United States v. Scott Flynn

United States Court of Appeals
For the Eighth Circuit
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No. 19-1263
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United States of America
lllllllllllllllllllllPlaintiff - Appellee
v.
Scott Phillip Flynn
lllllllllllllllllllllDefendant - Appellant
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Appeal from United States District Court
for the District of Minnesota
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Submitted: June 17, 2020
Filed: August 13, 2020
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Before GRUENDER, WOLLMAN, and KOBES, Circuit Judges.
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KOBES, Circuit Judge.
Scott Phillip Flynn pleaded guilty to conspiracy to defraud the United States
and filing a false tax return. See 18 U.S.C. § 371; 26 U.S.C. § 7206(1). He tried to
withdraw his plea before sentencing, but the district court1 denied his motion and
sentenced him to 87 months in prison—60 months for the conspiracy charge and
27 months for the false return—and ordered him to pay roughly $5.4 million in
restitution. Flynn appeals, arguing that he should have been allowed to withdraw his
guilty plea, his conspiracy conviction is void for vagueness, the restitution order was
procedurally improper and clearly erroneous, and the district court wrongly applied
an organizer or leader enhancement when it calculated his sentence. We find no error
and affirm.
I.
Flynn’s convictions arise out of two “reverse merger” transactions that he
assisted in 2006 and 2008.2 As payment, he received shares of stock in the resulting
public companies. He transferred millions of these shares to two companies he
controlled and, with the help of a co-conspirator, transferred millions more into the
hands of Australian nominees. These Australian nominees placed their shares in U.S.
brokerage accounts that Flynn could access.
From 2006 to 2014, Flynn controlled these accounts and used them to sell
around $15 million worth of stock and transfer the proceeds to Australian bank
accounts that he also controlled. In 2007, he purchased a house with $2.7 million of
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
2
The Securities and Exchange Commission explains that a reverse merger
offers an alternative to an initial public offering. In this transaction, an existing
public “shell” company acquires the shares to a private corporation and in exchange
the shareholders of the private corporation become the controlling shareholders of the
public shell company. The result is the public entity takes over the private one, but
the public company’s business operations are “primarily, if not solely, those of the
former private company.” Reverse Mergers, Investor.gov, https://www.investor.gov/
news-alerts/investors-bulletins/reverse-mergers (last visited July 2, 2020).
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that money and yet only reported $26,136 of income on his tax return. Over the
course of the conspiracy, all $15 million in sales was income to Flynn and he reported
none of it.
Flynn stipulated to all these facts as part of his guilty plea. At his change of
plea hearing, Flynn said he knew that pleading guilty meant his case would never go
to trial, he had discussed his case with his lawyers and was satisfied with their
representation, and he understood the rights he was waiving by pleading guilty. The
court then read portions of the indictment and Flynn stated that he had read and
understood the entire document with the help of his attorneys. Finally, the court
reviewed the agreed-upon sentencing calculations described in the plea, including the
application of a four-point enhancement because Flynn was an organizer or leader of
an otherwise extensive scheme and a two-point reduction for acceptance of
responsibility. Only then did the district court accept Flynn’s guilty plea.
Six months later, just over a week before he was scheduled to be sentenced,
Flynn (through new counsel) moved to continue his sentencing and withdraw his
guilty plea, disavowed the stipulations contained in the plea, and asserted his
innocence. The district court denied that motion. At sentencing, the district court
enforced the agreement as written and Flynn received the two-point reduction for
acceptance of responsibility even though the Government did not request it. It
sentenced him to 87 months in prison and ordered him to pay $5,392,442.87 in
restitution. Flynn timely appealed.
II.
Flynn first argues that he should have been allowed to withdraw his guilty plea
because it was not knowing and voluntary, lacked a factual basis, and the Government
breached the agreement. A defendant may withdraw a guilty plea after it has been
accepted by the district court if “the defendant can show a fair and just reason for
requesting the withdrawal.” Fed. R. Crim. P. 11(d)(2)(B). “There is no right to
withdraw; the plea of guilty is a solemn act not to be disregarded because of belated
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misgivings about its wisdom.” United States v. Andolini, 705 F.3d 335, 337 (8th Cir.
