the state conviction
that led to the exclusion order. But those criminal history points accounted for his
state conviction and commission of the federal offense while on probation for the
state conviction, not for his subsequent conduct constituting the violation of the
exclusion order. Accordingly, “precisely the same aspect of [Belfrey’s] conduct” did
not “factor into his sentence in two separate ways,” and no double counting occurred.
United States v. Bryant, 913 F.3d 783, 787 (8th Cir. 2019) (quoting United States v.
Strong, 826 F.3d 1109, 1116 (8th Cir. 2016)).
D
The last procedural error Belfrey asserts is the district court’s application of a
two-level enhancement under § 2B1.1(b)(10)(C) for conduct constituting “sophisti-
cated means . . . the defendant intentionally engaged in or caused.” Whether an
offense involved “sophisticated means” is a factual finding that we review for clear
error. United States v. Meadows, 866 F.3d 913, 917 (8th Cir. 2017). Belfrey argues
that his offense was unsophisticated and “simple,” as it merely involved his
participation in government-funded programs despite his exclusion. But at
sentencing, the district court heard testimony from a government witness that
sufficiently supports a finding that Belfrey’s “offense conduct, viewed as a whole,
was notably more intricate than that of the garden-variety [offense]” and therefore
involved sophisticated means. Id. (alteration in original) (quoting United States v.
Jenkins, 578 F.3d 745, 751 (8th Cir. 2009)). An IRS agent indicated that Belfrey
used at least 154 bank accounts—some opened using a “strawman”—and at least 38
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different corporate entities between 2007 and 2014 to frequently pass money between
entities and accounts before it finally reached him personally. We have noted that
“[r]epetitive and coordinated conduct, though no one step is particularly complicated,
can be a sophisticated scheme.” Id. (quoting United States v. Finck, 407 F.3d 908,
915 (8th Cir. 2005)); see also § 2B1.1 cmt. (n.9(B)) (listing “[c]onduct such as hiding
assets or transactions, or both, through the use of fictitious entities[ or] corporate
shells” as an example of sophisticated means). Accordingly, the district court did not
clearly err in applying the sophisticated means enhancement.
III
Having found no reversible procedural error, we review the substantive
reasonableness of Belfrey’s sentence for an abuse of discretion. Feemster, 572 F.3d
at 461. Belfrey argues that the district court abused its discretion in not granting a
more significant downward variance in light of the nature of his offense and his
history and personal characteristics. Belfrey contends that he “started working in
healthcare to help people in his community” by providing PCA services, which he
continued to do, and that his tax offense arose because he “desperately tr[ied] to keep
[his] businesses afloat.” But Belfrey’s counsel presented these arguments to the
district court at length, and the district court concluded that a 96-month sentence was
sufficient to satisfy the sentencing objectives, especially in light of what it judged to
be the “severity of the fraud” and its “long duration.” District courts have wide
latitude to weigh the § 3553(a) factors in each case, and we find no abuse of
discretion here. See Meadows, 866 F.3d at 920 (“Where a district court in imposing
a sentence makes an individualized assessment based on the facts presented,
addressing the defendant’s proffered information in its consideration of the § 3553(a)
factors, such sentence is not unreasonable.” (cleaned up)).
We affirm the judgment of the district court.
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