Source: https://dc.fd.org/motions/appeals/cross/tilghman.htm
Timestamp: 2019-04-22 10:42:03+00:00

Document:
The district court had jurisdiction over this criminal case pursuant to 18 U.S.C. § 3231. A timely notice of appeal from the final judgment of the district court having been filed on September 26, 1996, this Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.
I. Whether the trial court committed reversible error when, over objection, it repeatedly and aggressively cross-examined Mr. xxxxxxxx in a manner that suggested to the jury that the court did not believe his testimony.
II. Whether the trial court erred in treating as the government's "loss" under U.S.S.G. § 2F1.1, the gross receipts of Mr. xxxxxxxx's part-time business, instead of determining the net earnings ( if any) and then determining the amount by which Mr. xxxxxxxx's disability benefits would have been reduced if the government had been told of those earnings -- issues on which the government refused to put forth any evidence or even suggest a reasonable estimate.
III. Whether the trial court erred in ordering as restititution all the disability benefits Mr. xxxxxxxx received during the two-year period during which Mr. xxxxxxxx was found guilty of misstating his employment status, instead of calculating the government's loss during that period.
subpoenaed xxxxxxxx Enterprise's bank records and, in April 1994, executed a search warrant on Mr. xxxxxxxx's home. (5/17 Tr. 24-27).
On February 29, 1996, a federal grand jury returned an indictment charging Mr. xxxxxxxx with one count of mail fraud in violation of 18 U.S.C. § 1341 (Count 1), four counts of making false statements on DOL Form 1032 in violation of 18 U.S.C. § 1001 (Counts 2, 4, 6 and 8), and four counts of making false statements on DOL Form 1032 to obtain federal employees' compensation in violation of 18 U.S.C. § 1920 (Counts 3, 5, 7 and 9). (A:12-22).
A jury trial commenced before the Honorable Harold H. Greene on May 13, 1996. Before submitting the case to the jury, the court dismissed the four general false statement counts under § 1001 as muliplicitous of the more specific false statement counts under § 1920. (5/22 p.m. Tr. 2-10). On May 23, 1996, the jury returned a verdict acquitting Mr. xxxxxxxx of mail fraud and two of the false statement counts but convicting him of making the false statements charged as renumbered Counts 4 and 5 (A:29-30).
Mr. xxxxxxxx was sentenced on September 26, 1996. The court determined that the government's "loss" was $105,592.94, resulting in a guideline range of 15-21 months. Because the offenses were misdemeanors, the court divided the sentence between the two counts, sentencing Mr. xxxxxxxx to 12 months on one and 3 months on other, to run consecutive. The court also ordered concurrent terms of one year supervised release and $84,093.12 in restitution. (A:111).
have been resolved either way" and that, if resolved in Mr. xxxxxxxx's favor, would likely lead to a sentence with no term of imprisonment. (A:114-19).
1. Despite A History Of Back Pain And Surgery, Mr. xxxxxxxx Builds A Rewarding Career In The Federal Government.
In 1959, Warren xxxxxxxx injured his back while on active duty in the Marine Corps. (5/21 a.m. Tr. 28). In 1966, he underwent a lumbar laminectomy to remove two ruptured disks from his lower back. (5/16 p.m. Tr. 102). In spite of his back problems, Mr. xxxxxxxx was able to build a productive and rewarding career in the federal government for 23 years, focusing on the development of Equal Employment Opportunity (EEO) and other personnel policy in various federal agencies. (5/21 a.m. Tr. 30-34).
In 1979, after service with the IRS and other agencies, Mr. xxxxxxxx went to work for the Department of Agriculture as director of Equal Employment Opportunity for the Office of Operations and Finance. (5/21 a.m. Tr. 32-33). The next year, Mr. xxxxxxxx became the Special Assistant to the Director of the Property Management Division, Harold Franklin. Mr. Franklin testified for the government that Mr. xxxxxxxx acted as a trouble-shooter and handled special projects as needed. "Warren was a very competent, responsible person . . . . Mostly, I was managing reactive-type people. Warren was more of a thinker . . . he did a good job, and I didn't have to track him." (5/17 Tr. 7). The Special Assistant job was a fairly "prestigious" job "for senior people who are responsible and get a lot of latitude in their work." (5/17 Tr. 19). Other former Agriculture colleagues confirmed that Mr. xxxxxxxx was enthusiastic about his work (5/20 Tr. 99) -- a "workaholic" who was always at work before 7:30 a.m. (5/20 Tr. 136-37).