2013) (citation omitted) (emphasis in original). If a defendant establishes a fair and
just reason for withdrawal, the district court must then consider “whether the
defendant asserts his innocence of the charge, the length of time between the guilty
plea and the motion to withdraw it, and whether the government will be prejudiced
if the court grants the motion.” United States v. Heid, 651 F.3d 850, 853–54 (8th Cir.
2011) (citation omitted). We review the denial of a motion to withdraw a plea for
abuse of discretion. Andolini, 705 F.3d at 337.
A.
Flynn’s first “fair and just” reason for withdrawal is that he was not informed
of the nature of the charges against him, so his plea was not knowing and voluntary.
See Fed. R. Crim. P. 11(b)(1)(G). Whether a plea was knowing and voluntary
presents a mixed question of law and fact that we review de novo. United States v.
Gray, 152 F.3d 816, 819 (8th Cir. 1998). We assess whether Flynn understood the
nature of the charges by examining the totality of the circumstances. United States
v. Marks, 38 F.3d 1009, 1011 (8th Cir. 1994). We consider “whether the indictment
gave him notice of the charge, whether he discussed the charge with his attorney or
the judge, and . . . any other facts which are in the record.” Id.
The record shows Flynn understood how the law related to the facts of his case.
See United States v. Johnson, 715 F.3d 1094, 1103 (8th Cir. 2013). The district court
read aloud the relevant counts of his indictment, ensured he understood and had
discussed those counts with his attorneys, he was satisfied with his attorneys, and he
had discussed the rights he was waiving “at some length” with them. Nevertheless,
Flynn complains that the indictment did not list the elements of his conspiracy charge
and suggests that circuit courts inconsistently describe those elements, to the point
where it was impossible for Flynn (or seemingly anyone else) to understand the
charges.
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Flynn pleaded guilty under the portion of 18 U.S.C. § 371 that prohibits
conspiring to defraud the United States. When such a conspiracy is specifically
focused on defrauding the IRS in its efforts to assess and collect taxes, it is commonly
referred to as a Klein conspiracy. United States v. Fletcher, 322 F.3d 508, 513 (8th
Cir. 2003); United States v. Klein, 247 F.2d 908 (2d Cir. 1957), cert. denied, 355 U.S.
924 (1958). Flynn alleges Klein conspiracies are unconstitutionally vague because
federal circuit courts disagree on the elements necessary to secure a conviction.
Although the circuits subdivide the crime into different elements, all describe
the same offense. We describe the crime with two elements. Fletcher, 322 F.3d at
513 (“To convict a defendant of a Klein conspiracy, the government must show the
existence of an agreement to defraud the IRS and an overt act by one of the
conspirators in furtherance of the agreement’s objectives.”). The Third Circuit has
used three. United States v. Shoup, 608 F.2d 950, 956 (3d Cir. 1979) (“To establish
a [Klein] conspiracy . . . . the prosecution must prove three elements: (1) the existence
of an agreement, (2) an overt act by one of the conspirators in furtherance of the
objectives, and (3) an intent on the part of the conspirators to agree, as well as to
defraud the United States.”). And the Second, four. United States v. Coplan, 703
F.3d 46, 61 (2d Cir. 2012, cert. denied, 571 U.S. 819 (2013) (“[T]o prove a Klein
conspiracy, the Government must show (1) that the defendant entered into an
agreement (2) to obstruct a lawful function of the Government (3) by deceitful or
dishonest means and (4) at least one overt act in furtherance of the conspiracy.”)
(quotations and alterations omitted). But, in substance, each of these cases describes
the same crime. And in any event, the district court properly applied the well-settled
law in this circuit and the elements of Flynn’s offense were laid out in his indictment
and read aloud to him at his change of plea hearing.
Flynn also argues that both counts of conviction depended on a finding that he
exercised dominion and control over the $15 million and this requirement was not
explained to him. But the indictment alleged that Flynn exercised dominion and
control over the funds, he admitted he did in his plea agreement (and admitted to facts
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supporting that admission as well), and answered yes when the district court asked
whether he and his co-conspirator Steven Miotti had control over the Australian
nominees. The importance of that admission was clear. The district court did not
abuse its discretion when it concluded, based on the totality of the circumstances, that
Flynn’s guilty plea was knowing and voluntary.
