PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

v. No. 95-5771

DELORES ELEASE HAIRSTON,

Defendant-Appellee.

Appeal from the United States District Court

for the Western District of North Carolina, at Charlotte.

Graham C. Mullen, District Judge.

(CR-94-153-MU)

Argued: March 8, 1996

Decided: September 16, 1996

Before MURNAGHAN and MOTZ, Circuit Judges, and LEGG,

United States District Judge for the District of Maryland, sitting by

designation.

_________________________________________________________________

Reversed and remanded by published opinion. Judge Motz wrote the

opinion, in which Judge Murnaghan and Judge Legg joined.

_________________________________________________________________

COUNSEL

ARGUED: Brian Lee Whisler, Assistant United States Attorney,

Charlotte, North Carolina, for Appellant. E. Fitzgerald Parnell, III,

POYNER & SPRUILL, L.L.P., Charlotte, North Carolina, for Appellee. ON BRIEF: Mark T. Calloway, United States Attorney, Asheville, North Carolina, for Appellant.

_________________________________________________________________
OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

The Government appeals the district court's decision to depart

from the Sentencing Guidelines due to the defendant's "extraordinary

restitution." The defendant's restitution, offered to settle her civil liability to her employer, equaled less than half the amount she embezzled and came not from her own funds but from the generosity of

friends. Concluding that the district court abused its discretion in finding that these circumstances merited departure, we reverse.

I.

The parties do not dispute the underlying facts of this case. Delores

Hairston worked as a branch manager for the First Union National

Bank of North Carolina. Beginning in August 1987, Hairston began

diverting bank funds to her personal use. Her managerial position

enabled her to avoid detection for more than five years, and she ultimately embezzled a total of $607,777.08. Her scheme came to an end,

however, when an internal bank audit in 1993 uncovered certain "irregularities" attributable to her conduct. When bank officials confronted Hairston about the irregularities, she admitted the theft.

In May 1994, during an interview with agents of the Federal

Bureau of Investigation, Hairston disclosed that she had expended all

of the embezzled funds. She spent the stolen money: (1) to pay for

her children's college expenses; (2) to make up for losses on

defaulted loans of bank customers; (3) to provide personal loans to

friends and others; (4) to contribute to church-related activities; and

(5) to buy personal items, including clothes and jewelry.

While federal authorities pursued their investigation, Hairston

attempted to reach a civil settlement with the bank. On August 5,

1994, Hairston gave a sworn statement to the bank in which she

averred that she had spent all the diverted funds and had few available

assets. On October 3, 1994, a federal indictment was returned charging Hairston with bank embezzlement, making false entries in bank

records, and bank fraud.

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On February 28, 1995, Hairston and the bank entered into a settlement agreement and release. Hairston, through the generosity of

friends and her church, repaid the bank $250,000 to settle her civil liability. In return, a bank official promised to testify, during Hairston's

criminal proceedings, as to his belief that the $250,000 payment constituted "extraordinary restitution."

Thereafter, on March 8, 1995, Hairston entered into a plea agreement with the Government in which she agreed to plead guilty to the

charge of bank fraud. At a sentencing hearing, Hairston introduced

the bank officer's testimony and contended that her efforts at restitution merited a departure from the Guidelines.

The district court accepted Hairston's argument, finding that the

Bank would not have recovered any of its loss but for Hairston's

extraordinary efforts at restitution. The court determined that her

efforts merited a departure from the Guidelines and reduced her

offense level by five, from seventeen to twelve. The court then sentenced Hairston to six months imprisonment, followed by six months

probation and three years of supervised release; without the departure,

her sentencing range would have been twenty-four to thirty months

imprisonment.

II.

The Government contends that the district court improperly considered the $250,000 Hairston obtained from her friends in determining

whether to grant Hairston a departure from the appropriate Guideline

range. The Government does not maintain that "extraordinary restitution" may never provide a proper basis for departure from the Guidelines, but asserts that under the facts of this case, the district court

abused its discretion in finding Hairston's restitution "extraordinary."

Hairston counters that because the total amount of restitution was substantial and because the victim of the embezzlement-- the bank --

would have recovered nothing absent the restitution, the district court

properly found the circumstances "extraordinary" and appropriately

departed from the Guidelines.

