Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-01414/USCOURTS-ca8-03-01414-0/pdf.json

Parties Involved:
Stephen Erhart
Appellant
United States of America
Appellee

Document Text:

1

The Honorable Donovan W. Frank, United States District Judge for the

District of Minnesota.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-1414

___________

United States of America, * 

* 

Appellee, * 

* Appeal from the United States

v. * District Court for the

* District of Minnesota.

Stephen Erhart, also known as * 

Stephen Anthony Erhart, * 

* 

Appellant. *

___________

Submitted: February 11, 2004

Filed: July 29, 2005

___________

Before MELLOY, SMITH, and COLLOTON, Circuit Judges.

___________

SMITH, Circuit Judge.

Stephen Erhart pleaded guilty to twenty-nine counts, including conspiracy,

false statements, health-care fraud, and money laundering charges. The district court1

also found Erhart guilty of two separate drug and gun charges, and sentenced him to

a term of 108 months' imprisonment and three years' supervised release. He was also

required to pay a $3,100 special assessment to the crime-victims fund, and required

to pay restitution in the amount of $1,234,270. On appeal, Erhart argues that the

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During Tyrone Robinson's second visit, Erhart sold Robinson a sawed-off

shotgun. The gun was operable, and the barrel measured less than eighteen inches in

length.

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district court erred (1) in its conclusion that he was guilty of the firearm offense, (2)

erred in setting the fraud rate at seventy-five percent, (3) erred in not granting an

acceptance of responsibility adjustment, (4) erred in granting an abuse of a public

trust and a role enhancement, and (5) erred in its restitution calculation. Finding no

error, we affirm Erhart's conviction and sentence.

I. Background

The substantive facts of the case are not in dispute. Advantage Plus

Chiropractic Clinic (APCC) was formed in 1996 by Stephen Erhart and Coral

Peterson. Erhart, a licensed Doctor of Chiropractic, treated individual patients and

drafted treatment notes for the care provided.

Sometime in 2000, the Federal Bureau of Investigation ("FBI") commenced a

health-care fraud investigation of APCC. The FBI used two cooperating witnesses,

Tyrone Robinson and Mollie Robinson. Audio and video devices were used to

conduct an undercover surveillance of APCC for several months. Based upon its

investigation, the FBI concluded that Erhart had engaged in extensive health-care

fraud schemes through APCC. The fraud schemes included paying "runners" to refer

patients, falsifying documents, and submitting fraudulent bills to insurance companies

for services not rendered.

In October 2001, a grand jury indicted Erhart on thirty-one counts of illegal

conduct involving his chiropractic billing, cocaine possession, and unlawful

possession of a firearm2

. In March 2002, Erhart entered guilty pleas to most of the

charges. Specifically, he confessed to his involvement in a fraudulent billing scheme,

acknowledged Peterson's involvement, provided the names of the runners involved

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in the fraud, admitted that ninety-five percent of his business was fraudulent, and

provided the names of individual patients who participated in the scheme. Erhart also

pleaded guilty to one count of conspiracy to defraud health-care benefit programs,

four counts of false statements related to health-care matters, ten counts of health-care

fraud, and fourteen counts of money laundering.

Peterson signed a plea agreement acknowledging that seventy-five percent of

APCC's business was fraudulent, which amounted to $1.2 million. Erhart was offered

a similar agreement, but declined. He also elected to contest the drug and firearm

possession charges. After a bench trial, Erhart was convicted on all offenses. In

addition to the counts to which Erhart pleaded guilty, the district court also found him

guilty of one count of possession with intent to distribute cocaine, and one count of

unlawful possession of a firearm. 

At sentencing, Erhart disputed the seventy-five percent fraud figure, arguing

that it should have been lower. Erhart stated that he did not recall admitting to a

ninety-five percent fraud rate and contended that any estimate that he may have given

resulted from FBI pressure. The government presented evidence that Erhart was

responsible for $3.7 million in reasonably foreseeable losses sustained by insurance

companies. In rebuttal, Erhart introduced evidence that the amount of fraudulent

business that he conducted was actually around forty percent or about $400,000. The

district court sentenced Erhart to 108 months' incarceration, three years' supervised

release, a special assessment to the crime-victims fund, and ordered him to pay

restitution of $1.2 million. Erhart timely appealed the issues set out above.