B.
Flynn also argues that his guilty plea should have been withdrawn because it
lacks a factual basis supporting either conviction.
“To convict a defendant of a Klein conspiracy, the government must show the
existence of an agreement to defraud the IRS and an overt act by one of the
conspirators in furtherance of the agreement’s objectives.” Fletcher, 322 F.3d at 513.
Flynn admitted that he had agreed with Miotti and, through Miotti, several Australian
nominees, to avoid taxation by placing his income in the hands of the Australian
nominees and maintaining control of accounts in their names. He agreed he had taken
all the steps necessary to realize his scheme and that he intended to impair the IRS’s
ability to calculate his tax liability. Flynn asserts without citation that the amount of
money at issue in a Klein conspiracy is an essential element of such a charge. It is
not, so it does not matter that Flynn did not know or stipulate to the exact amount of
money he hid from the government. And although Flynn attempts to muddy the
waters by claiming he never controlled the Australian nominees, exercised dominion
or control over the funds in their accounts, or conspired with Miotti, any confusion
on these issues arose only after Flynn tried to get out of his plea agreement. His
stipulations and colloquy are clear and adequate on each of these points.
In the alternative, Flynn argues after the Supreme Court’s decision in Marinello
v. United States, 138 S. Ct. 1101 (2018), Klein conspiracies include an additional
element not mentioned in his plea. In Marinello, the Supreme Court interpreted 26
U.S.C. § 7212(a)’s Omnibus Clause, which “forbids ‘corruptly or by force or threats
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of force (including any threatening communication) obstruct[ing] or imped[ing], or
endeavor[ing] to obstruct or impede, the due administration of [the Internal Revenue
Code].” Marinello, 138 S. Ct. at 1105 (quoting 26 U.S.C. § 7212(a)) (alterations in
original). In construing this clause, the Supreme Court held that “the due
administration [of the Internal Revenue Code]” did not include things like the
ordinary review of income tax returns but rather implied that there must be a “nexus”
between a defendant’s obstructive conduct and a “targeted administrative action” like
an audit. 138 S. Ct. at 1109–10.
Flynn suggests that the same nexus requirement ought to apply in Klein
conspiracies, despite the fact that the broad language in § 371 makes no reference to
“the due administration [of the Internal Revenue Code].” See Haas v. Henkel, 216
U.S. 462, 479 (1910) (“The statute is broad enough in its terms to include any
conspiracy for the purpose of impairing, obstructing, or defeating the lawful function
of any department of government.”); see also Dennis v. United States, 384 U.S. 855,
861 (1966). As the Second Circuit has explained, the broad scope of Klein
conspiracies is sanctioned in “long-lived Supreme Court decisions” and arguments
aimed at narrowing it “are properly directed to a higher authority.” Coplan, 703 F.3d
at 62.
The factual basis for Flynn’s false tax return conviction is similarly robust. A
defendant files a false tax return when he “[w]illfully makes and subscribes any
return . . . which contains or is verified by a written declaration that it is made under
the penalties of perjury, and which he does not believe to be true and correct as to
every material matter.” 26 U.S.C. § 7206(1). Flynn suggests that there is nothing in
the record that establishes the $2.7 million used to buy his home was income to him
and therefore should have been reported on his taxes. Again, Flynn’s admissions in
his guilty plea establish exactly what he suggests was not proven. Flynn stipulated
that the $2.7 million was income to him and that he only reported a little over $26,000
of income that year.
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C.
Finally, Flynn argues that he should have been able to withdraw his guilty plea
because the Government breached the agreement at his sentencing by not
recommending that he receive a two-level reduction for acceptance of responsibility
(which the district court applied anyway).