A.

The Supreme Court recently clarified the appropriate standard of

appellate review of a district court's decision to depart from the

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Guidelines. Koon v. United States, #6D6D 6D# U.S. ___, 116 S. Ct. 2035

(1996). Koon had been argued but not decided when we heard oral

argument in this case. Accordingly, we held this case in abeyance

while awaiting the Supreme Court's opinion. In the wake of it, we

asked the parties to file supplemental briefs on the opinion's impact

on this case, which they have now done.

In Koon, the Supreme Court directed that"appellate court[s] should

not review the departure decision de novo, but instead should ask

whether the sentencing court abused its discretion." Id. at 2043. The

Court explained that a deferential standard of review was appropriate

because although the Guidelines were intended to cabin the sentencing court's discretion in the typical case, see U.S.S.G. Ch. 1, Pt. A,

intro., Congress and the Sentencing Commission had not intended to

wholly divest district courts of their traditional sentencing functions.

Id. at 2044. As the Court explained:

Acknowledging the wisdom, even the necessity, of sentencing procedures that take into account individual circumstances, see 28 U.S.C. § 991(b)(1)(B), Congress allows

district courts to depart from the applicable Guideline range

if "the court finds that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately

taken into consideration by the Sentencing Commission in

formulating the guidelines that should result in a sentence

different from that described." 18 U.S.C. § 3553(b). To

determine whether a circumstance was adequately taken into

consideration by the Commission, Congress instructed

courts to "consider only the sentencing guidelines, policy

statements, and official commentary of the Sentencing Commission." Ibid.

Turning our attention, as instructed, to the Guidelines

Manual, we learn that the Commission did not adequately

take into account cases that are, for one reason or another,

"unusual." 1995 U.S.S.G. ch. 1, Pt. A, intro. comment. 4(b).

Id. (emphasis added).

To aid sentencing courts in determining if an asserted basis for

departure removes a case from the "usual" (the"heartland" for which

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the guideline was designed), the Commission lists several factors that

may never provide a proper basis for departure (e.g., race, sex,

national origin, etc.). "[W]ith the exception of those listed factors,"

the Commission states that it "does not intend to limit the kinds of

factors, whether or not mentioned anywhere else in the guidelines,

that could constitute grounds for departure in an unusual case." Id.

(quoting 1995 U.S.S.G. ch. 1, Pt. A, intro. comment. 4(b)). For further

guidance, however, the Commission enumerates certain other factors

that it views as either "encouraged," see U.S.S.G § 5K2.0 et seq., or

"discouraged" bases for departure. See U.S.S.G. § 5H1.1 et seq.

If the special feature suggested as a basis for departure is an

encouraged factor, then a court can depart on that basis, if that feature

is not already taken into account in the applicable guideline. If the

special feature is a discouraged factor, or an encouraged factor

already taken into account in the applicable guideline, then a court

can depart "only if the factor is present to an exceptional degree or

in some other way makes the case different from the ordinary case

where the factor is present." Koon, 116 S. Ct. at 2045. Finally, if the

special feature is not mentioned at all in the Guidelines, before departing on this basis, a court must consider the "structure and theory" of

the relevant individual guideline and the Guidelines as a whole, bearing in mind that departures on the basis of factors not mentioned in

the Guidelines will be "highly infrequent." Id.

The Supreme Court in Koon repeatedly emphasized the sentencing

court's primacy in determining whether a factor merits departure in

the individual case. Due to its greater experience with sentencing

determinations, the district court enjoys an "institutional advantage"

over an appellate court in making this determination. Id. at 2047.

In performing its role, the sentencing court's duty is to make a "refined assessment of the many facts bearing on the outcome, informed

by [the court's] vantage point and day-to-day experience in criminal

sentencing." Id. at 2046-47. Thus, a sentencing court must determine

not as a general matter whether a suggested basis for departure is

within the heartland, but whether it is within the heartland given the

specific facts of the particular case. Id. Although the sentencing court

may rely on its individual sentencing experience, this factor is not

solely determinative and the question of "[w]hether a given factor is

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present to a degree not adequately considered by the Commission, or

whether a discouraged factor nonetheless justifies departure because

it is present in some unusual or exceptional way, are matters determined in large part by comparison with the facts of other guidelines

cases." Id. at 2047.