II. Discussion

A. Firearm Conviction

Erhart first argues that the district court erred in convicting him of possession

of a firearm with a barrel less than eighteen inches. Specifically, he argues that there

was insufficient evidence to show that he knew the characteristics of the prohibited

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Our "quasi-suspect" classification requires only a common-sense evaluation.

A finding of knowledge of the weapon's incriminating characteristics is unnecessary

because, unlike the firearm described in Staples, a sawed-off shotgun is not a

traditionally-lawful weapon and Erhart "had no legitimate expectation that the

weapon was not subject to regulation." Barr, 32 F.3d at 1324.

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weapon. "In passing upon the sufficiency of the evidence to sustain an ultimate

finding of guilt following a bench trial, we apply the same standard of review that is

applied where a defendant has been found guilty by a jury; that is to say, the finding

must be sustained if it is supported by substantial evidence." United States v. Barletta,

565 F.2d 985, 991 (8th Cir. 1977). On review, we will consider the evidence in the

light most favorable to the guilty verdict. United States v. Carter, 270 F.3d 731, 734

(8th Cir. 2001).

We begin our analysis by noting that it is unlawful for any person to receive

or possess certain firearms that are not registered to him in the National Firearms

Registration and Transfer Record or that are not identified by serial number. 26

U.S.C. § 5861(d). One weapon prohibited by this statute is "a shotgun having a barrel

or barrels of less than 18 inches in length." 26 U.S.C. § 5845(a)(1). Although the

statute is silent as to the requisite mens rea for illegal possession, we have concluded

that the "only knowledge required to support a conviction under the [National

Firearms] Act is knowledge that the weapon is a 'firearm' as that term is generally

defined." United States v. Barr, 32 F.3d 1320, 1323 (8th Cir. 1994) (emphasis in

original). The Supreme Court has held that to violate the National Firearms Act, the

owner of the weapon must have known that the weapon he possessed had the

characteristics that brought it within the statutory definition of a firearm. Staples v.

United States, 511 U.S. 600, 602 (1994). Following the logic of Staples, we have

further concluded that if the characteristics of the weapon render it "quasi-suspect,"3

then the owner of the weapon does not have to know the specific characteristics to

violate the Act. Barr, 32 F.3d at 1324.

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Erhart's argument is premised on his assertion that our court's Barr precedent

should be overturned because it interpreted Staples incorrectly. Passing judgment on

the controlling law of this circuit, however, is beyond our panel's reach. Therefore,

we do not address the merits of this argument.

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The government argues that Erhart's weapon was "quasi-suspect," and he had

knowledge that it was a sawed-off shotgun. Erhart responds that he did not know that

the shotgun barrel was less than eighteen inches.4

 Erhart claims that "there is no

principled reason to suggest that Congress intended the eight categories of firearms

listed in the definition section of the [National Firearms] statute to have different

mens rea elements." United States v. Reyna, 130 F.3d 104, 109 n.5 (5th Cir. 1997).

We disagree.

The Staples decision involved a fully-automatic machine gun. Staples, 511 U.S.

at 602 (1994). However, to discover its automatic firing capacity, one had to fire it.

Id. Staples testified that he had never fired the gun, and the Court found that,

essentially, Staples innocently owned a machine gun. Id. The Court decided that it

would be unfair to convict Staples of possessing the firearm because he had no way

of knowing that it was illegal. Id.

In contrast, Erhart possessed a sawed-off shotgun that was visibly altered to

such a degree that the weapon was "quasi-suspect." Further, Erhart made several

admissions demonstrating that he knew the weapon unlawfully shortened. He

acknowledged his nervousness about owning the gun, and he repeatedly referred to

it as a "sawed-off." Erhart described the gun's usefulness by stating, "Well, I'll tell

you what. This is some definite protection." He also told Tyrone Robinson that a prior

owner has "shot it a couple [of] times . . . [and] said he blew a hole right through the

damn door." When Robinson inquired if the gun would be useful for hunting, Erhart

responded "I don't know [], I don't think it works for ducks though. I think you need

a longer barrel though."