2. Mr. xxxxxxxx Reinjures His Back While At Work And, On His Neurosurgeon's Suggestion, Applies For Disability.
On May 25, 1982, Mr. xxxxxxxx aggravated his earlier back injury when he slipped on some glue that was being used in remodeling the hallway of the auditor's building. (5/21 a.m. Tr. 36). His colleague Josephine Firmani testified that she was with him when the accident occurred. (5/20 Tr. 99). Government witness Harold Franklin personally observed Mr. xxxxxxxx's disability in the period after the accident and signed the papers certifying the injury. (5/17 Tr. 17-18) ("Warren clearly had trouble sitting, standing, moving . . . . [I]t was clear his back was hurting").
I basically told him I thought it was . . . inappropriate for him to attempt to continue to go back to work, it made him feel much worse, he had significant disease of his lower back, he had had prior surgery, I really wasn't enthusiastic about re-operating on him, and to me the prudent course was to take it easy. I encouraged his disability retirement because I felt he could not work at any full or even realistically part-time ongoing basis, and he felt better when he was less active, when he was not at work every day, and I said I think enough is enough. This is the course you should take. . . . I recommended back I think it was December of '82 that he retire on disability and I felt it was a permanent condition of his spine. Deterioration is something that only with time progresses and gets worse. (5/16 p.m. Tr. 79-80).
The Department of Labor's Office of Workers' Compensation approved Mr. xxxxxxxx for disability benefits under the Federal Employees' Compensation Act ("FECA") on October 6, 1983 (retroactive to June 11, 1993), based not only on the opinion of Dr. Ammerman, but also on the evaluation of a doctor selected by the Department of Labor. (5/13 p.m. Tr. 86-87; 5/14 Tr. 42-44, 53-54; 5/17 Tr. 33; 5/21 a.m. Tr. 39-40). Mr. xxxxxxxx began receiving tax-free compensation checks equalling 75% (initially 66.7%) of his GS-14 , Step 10, salary -- about $32,000 per year. (5/13 p.m. 71-72, 86-89; 5/14 Tr. 17-18; 5/21 p.m. Tr. 74).
3. Mr. xxxxxxxx Incorporates xxxxxxxx Enterprises And Begins Performing EEO Investigations Out of His Home.
Shortly thereafter, Mr. xxxxxxxx received a call from the Defense Logistics Agency, asking if he would be interested in attending a training course the DLA was conducting in order to generate a list of certified EEO investigators for federal agencies. (5/21 a.m. Tr. 41; 5/21 p.m. Tr. 2-3). Mr. xxxxxxxx took the class and was certified. On the advice of the training coordinator that he should form a corporation for purposes of contracting with the federal government, Mr. xxxxxxxx hired a lawyer to incorporate xxxxxxxx Enterprises, Ltd. (5/21 a.m. Tr. 41; 5/21 p.m. Tr. 3-4, 32). The articles of incorporation were filed on January 31, 1984, and thereafter Mr. xxxxxxxx began performing work as an EEO investigator. (5/21 p.m. Tr. 59). The government summarized its evidence as to the activities of xxxxxxxx Enterprises in ten "timelines" -- one for each year between 1984 and 1993 -- prepared by Special Agent Eugene Davis of the Department of Agriculture's Office of Inspector General. (GX-117 through GX-123, GX-125 through GX-127) (A:169-87).
xxxxxxxx Enterprises bid on contracts directly with government agencies such as the DLA, the Defense Mapping Agency, and the National Guard Bureau, and also performed subcontracts for other companies doing EEO investigatory work, such as Southwind, Viewtech, Willshire Associates, E.H. White & Company, Equal Opportunity Consultants, Associate Control Research & Analysis (ACRA), and Multi-Group Industries.