An appellate court generally gives "substantial deference" to the

district court's decision to depart, but appellate review is not an

"empty exercise." Id. at 2046. Totally unfettered discretion on the district court's part would simply raise anew the problems with sentencing disparity that Congress created the Sentencing Guidelines scheme

to prevent. Thus, in performing its review, an appellate court, like the

sentencing court, must consider both existing case law and the "structure and theory" of the Guidelines as a whole, and, with due regard

to the district court's institutional advantage, assess whether the circumstances of the particular case are so exceptional as to take the case

out of the heartland and warrant departure from the Guidelines.

We set out the Supreme Court's analysis in Koon at some length

because the standard of appellate review established therein uses a

different nomenclature than the one previously applied in this circuit.

We had previously applied a multi-part analysis involving:

(1) a de novo standard [of review] to determine whether

the reasons the district court used to support its departure

encompassed a factor "not adequately taken into consideration by the Sentencing Commission in formulating the

guidelines," (2) a clearly erroneous standard to review

whether the district court had adequate factual support to

depart on the basis of the factor, (3) an abuse of discretion

standard to determine whether the factor is of sufficient

importance to justify a sentence outside the guideline range,

and (4) an abuse of discretion standard to review whether

the extent of the departure was reasonable.

United States v. Brown, 23 F.3d 839, 841 (4th Cir. 1994) (citing

United States v. Hummer, 916 F.2d 186, 192 (4th Cir. 1990), cert.

denied, 499 U.S. 970 (1991)).

Koon abolishes "de novo" review and substitutes a "unitary abuse

of discretion standard." 116 S. Ct. at 2048. This review for abuse of

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discretion, however, includes a legal analysis as to whether the Commission listed certain factors as forbidden, discouraged, or encouraged departure bases. We do not accord a district court's legal

conclusions on these questions any particular deference. However, we

do defer to a sentencing court's fact-based determination as to

whether the presence of a suggested feature removed a case from the

"heartland" for which the guideline was designed. Because "[a] district court by definition abuses its discretion when it makes an error

of law," our overall review is thus for abuse of discretion. Id.

B.

The feature in this case that potentially takes it outside the Guidelines' "heartland" is, of course, Hairston's efforts at restitution. The

district court concluded that a departure on the basis of extraordinary

restitution was warranted for the following reasons:

The Court finds as a fact that the funds available, made

available to First Union National Bank would not have been

made available, that these are not simply going out and borrowing money from credit unions and the like . . . , but do

represent extraordinary efforts at restitution. And under the

circumstances, everybody's better off when extraordinary

efforts at restitution pay the bank back substantial fractions

of the monies that they lost which would otherwise not be

available, that that as a factual matter exists in this case, and

I therefore believe that I have the discretion to depart downward and will depart downward to a level 12.

The district court, of course, did not have the benefit of the Koon

decision when making this determination. Accordingly, it failed to

make any analysis as to whether the Commission forbade, discouraged, or encouraged departure based on "extraordinary restitution."

Thus, in this case, we consider that question in the first instance.

In considering whether extraordinary restitution is a forbidden

departure factor, as the Supreme Court explained, we are "limited to

determining whether the Commission has proscribed, as a categorical

matter, consideration of the factor." Koon , 116 S. Ct. at 2051.

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Nowhere in the Guidelines is restitution listed as a proscribed factor.

Thus, the Commission has not forbidden departure on this basis.

Nor has the Commission expressly included restitution in the

Guidelines' lists of encouraged or discouraged factors. See U.S.S.G.

§ 5K2.0 et seq., § 5H1.1 et seq. Although the Commission has not

listed restitution as a factor to consider in departing from the

Guidelines, restitution is listed as a factor supporting a reduction

within the Guidelines. Restitution is included among the factors courts

should consider in determining whether to reduce a sentence for the

defendant's "acceptance of responsibility." See U.S.S.G. § 3E1.1

Application Note 1(c) (enumerating seven factors a court should consider in determining whether to reduce a sentence for acceptance of

responsibility, including the "voluntary payment of restitution prior to

adjudication of guilt").