There was no breach. The Government agreed to recommend an acceptance-
of-responsibility reduction if Flynn “commit[ted] no further acts inconsistent with
acceptance of responsibility.” D. Ct. Dkt. 90 at 5. That did not happen. After
signing the plea agreement, Flynn reversed course and disputed almost every fact he
previously admitted. He argued to the district court, and reiterates to us on appeal,
positions that plainly conflict with the terms of his plea. These acts are not consistent
with Flynn’s acceptance of responsibility. See United States v. Rendon, 752 F.3d
1130, 1133–34 (8th Cir. 2014).
Because Flynn has failed to show fair and just reasons why he should have
been allowed to withdraw his plea, we do not need to address his arguments regarding
his innocence and the lack of prejudice occasioned by his attempted withdrawal. See
Heid, 651 F.3d at 853–54. The district court did not abuse its discretion by denying
Flynn’s motion to withdraw his guilty plea.
III.
Flynn next argues that his Klein conspiracy conviction under § 371 is invalid
because the offense is void for vagueness. We review whether an offense is
unconstitutionally vague de novo. United States v. Cook, 782 F.3d 983, 987 (8th Cir.
2015).3 A statute is void if it does not afford fair notice of what is prohibited to a
3
The parties dispute whether this claim was properly presented to the district
court and therefore whether we should review de novo or only for plain error. See
United States v. Paul, 885 F.3d 1099, 1105 (8th Cir. 2018). We need not decide the
issue because Flynn’s argument fails under any standard.
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person of ordinary intelligence or if it is so standardless it allows for or even
encourages “seriously discriminatory enforcement.” Id. (quoting Holder v.
Humanitarian Law Project, 561 U.S. 1, 18 (2010)).
As we have explained, § 371’s “defraud clause” prohibits conspiracies “to
defraud the United States,” which the Supreme Court has defined as “impairing,
obstructing, or defeating the lawful function any department of the Government.”
Dennis, 384 U.S. at 861; United States v. Derezinski, 945 F.2d 1006, 1011 (8th Cir.
1991) (same). Flynn argues that alleged disagreements between the circuit courts
over the elements and a lack of uniformity as to the required mens rea has caused
Klein conspiracies to become unconstitutionally vague.4
We have already discussed the elements issue and, regardless of any
disagreement over the necessary mental state, Flynn stipulated to specifically
intending to defraud the Government. D. Ct. Dkt. 90 at 3 (“The Defendant agrees that
he took the steps described above in order to impair and impede the lawful
functioning of the IRS in ascertaining his income tax liability . . . .”). In reviewing
vagueness challenges, we ask whether the offense is vague as applied, because a
defendant “who engages in some conduct that is clearly proscribed cannot complain
of the vagueness of the law as applied to the conduct of others.” Cook, 782 F.3d at
987 (quoting Holder, 561 U.S. at 18–19). We have no trouble concluding that a
person of ordinary intelligence would understand that Flynn’s conduct runs afoul of
the statute.
IV.
Flynn next appeals the process the district court used to determine how much
restitution he owed and the amount ultimately imposed.
4
Flynn also argues that, if we find Klein conspiracies are not vague, we must
do so by applying Marinello’s nexus requirement. For the reasons already stated,
Marinello did not alter Klein conspiracies.
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A.
Flynn argues the district court erred by denying his motions to continue his
sentencing or bifurcate the sentencing and restitution proceedings to give his new
counsel additional time to prepare to contest restitution. We review for an abuse of
discretion, giving the district court wide latitude, and will reverse only if the moving
party can show prejudice from the denial. United States v. Jones, 643 F.3d 275, 277
(8th Cir. 2011). Flynn changed counsel late, so late in fact, the district court noted
that the substitution violated the local rules. Nevertheless, it allowed the substitution
and granted a continuance on the condition that no further delays result from the
change in counsel. The district court did not abuse its discretion when it refused to
grant yet another continuance to allow Flynn’s counsel more time to prepare for the
restitution hearing.