Although the government's own evidence showed substantial overhead and travel expenses, see infra at 43, the government never attempted to establish xxxxxxxx Enterprise's net earnings. Mr. xxxxxxxx testified that xxxxxxxx Enterprises consistently lost money and that there were never any net earnings from which to pay him for his time. (5/21 a.m. Tr. 44-45; 5/21 p.m. Tr. 11-12, 36-37, 75, 104). That testimony was corroborated by his ex-wife, government witness Barbara xxxxxxxx, who testified that after their 1987 marriage she loaned him several thousand dollars because "he had a lot of business debts." (5/16 a.m. Tr. 66). It also found support in the testimony of government witness Betty Lou Cox, owner of Southwind, who testified that the EEO investigation business is more profitable if done on a volume basis but that, even doing 100-300 cases a year, Southwind had not made a profit and had stayed in business only by deferring payments until revenue came in. (5/16 a.m. Tr. 8-10, 15 ("someone who did four cases a year and had no other source of income would have a great deal of difficulty"); see also 5/15 Tr. 93, 98-99 (government witness testifying his EEO investigation company went bankrupt because expenses associated with that work were so high); 5/15 Tr. 52 (government witness testifying his company had closed its Washington office)).
4. Mr. xxxxxxxx Files The Disputed 1032 Forms With The Department of Labor.
1. Employment other than Self-Employment. Under this heading, you must report all employment, other than self employment, for which you received salary, wages, sales commissions, piecework, or other payment. If you performed work for which you were not paid, (5) you must show as "rate of pay" what it would have cost the employer or organization to hire someone to perform the work you performed. The value of housing, meals, food allowance, clothing, equipment, reimbursed expenses in a business, corporation, partnership or sole proprietorship, or other things of value must be included in the rate of pay. Report overtime pay separately (that is, pay received for work in excess of forty hours per week).
2. Self Employment. Earnings from self employment (such as farming, sales, service, operating a store, business, etc.) must be reported. Report any such enterprise in which you worked, and from which you received revenue, even if it operated at a loss or if profits were reinvested. You must show as "rate of pay" what it would have cost you to have hired someone to perform the work you did.
a) Were you self-employed during any time covered by this form? Answer Yes or No: No.
5. The Case Comes Down To Whether The Jury Believed Mr. xxxxxxxx's Claim Of Good Faith.
The central issue in the case was whether Mr. xxxxxxxx had the specific intent to defraud the government when he answered those questions. Mr. xxxxxxxx testified that he answered the questions in good faith. He thought that he did not have to report his work as an employee of xxxxxxxx Enterprises since he understood the "employment" question as limited to employment "for which you received salary, wages, sales commissions, piecework, or other payment" and xxxxxxxx Enterprises never made any money from which to pay him. (5/21 a.m. Tr. 42-45). He did not put down a "rate of pay" on those forms that asked about unpaid employment because he felt he had no way of computing such a figure. (5/22 a.m. Tr. 40). Mr. xxxxxxxx's explanation of his understanding of the 1032 Form was corroborated by the fact that in 1991, when Mr. xxxxxxxx performed subcontracts for Southwind and it wrote some checks to him, instead of xxxxxxxx Enterprises, he answered the "self-employment" question in the affirmative, listing the dates of self-employments as "on an as needed basis," the nature of the work as "report writing," the number of hours per week as "no set hours (piecework)," his actual earnings as "$1500.00," and the name of the firm as "Southwind." (GX-1 (A:121); 5/21 a.m. Tr. 41-42, 45-47).
The government's big problem, of course, was that Mr. xxxxxxxx had no motive to intentionally lie on the form because there was no evidence that his benefits would have been reduced one penny if he had reported the small amount of unprofitable work he had been able to do. The government's Department of Labor witness, Senior Claims Examiner Gloria Watson, explained that, if someone is able to earn money while on disability, DOL adjusts their benefits under a formula known as the "Shadrick formula." (5/13 p.m. 69-70). It is not a dollar-for-dollar reduction. (Id.). Mr. xxxxxxxx testified that he was told by his DOL caseworker that earnings of up to approximately $300 per month would not impact his compensation (5/22 a.m. Tr. 44-48) and Watson acknowledged that earnings "would not make a difference" in benefits if the individual is working less than four hours per day (7) and "making only a minimum percentage of their pay." (5/14 Tr. 88). Indeed, when Mr. xxxxxxxx told DOL he had earned $1500 in self-employment in 1991, his benefits were not reduced at all. (5/14 Tr. 66).