When the Commission designates a factor as a basis for a reduction

within the Guidelines, this implies that the factor is discouraged as a

basis for departure from the Guidelines, or alternatively, that the factor is encouraged -- at least as a basis for reduction -- but has

already been taken into account. In either case, ordinarily a court

should not depart based on such a factor. See United States v.

Broderson, 67 F.3d 452, 458 (2d Cir. 1995) ("Ordinarily, payment of

restitution is not an appropriate basis for departure under Section

5K2.0 because it is adequately taken into account by Guidelines Section 3E1.1" and is therefore a "discouraged" basis for departure).

However, simply because the Commission designates a factor as an

appropriate basis for a reduction does not mean that the factor may

never properly support a district court's departure decision. As Congress and the Commission have directed, a factor that the Guidelines

address may still provide a proper ground for departure when present

to such a degree that a case is removed from the"heartland" for which

the guideline was designed. See 18 U.S.C.§ 3553 (incorporated in

Guideline § 5K2.0) (sentencing court may depart when court finds

"an aggravating or mitigating circumstance of a kind, or to a degree,

not adequately taken into consideration" in formulating the Guideline

range) (emphasis added).

Thus, restitution, although taken into account in the guideline permitting a reduction for acceptance of responsibility, can provide a

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basis for a departure when present to such an exceptional degree that

it cannot be characterized as typical or "usual." See United States v.

Garlich, 951 F.2d 161, 163-64 (8th Cir. 1991) (ruling that district

court has discretion to depart from Guidelines due to extraordinary

restitution if defendants show that the circumstances of their cases are

atypical); United States v. Brewer, 899 F.2d 503, 509 (6th Cir.)

(departure may be warranted where defendant shows repayment constituted an "exceptional circumstance"), cert. denied, 498 U.S. 844

(1990); see also United States v. Hendrickson , 22 F.3d 170, 176 (7th

Cir.) (same), cert. denied, 115 S. Ct. 209 (1994). Cf. United States v.

Bailey, 975 F.2d 1028 (4th Cir. 1992) (affirming district court decision not to depart from the Sentencing Guidelines where there was no

evidence that the court believed it was without power to depart based

on "extraordinary restitution").

C.

We turn now to review of the district court's conclusion that Hairston's efforts at restitution removed this case from the "heartland" of

restitution cases and merited departure. Relying in part on the bank

officer's testimony, the district court found Hairston's restitution

extraordinary because, due to her efforts and her friends' generosity,

the bank recovered "substantial fractions of the monies that [it] lost

which would otherwise not [have] be[en] available."

The $250,000 Hairston repaid the Bank is, of course, a large

amount of money -- but it constitutes less than half the amount she

embezzled. Consideration of existing caselaw reveals no case in

which such a small percentage in restitution has been held to constitute an exceptional circumstance meriting departure. Cf. United States

v. Arjoon, 964 F.2d 167, 171 (2d Cir. 1992) (finding departure unwarranted where defendant stole 5,000 shares of stock worth $489,000,

and then returned 2,000 shares plus $51,000 (approximately fifty percent of the amount stolen), because the restitution involved was not

"substantially in excess of that which is ordinarily involved") (quoting

U.S.S.G. § 5K2.0); United States v. Carey , 895 F.2d 318, 322-24 (7th

Cir. 1990) (departure unwarranted where defendant paid $200,000 out

of victim's $220,000 loss); United States v. Davis, 797 F. Supp. 672,

677 (N.D. Ind. 1992) (departure warranted where defendant repaid

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$775,000 of victim's loss assessed at between $500,000 and

$800,000).

Indeed, our sister circuits have found even full restitution not an

appropriate ground for departure from the Guidelines, but simply

ground for a reduction within the Guidelines. See United States v.

Bean, 18 F.3d 1367, 1369 (7th Cir. 1994) (finding repayment of the

entire amount fraudulently obtained from a bank ($75,000) constituted the restitution contemplated under Note 1(c) to § 3E1.1 and the

defendant was therefore limited to a reduction within the Guidelines);

Brewer, 899 F.2d at 509 (prompt repayment of entire $25,000 stolen

only entitled defendant to a reduction within Guidelines, not departure).