Next, Flynn argues that he was entitled to a jury trial on restitution. We have
previously held that restitution may be found by a judge and that it does not implicate
a defendant’s Sixth Amendment rights. United States v. Carruth, 418 F.3d 900, 904
(8th Cir. 2005). Flynn argues that this precedent was undercut by the Supreme Court
in Southern Union v. United States, 567 U.S. 343 (2012), but as it happens, we have
rejected that argument too. United States v. Thunderhawk, 799 F.3d 1203, 1209 (8th
Cir. 2015) (“[N]othing in the Southern Union opinion lead[s] us to conclude that our
controlling precedent in Carruth . . . . was implicitly overruled.”). Undeterred, Flynn
claims in reply that this precedent was undermined by the plurality opinion in United
States v. Haymond, 139 S. Ct. 2369 (2019). Here Flynn finally lands on authority so
recent we have not already considered his argument, but he fails to offer any
convincing reason Haymond, which dealt with “an unusual provision,” id. at 2383
(Gorsuch, J.) (plurality opinion), governing revocation proceedings for “a discrete set
of federal criminal offenses,” id. at 2386 (Breyer, J, concurring), silently overturns
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our precedent governing restitution. Thunderhawk remains the law in this circuit and
we must follow it until the en banc court or the Supreme Court tells us otherwise.5
B.
Flynn also argues the district court erred in finding that he owed nearly
$5.4 million in restitution. The Government has the burden of proving the amount
of restitution by a preponderance of the evidence and we review the district court’s
determination for clear error. United States v. Ellefsen, 655 F.3d 769, 782 (8th Cir.
2011).
Flynn’s arguments on this score relate to the admission by the Government and
its witness that the $15 million figure that Flynn stipulated was unreported income
he earned was an approximation. Because restitution is only available for actual and
not intended loss, he argues his restitution award, calculated based on the $15 million
figure, must be vacated. It is true that courts cannot award restitution for intended
loss, see United Statese v. Chalupnik, 514 F.3d 748, 754 (8th Cir. 2008), but that is
immaterial where the defendant stipulated that he actually hid $15 million of income
from the IRS.
Flynn also claims that United States v. Bagley, 907 F.3d 1096, 1099 (8th Cir.
2018), prohibits using estimates to assess restitution. This overreads Bagley, which
dealt with the valuation of a four-year-old Terrier named Mister, and merely held that
the Government must do more to support its valuation than offer “a speculative
estimate of the costs associated with raising Mister.” Id. In this highly complex tax
evasion case, by contrast, where difficulty in assessing the exact amount of actual loss
5
We pause to note that because Flynn admitted to owing between $3.5 million
and $9.5 million in restitution, D. Ct. Dkt. 90 at 5, any hypothetical Sixth Amendment
right to a jury trial would not be violated in this case because the district court’s
restitution order did not exceed the “Apprendi maximum” of $9.5 million. See
Portalatin v. Graham, 624 F.3d 69, 82, 88 (2d Cir. 2010) (en banc) (citing Blakely
v. Washington, 542 U.S. 296, 303–04 (2004)).
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is a testament to the scope of Flynn’s criminal activity, both parties agreed to the
$15 million figure and the Government offered evidence at the restitution hearing that
showed the actual amount was likely even higher. It was not clear error for the
district court to credit the loss figure that Flynn and the Government agreed upon.
Nor was it clear error (as Flynn also claims) for the district court to credit the
testimony of the Government’s witness and calculate the tax loss from the sale of
these shares as an ordinary income event rather than a capital gains event.
Finally, Flynn argues that the district court erred because it awarded restitution
on both counts of conviction when restitution is only available on his false tax return
offense if it is a condition of his supervised release. See United States v. Perry, 714
F.3d 570, 577 (8th Cir. 2013). But the district court did order restitution as a
condition of Flynn’s supervised release and there was no error. D. Ct. Dkt. 139 at 5.
V.
Last of all, Flynn challenges the district court’s application of a four-point
enhancement to his sentence for organizing or leading a conspiracy that was
“otherwise extensive.” U.S.S.G. § 3B1.1. Again, this argument runs headfirst into
Flynn’s plea agreement where he stipulated that the network of Australian nominees,
Flynn, and Miotti qualified as “otherwise extensive” and the enhancement should
apply. Whether we view this as a sentencing issue raised for the first time on appeal,
an invited error, or an issue Flynn expressly waived, he is not entitled to relief.
The judgment of the district court is affirmed.
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