To bolster its intent case, therefore, the government tried to suggest that Mr. xxxxxxxx had made an intentional effort to conceal his ability to work from the Department of Agriculture. Specifically, the government put on testimony that Mr. xxxxxxxx had told some of the contractors he subcontracted with that he did not want to do investigations for the Department of Agriculture. (5/15 Tr. 75, 127-28; 5/16 a.m. Tr. 24-25). As for his reasons, one contractor testified that Mr. xxxxxxxx told him "[t]hose people [at Department of Agriculture] are crazy." (5/16 a.m. Tr. 39-41). Another contractor testified that Mr. xxxxxxxx explained that he had a conflict of interest with the Department of Agriculture because he had worked there, that he also mentioned that he was disabled, and that the witness got the impression that Mr. xxxxxxxx was not supposed to be working. (5/15 Tr. 75-78, 87-89).
In fact, Mr. xxxxxxxx made no effort to hide his consulting business from his former colleagues at the Department of Agriculture. To the contrary, his former boss, government witness Harold Franklin, testified that he ran into Mr. xxxxxxxx at the elevator about six months after Mr. xxxxxxxx left Agriculture on disability. Mr. xxxxxxxx told him he was handling EEO cases out of his home, which "allowed him the ability to sit or lay down or walk or whatever he needed to do to relieve his pain." (5/17 Tr. 8, 20). When Mr. Franklin asked him "how this jibed with his retirement," Mr. xxxxxxxx told him there was no problem (5/17 Tr. 8). "He was very forthright about it." (5/17 Tr. 13) (emphasis added).
Former Agriculture colleague Josephine Firmani also testified that Mr. xxxxxxxx told her about his work for xxxxxxxx Enterprises. He complained that the overhead costs were very sizable compared to what he was being paid but he explained that he enjoyed the work and wanted to keep up with policy changes in the EEO area. (5/20 Tr. 100, 103, 109). He told her that he was allowed to make up to $300 or $500 per month. (5/20 Tr. 107-08).
This advocacy work clearly explained Mr. xxxxxxxx's inability to subcontract to investigate EEO cases arising within the Department of Agriculture. Wholly aside from the conflict of interest arising from Mr. xxxxxxxx's personal acquaintance with many of the Department of Agriculture managers who might be the subject of an EEO complaint, Mr. xxxxxxxx could hardly act as an impartial investigator of EEO complaints at the very agency where he was acting as a volunteer advocate for employees pursuing EEO claims. (5/21 p.m. Tr. 7; 5/22 a.m. Tr. 55).
Mr. xxxxxxxx was deprived of a fair trial when the district court took on the role of advocate for the government by subjecting him to extensive and hostile cross-examination. Of the 101 pages over which Mr. xxxxxxxx was cross-examined, the court took over on 31 of them. Despite prior admonitions from this Court, and over repeated objections from defense counsel, the district judge's lengthy and pointed questioning was clearly designed to challenge, rather than clarify, the defendant's testimony. By joining in a "tag team" approach with the prosecutor, the court sent the clear message that it did not think Mr. xxxxxxxx was telling the truth. In a case where the critical issue for the jury was whether the defendant acted in good faith or with the intent to defraud, such improper attacks on the defendant's own testimony require reversal.
With respect to Mr. xxxxxxxx's sentence, the court's use of xxxxxxxx Enterprise's gross revenue of $105,592.54 as the government's "loss" under U.S.S.G. § 2F1.1 was clear error because, under the government's own evidence, that was not the amount the government overcompensated him (if it overcompensated him at all). First, it is Mr. xxxxxxxx's wage-earning capacity, not some arbitrary gross revenue figure that is relevant to the Department of Labor. The government's own evidence was that, because of substantial travel and overhead expenses, Mr. xxxxxxxx was actually able to earn substantially less than the company's gross receipts. Second, even assuming the $105,592 figure did represent Mr. xxxxxxxx's wage-earning capacity, the government acknowledged that the Department of Labor would not have reduced his benefits on a dollar-for-dollar basis. The goverment's own evidence was that the reduction -- if any -- would be calculated using the "Shadrick formula." The government's strategic decision at sentencing not to engage in any analysis of how Mr. xxxxxxxx's benefits would have changed under that formula -- or even to offer a reasonable estimate -- means there is no record evidence to support the court's clearly erroneous loss figure. Under United States v. Leonzo, 50 F.3d 1086, 1088 (D.C. Cir. 1995), rather than give the government a second bite at the loss apple, this Court must remand for resentencing without any loss enhancement.