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Sufficient evidence supported the finding that Erhart knew that the gun he

possessed was an illegal sawed-off shotgun. We affirm Erhart's conviction under §

5861(d).

B. Booker Error

After his case was submitted for oral argument, but before we issued an

opinion, the United States Supreme Court issued its ground shifting decision in

Blakely v. Washington, 542 U.S. 296 (2004). The Blakely decision was extended to

the United States Sentencing Guidelines in United States v. Booker, 125 S. Ct. 738

(2005), which rendered the Guidelines advisory. Nonetheless, the Court explained

that a Booker claim not argued at the district court would be subject to application of

the plain error test. Booker, 125 S. Ct. at 769. In United States v. Pirani, 406 F.3d

543, 550 (2005) (en banc), we held that there must be "a specific reference to

Apprendi or Blakely or the Sixth Amendment" to preserve a Booker claim. Under our

plain error analysis, Erhart is required to show "a 'reasonable probability,' based on

the appellate record as a whole, that but for the error he would have received a more

favorable sentence" to show that his substantial rights were affected. Id. at 552

(applying the third prong of the plain error test found in United States v. Olano, 507

U.S. 725 (1993)). 

In this case, Erhart did not argue Apprendi, Blakely, or the Sixth Amendment

to the district court, and, thus, we review his Booker argument for plain error.

Nothing in the record indicates that the district court would have given Erhart a lesser

sentence had it viewed the Guidelines in an advisory capacity. See Pirani, 406 F.3d

at 553. As such, Erhart's Booker claim fails. 

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C. Loss Determination

Erhart argues next that the district court erred in setting the fraud rate at

seventy-five percent. Specifically he argues that the court discounted all evidence

regarding the fraud rate and decided to adopt the rate from the pre-sentence report

("PSR").We review Erhart's claim that the district court erred in its calculation of the

loss determination for clear error. United States v. Dolan, 120 F.3d 856, 870 (8th Cir.

1997); see also United States v. Mashek, 406 F.3d 1012, 1017 (8th Cir. 2005)

(explaining that, post Booker, we still review factual findings made by the district

court for clear error). 

We note that, although the sentencing court is not expected to determine the

fraud rate and attributable loss with precision, it should make a reasonable estimate

of the loss, given available information. United States v. Wells, 127 F.3d 739, 748

(8th Cir. 1997). It is the government's burden to prove the amount of fraud loss by a

preponderance of the evidence. United States v. Coon, 187 F.3d 888, 899 (8th Cir.

1999). However, the district judge "is in a unique position to assess the evidence and

estimate the loss based upon that evidence. For this reason, the court's loss

determination is entitled to appropriate deference." U.S.S.G. § 2B1.1, app. n.2(c).

The crux of Erhart's argument is that the district court cannot discount the

evidence Erhart introduced and rely solely on the PSR. Erhart correctly notes that the

PSR is not evidence and is not legally sufficient for making findings of fact on

contested issues. While Erhart is accurate in his statement of the law, he is inaccurate

in his characterization of the district court's finding. The district court did not rely

solely on the PSR to reach a reasonable fraud rate.

Due to the nature of the business, it was virtually impossible for the court to

determine the precise fraud rate. The court, therefore, was required to make a

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Erhart also argues that because the district court erred in its fraud-rate

determination, it also abused its discretion in ordering Erhart to pay restitution in the

amount—based on the seventy-five percent fraud rate—of $1,234,270. Because we

have already rejected Erhart's assertion that the district court erred in its attributableloss calculation, this dependent claim also fails.

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reasonable estimate of the loss based on the evidence submitted. Erhart himself

originally admitted that ninety-five percent of his business was fraudulent. Peterson,

Erhart's co-conspirator, acknowledged that over seventy-five percent of the business

was fraudulent. Erhart later provided evidence that the fraud rate was actually only

about forty percent.

Erhart argues that the district court improperly discounted the evidence

establishing the rate at forty percent in its entirety. However, had the court completely

discarded Erhart's evidence, it is likely that the fraud rate would have been set

somewhat higher—in the range between seventy-five and ninety-five percent.