Courts have generally found restitution in amounts greater than that

stolen to be a possible ground for departure. See Garlich, 951 F.2d at

163 (district court erred in failing to exercise its discretion to determine if defendant who turned over assets of $1.4 million to cover loss

of $253,000 merited departure for extraordinary restitution); United

States v. Miller, 991 F.2d 552, 553-54 (9th Cir. 1993) (remanding for

district court to determine whether $58,000 repaid for $45,000

embezzled constituted atypical restitution); United States v.

Lieberman, 971 F.2d 989, 996 (3d Cir. 1992) (affirming departure

where defendant agreed to pay "$34,000 more than he thought he

owed and to which he pled guilty").

We do not suggest that a defendant must necessarily provide more

than full restitution (or full restitution for that matter) in order to

remove her case from the ordinary. For example, exceptional acceptance of responsibility might be indicated by partial restitution gained

through especially hard work, such as by taking a second job. Repayment, however, of less than half of the money stolen under the circumstances of this case appears far removed from"exceptional."

When a defendant asserts that a restitution payment is so exceptional

as to remove it from the ordinary (thereby meriting departure, rather

than simply reduction), the same theory that supports the guideline

reduction for restitution should also support the departure. Since the

Guidelines consider restitution a form of "acceptance of responsibility," extraordinary restitution should provide a ground for departure

when it indicates an extraordinary acceptance of responsibility. See

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United States v. Weinberger, 1996 WL 431811, *3 (4th Cir. 1996)

("extraordinary restitution . . . is a basis for downward departure only

to the extent that it shows a `degree of acceptance of responsibility

that is truly extraordinary and substantially in excess of that which is

ordinarily present'") (quoting Hendrickson , 22 F.3d at 176); see also

United States v. Crook, 9 F.3d 1422, 1426 (9th Cir. 1993)

("extraordinary restitution is a basis for downward departure only to

the extent it shows acceptance of responsibility") (quotation omitted),

cert. denied, 114 S. Ct. 1841 (1994).

Here, Hairston did not pay the bank $250,000 in restitution until

after she had been criminally indicted, in order to settle her civil liability, and in the hope of receiving a reduced sentence. The timing of

the restitution payment, after criminal proceedings had begun, does

not suggest an exceptional acceptance of responsibility, cf. Garlich,

951 F.2d at 162-63 (finding significant that the defendant discussed

the settlement before learning of the FBI investigation and offered to

settle even though his attorney advised him that it was unnecessary),

nor does her motive. See Miller, 991 F.2d at 553 (stressing that the

"voluntary" nature of restitution is questionable when defendant's primary motivation is to settle a civil lawsuit); see also United States v.

Bennett, 60 F.3d 902, 905 (1st Cir. 1995) (same); United States v.

Flowers, 55 F.3d 218, 222 (7th Cir.) (same), cert. denied, 116 S. Ct.

261 (1995).

For similar reasons, the generosity of Hairston's friends indicates

little about Hairston's acceptance of responsibility for her conduct.

See Miller, 991 F.2d at 553 ("restitution is relevant to the extent it

shows acceptance of responsibility"); Bennett , 60 F.3d at 905 (same).

Cf. United States v. Bolden, 889 F.2d 1326, 1340-41 (4th Cir. 1989)

(borrowed money used to repay bank may be relevant in permitting

reduction within Guidelines but does not justify departure).

Finally, while the district court, of course, could consider the bank

officer's testimony that Hairston's payment constituted extraordinary

restitution, the relevance of that testimony is minimal. We do not

doubt that absent the generosity of Hairston's friends the bank would

have recouped little. However, the victim's opinion that Hairston's

efforts were extraordinary, even if not offered in exchange for the

civil settlement, provides little basis for the court's conclusion that

 11
the restitution was extraordinary. The court's conclusion must be

based on sentencing experience, consideration of other guidelines

cases, and the Sentencing Commission's guidance.

Accordingly, although we defer to the district court's greater experience, and although we recognize that the district court sees many

more guidelines cases than appear in published opinions, see Koon,

116 S. Ct. at 2047, because the circumstances of the restitution in this

case are so far removed from those found exceptional in existing

caselaw, we hold that the district court abused its discretion in finding

Hairston's restitution provided a proper basis for departing from the

Guidelines.

III.

For the foregoing reasons, we reverse Hairston's sentence and

remand to the district court for resentencing in accordance with this

opinion.

REVERSED AND REMANDED

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