Finally, the court also erred in basing its restitution order on the total compensation Mr. xxxxxxxx received during the period covered by the two 1032 Forms for which he was convicted when it should have considered whether the statements on those forms caused the government to overcompensate Mr. xxxxxxxx during that period. Because the government declined to prove any such loss at the initial sentencing, the resentencing order should preclude imposition of any restitution.
I. THE COURT'S AGGRESSIVE CROSS-EXAMINATION OF MR. xxxxxxxx DEPRIVED HIM OF A FAIR TRIAL.
A. The District Court Made Its Views About Mr. xxxxxxxx's Good Faith Defense Clear.
The district court was very explicit outside the presence of the jury that he did not find Mr. xxxxxxxx's testimony credible. See 5/21 p.m. Tr. 16 ("very conveniently on a number of the matters which he testified, somebody told him something, and we don't know who or we don't know on what basis"); 5/22 a.m. Tr. 68 (denying motion for judgment of acquittal at close of all the evidence because evidence of Mr. xxxxxxxx's intent to defraud is "overwhelming"). Unfortunately, the court made its views apparent to the jury as well.
THE COURT: Do you have no idea what his employer required or demanded?
[DR. AMMERMAN]: I would have to assume as an employer that the employee has to have some job to get done, and if it's not going to have any regular basis doing it, it would be difficult. That's between the employee and the employer.
THE COURT: And you, I take it that your basic conditions here are he could do all these things but he shouldn't do it?
[DR. AMMERMAN]: Could he physically do a lot of things? Most of my patients do them. Should he do them? Not without the opportunity to, if it hurts, get off your feet. If you're having a bad day, do not go in? Yes. Those are the things that I -- what I tell my patients.
I'm not saying we had such a videotape but let's assume she had. Nobody can really tell what he should or shouldn't do?
[DR. AMMERMAN]: Well, I don't think -- actually to answer your question, Your Honor, if he could do somersaults, then I was really wrong and I don't believe I was.
Could a patient at times who has what Mr. xxxxxxxx has go out and go bowling, yeah, he probably could. Could he work around his yard, yeah, he probably could. Was it silly to do it? Probably is. And do I have patients who do it? Yes, I do.
THE COURT: Everybody is whispering. I'm going to have him step down. He can walk. He's not a cripple, is he?
[DEFENSE COUNSEL]: No, he's not, your Honor.
THE COURT: What are you trying to pull?
THE COURT: Having him sit there and telling him not to get up.
[DEFENSE COUNSEL]: Your Honor, I didn't tell him not to get up. I did not. And I'm not tryng to pull anything.
THE COURT: I want him to get up like any other witness when we have bench conferences.
[DEFENSE COUNSEL]: Your Honor, I believe the marshal advised Mr. xxxxxxxx that he could stay there. I said nothing about that.
(5/21 p.m. Tr. 15) (emphasis added). Although this exchange theoretically took place outside the hearing of the jury, the jurors undoubtedly realized the judge's displeasure was directed at Mr. xxxxxxxx when they saw him shooed off the witness stand.
THE COURT: What's the name of the insurance company that you discussed this product?
[MR. xxxxxxxx]: Hartford. The Hartford Insurance. AARP has a thing with Hartford Insurance. They have my homeowner's insurance and my auto insurance.
THE COURT: What's the name? Hartford Insurance?
[MR. xxxxxxxx]: ITT Hartford I believe is the name.
THE COURT: And who told you to [label the ceramics with price tags]?
THE COURT: She told you to put the price tags on?
THE COURT: And Jesse -- Jesse photographed them.
[MR. xxxxxxxx]: No. She said, "These are really good. You ought to get them insured." So I called the insurance company to find out how you get them -- I was just to say, hey, I'd like to increase the insurance because I have a collection of ceramics.
The insurance company says, "It doesn't work that way. Ceramics are considered art, so they have to be valued, and we would prefer that you take some kind of a picture as a record." We were in the process of videotaping, and he said, "You videotape not only your ceramics but your wife's jewelry," because her wedding rings had not been insured, "all your valuables in the house. Do a videotape."
THE COURT: When was this conversation?
THE COURT: When was this? Just tell me.
[MR. xxxxxxxx]: In '95, sir.
THE COURT: And when did Jesse take these pictures?
[MR. xxxxxxxx]: Jesse had taken those earlier.
THE COURT: But nothing to do with the insurance?
THE COURT: Did you turn the list of the values over to the insurance company?