Because there was no definitive evidence that could be used to determine an exact

fraud rate, the court was required to factor in all relevant evidence and set a

reasonable rate. We hold the court set a reasonable rate based upon the record.

Accordingly, we affirm the district court's fraud rate determination and the resulting

sentence of restitution in the amount of $1,234,270.5

D. Acceptance of Responsibility

Erhart argues next that the district court erred when it did not apply a threelevel downward adjustment for acceptance of responsibility. In support of his claim,

Erhart points out that he surrendered to the authorities, cooperated with the officers,

and entered a plea of guilty. We review the district court's decision to grant or deny

an acceptance of responsibility adjustment for clear error. United States v. GonzalezRodriguez, 239 F.3d 948, 954 (8th Cir. 2001).

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A defendant is entitled to an acceptance of responsibility reduction when the

defendant has shown a recognition and affirmative acceptance of responsibility for

relevant conduct, and remorse for that conduct. U.S.S.G. § 3E1.1(a). However, under

this Guideline, the defendant must accept responsibility for all of the conduct that is

part of his conviction. The defendant may not minimize conduct or partially accept

responsibility. United States v. Ngo, 132 F.3d 1231, 1233 (8th Cir. 1997). Special

emphasis is placed on the defendant's honesty about the factual basis for the offense,

rather than an emphasis on whether the defendant pleaded guilty or took the matter

to trial. United States v. Schultz, 917 F. Supp. 1343, 1354 (N.D. Iowa 1996). Thus,

a person who shows recognition and affirmative responsibility for his own conduct,

and remorse for that conduct, should be granted a sentence reduction. Id.

Additionally, even a person who pleads guilty to an offense, and then goes to trial on

that offense because of a dispute of law, may still receive an acceptance of

responsibility reduction in sentence. Id. 

Erhart claims that his decision to contest the fraud rate was an attempt to

resolve a dispute of law, not fact, and he should still be entitled to a reduction for his

cooperation. However, Erhart was not merely contesting the applicable law, he was

(as the district court noted) "minimizing what really happened." He contested the

scope of his crime and disavowed a prior statement in order to minimize his role in

the scheme. Additionally, Erhart's guilty plea was one of the "last hour" variety,

offered on the eve of trial, after the government had invested substantial time in

preparation of litigation. Further, Erhart's confession was incomplete; he contested

two of the charges, and, on appeal, he continues to contest one of the charges.

The acceptance of responsibility reduction is "not intended to apply to a

defendant who puts the government to its burden of proof at trial by denying the

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essential factual elements of guilt." Id. at 1347. We affirm the ruling of the district

court.

E. Abuse of Private Trust

For his next assignment of error, Erhart argues that the district court improperly

increased—by two levels—his sentence for abusing a private trust. He claims that

because he was not granted discretionary authority by the victim insurers, he was not

afforded a "professional" level of trust. We review the district court's conclusion that

Erhart occupied a position of trust for clear error. United States v. Trice, 245 F.3d

1041, 1042 (8th Cir. 2001). 

If a defendant abuses a position of public or private trust in a manner that

significantly facilitates his offense, then the Guideline's offense calculation should

be increased by two levels. U.S.S.G. § 3B1.3. A public or private trust refers to a

position characterized by professional or managerial discretion, whereby the offender

is subject to significantly less supervision than employees whose responsibilities are

primarily non-discretionary in nature. United States v. Jankowski, 194 F.3d 878, 884

(8th Cir. 1999). The abuse of trust enhancement applies only where the offender has

abused discretionary authority entrusted to the defendant by the victim. In our

application of the private trust standard, we simply consider "whether trust is inherent

to the nature of the position." United States v. Brelsford, 982 F.2d 269, 272 (8th Cir.

1992).

Erhart argues that the insurance companies permitted him little professional

discretion. He claims that because the insurance companies were exacting in their

examination of his bill submissions, he was not in a position of trust. However, this

argument is unpersuasive. If the insurance companies had exercised more control

over Erhart, then it is likely the fraud would have been discovered. The fraud

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continued as it did precisely because the insurance companies trusted Erhart and the

accuracy of the claims that he supplied them. Erhart was a licensed chiropractor and,

as such, he exercised substantial discretion in preparing and submitting bills and

treatment notes.

Chiropractors are providers of professional medical services. Plainly, trust

inhered in Erhart's relationship with the insurance companies, and he abused this trust

for the specific purpose of committing fraud. Finding no clear error, we affirm the

district court's determination that Erhart abused a position of trust.

F. Role Enhancement

Erhart also alleges that there was insufficient evidence to establish his role as

an organizer, leader, manager or supervisor in this fraud scheme. He claims that

because he was equal partners with Ms. Peterson, and their fraudulent business was

conducted in equal shares, he should have been (like Ms. Peterson) classified as an

average participant. We review the district court's role determination for clear error.

United States v. Gelinas, 299 F.3d 978, 979 (8th Cir. 2002). 

We construe the terms "manager" or "supervisor" broadly under U.S.S.G. §

3B1.1. United States v. Schwarck, 961 F.2d 121, 123 (8th Cir. 1992). So much so,

that the simple fact that a defendant recruits new members into a conspiracy supports

a finding of the defendant being a manager or supervisor. United States v. Pierce, 907

F.2d 56, 57 (8th Cir. 1990) (per curiam). Here, Erhart recruited and supervised over

six "runners" who provided him with referrals and assisted in perpetuating the

fraudulent scheme. This undisputed fact alone provides sufficient support for the

imposition of a three-level role enhancement. We therefore affirm the district court's

finding that Erhart was a manager or supervisor of a criminal activity involving five

or more participants.

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G. Restitution

Lastly, Erhart contends that the district court's restitution order–issued in

accordance with the Mandatory Victims Restitution Act (MVRA)—violates the Ex

Post Facto Clause because during the beginning of Erhart's fraud scheme the MVRA

was not in effect. Because Erhart raises this claim for the first time on appeal, we will

review the district court's order only for plain error. United States v. Williams, 128

F.3d 1239, 1243 (8th Cir. 1997).

The Mandatory Victims Restitution Act (MVRA) requires a sentencing court

to order a defendant to make restitution to the victim of the offense in the full amount

of the victim's loss without consideration of the defendant's ability to pay. 18 U.S.C.

§ 3664 (f)(1)(A). Prior the MVRA, sentencing courts were required to make a finding

regarding a defendant's ability to pay. The district court made no such finding in its

restitution order. 

The indictment charging Erhart stated that his crimes occurred "[f]rom in or

about January 1996 to in or about April 2001." The MVRA became effective April

24, 1996. Erhart claims that because his crime commenced before the MVRA's

enactment, he is not subject to its modifications. Specifically, he argues that, in his

case, the sentencing court is not relieved of its duty to make a finding as to Erhart's

ability to pay prior to the award of restitution.

The Ex Post Facto Clause does indeed prohibit the retrospective application of

criminal laws that prejudice a defendant, by providing a shelter from being convicted

for a crime that did not exist at the time that the then-legal activity was carried out.

However, Erhart is not eligible for ex post facto shelter. Erhart conducted his

fraudulent business for approximately five years after the MVRA was enacted. He

was not prejudiced by a statutory change that occurred after he first committed his

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crime because he continued to commit the crime for several years after the enactment

of the MVRA. In fact, based on Erhart's own admission, the fraudulent billing began

in the later part of 1996, which was subsequent to the MVRA's effective date.

Accordingly, we believe that five years of fraudulent activity was fair warning to strip

Erhart of any shelter from the Ex Post Facto Clause. Finding no error, plain or

otherwise, we affirm the district court.

III. Conclusion

In sum, we are satisfied that Erhart's firearm conviction was supported by

sufficient evidence. We see no error in the district court's determination that

$1,234,270 was the amount of loss attributable to Erhart—based on seventy-five

percent fraud rate. Further the district court correctly denied Erhart an acceptance of

responsibility adjustment. Finally, we affirm the abuse of a private trust and role

enhancements the district court applied to Erhart's sentence. For the foregoing

reasons, we affirm the conviction and conclude that the resulting sentence is

reasonable.

______________________________

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