[MR. xxxxxxxx]: No. I told them I was putting together a list, and they suggested that in addition to a list they would prefer a videotape that we would keep in the safe deposit box. Because they couldn't really do much with a verbal description. The same with the jewelry and wedding bands.
THE COURT: And when was the videotape made?
THE COURT: You mean the videotape was made over a period of time?
THE COURT: And when was it finished?
[MR. xxxxxxxx]: It's not been finished, sir.
THE COURT: And where is it?
[MR. xxxxxxxx]: I don't know. I have assumed that it went with the search.
THE COURT: You mean your wife sold ceramics to somebody without telling you about it?
[MR. xxxxxxxx]: No, sir. We did the fund raiser that Father Downs talked about. That was for the diaspora.
THE COURT: What is this entry?
[MR. xxxxxxxx]: I'm saying, I'm not sure, sir.
THE COURT: But who owned the stock?
THE WITNESS: I don't think there was ever any stock.
THE COURT: If you own a corporation, you've got to have stock.
[MR. xxxxxxxx]: I don't know who.
THE COURT: I may not know anything about this business you were in, but I do know about what the law requires.
[MR. xxxxxxxx]: I'm really not sure, Your Honor, because it never did anything. It was just a piece of paper that sort of sat in the corner.
THE COURT: Did you incorporate it or did a lawyer incorporate it for you?
[MR. xxxxxxxx]: Oh, an attorney did it, sir.
THE COURT: And is there anything in there about stock? You can't run a corporation without stock.
[MR. xxxxxxxx]: It may well have been. I just don't recall, sir.
(5/21 p.m. Tr. 62) (emphasis added).
THE COURT: Did you know ahead of time when you represented somebody that that person had been discriminated against?
[MR. xxxxxxxx]: Well, I knew that they felt they had been discriminated against.
THE COURT: That was good enough for you, even if they hadn't.
[MR. xxxxxxxx]: Well, they had gone through what was called the informal process where the agency had accepted the basis for the discrimination.
(5/21 p.m. 18-19) (emphasis added).
[MR. xxxxxxxx]: His name was Thomas Callahan, sir.
THE COURT: Is he still around?
THE COURT: Now, you said, do I understand -- I can't hear so well when she's wandering around. But I take it you said that the $10,000 were money that the corporation made?
[MR. xxxxxxxx]: That came into the corporation, yes, sir.
THE COURT: And didn't you say before that the corporation lost money?
[MR. xxxxxxxx]: Yes, sir. I'm saying that these were funds that came in, but this was prior to deducting the expenses of the corporation.
THE COURT: You mean if they had $10,000 income and $50,000 of expenses, you just wrote down $10,000 for income?
[MR. xxxxxxxx]: He told me what to put down, sir, and I put it down. He was the chairman of the board of directors.
THE COURT: Of which bank?
[MR. xxxxxxxx]: Jefferson Bank, sir.
THE COURT: Where was that located?
[MR. xxxxxxxx]: That was located on Central Avenue in Capital Heights, Maryland. I don't know the exact address.
THE COURT: Is that the only outlet they had at that bank?
[MR. xxxxxxxx]: That was the only outlet in my neighborhood, sir.
THE COURT: Do you know if they had other outlets?
[MR. xxxxxxxx]: No, sir, I don't.
THE COURT: And the chairman of the board personally took care of this for you.
[MR. xxxxxxxx]: Yes, he did, sir.
THE COURT: I see. Okay.
THE COURT: You're an educated man, aren't you? You have a master's degree, and you did work for a doctorate. Is that right?
[MR. xxxxxxxx]: That's correct, sir.
THE COURT: Now, this is supposed to get a loan from the bank, and you put down as annual income $45,000 (11) and expenditures of $14,000. On the basis of that, they were going to give you a loan, right?
[MR. xxxxxxxx]: I would assume so, yes.
THE COURT: And those figures aren't accurate because the chairman of the board told you to put them in.
[MR. xxxxxxxx]: You say they are or are not?
THE COURT: They're not accurate. You say they aren't accurate because he just told you what to put in.
[MR. xxxxxxxx]: In essence, he did tell me what to put in.
THE COURT: Do you think any sane bank would give somebody a loan on figures that are totally made up? I mean, as an educated man who's been in business off and on, and government business, private business. Do you think [a] bank would give a loan to somebody on the basis of figures that are just made up by the chairman of the board?
[MR. xxxxxxxx]: Well, could I respond to that, sir?
[MR. xxxxxxxx]: Jefferson Bank had just opened up in our community. It was a minority community, and a part of their charter required them to fund so much into the community.
THE COURT: And they just made up the figures in order to fund the community.
[MR. xxxxxxxx]: I wouldn't say that they just made up at random.
THE COURT: -- the chairman of the board told you to put in?
[MR. xxxxxxxx]: No, sir. I said there was not an appropriate spot for that to go, and he asked me for the total income prior to expenses, and he said, "Put them there, sir."
THE COURT: So you wrote checks on the corporation's account for cash, and the cash went to you, is that right?
THE COURT: Well, what did the cash go to?
THE COURT: No, no, no, no, no. I understand that. When you wrote a check for cash, who got the [cash], regardless of what it was for ultimately? You got the cash, right?
[MR. xxxxxxxx]: It probably went into an account, yes, sir.
THE COURT: Cash isn't an account. Cash is cash. Bills, American bills with Benjamin Franklin or whoever -- George Washington on the picture.
[MR. xxxxxxxx]: No, sir. I think generally those checks were transferred, transferring funds from one account to another, not cash in hand, no, sir. I did not get cash in hand. No, sir.
THE COURT: You wrote them for cash and it wasn't for cash? It was for something else?
[MR. xxxxxxxx]: It was a deposit, a transfer, sir.
THE COURT: I've heard your explanation. Go ahead.
[THE PROSECUTOR]: Sir, what you're saying is these checks that we just went over where it was signed Warren P. xxxxxxxx, and it was written to cash, you didn't get cash from the bank?
THE COURT: What did they give you for that check made out to cash?
[MR. xxxxxxxx]: It was a transfer to another account, sir.
THE COURT: -- what did the teller give you, nothing?
[MR. xxxxxxxx]: No, sir. The teller would deposit that check into another account. And I believe if you look at the back of the check, it will say transfer to account so and so in many instances.
[THE PROSECUTOR]: Feel free to look through these to see if you find that on any of these checks of yours.
THE COURT: Do you have the original check stub?
THE COURT: -- when I'm talking.
THE COURT: Do you have the original checks someplace?
[THE PROSECUTOR]: We introduced the originals that we were able to find, yes, Your Honor.
THE COURT: On the originals of these checks for cash, do you have those someplace?
[THE PROSECUTOR]: Yes, I believe we do.
THE COURT: I'd like to see them tomorrow.
[THE PROSECUTOR]: How is it that you transferred that check to another account when you wrote it out to cash? I don't understand what you're saying.
[MR. xxxxxxxx]: That's the process the bank uses. If I want to transfer x-amount of dollars from one account to the other, I don't [walk] into the bank and they give me $400 or whatever the amount is. You simply flip the check over and say -- it will say "Cash" on the front, and it will say "Deposit to account" such and such, and you give it to them, and it's deposited, and they give you a deposit slip.
THE COURT: Are you saying that all those checks that are made out to cash, if you look on the back side of it, there will be a notation where the money is to be transferred to?
[MR. xxxxxxxx]: I would think most of them, yes, sir. Not all of them.
THE COURT: And there were other people who were bidding too?
[MR. xxxxxxxx]: Right. You're bidding against at least two others.
THE COURT: Did they bid a lot higher than you?
[MR. xxxxxxxx]: Some bid higher, some bid lower. I never got every case that I bid on. But you soon learn after a while if you bid high on 10 cases, because you can ask after the bid, "Where did I come in," if you got a case and you were way low, then you knew you had a little flexibility to bid a little higher. If you bid high and you didn't get any cases, then you know you needed to start bringing your bid down. So over a period of time you learn to be fairly much in the general ball park.
THE COURT: The other people who bid against you were more or less in the same ball park with you?
THE COURT: And they all lost money.
[MR. xxxxxxxx]: I believe so, sir.
THE COURT: They were all in this business for years and years and years to lose money.
THE COURT: What I'm asking -- I'm not asking about Ms. Cox. You lost money.
THE COURT: Other people who were in the same ball park with you, and they all must have lost money, too, is that right?
[MR. xxxxxxxx]: I'm assuming so, sir, yes, sir, because [a]lot of them went out of business.
THE COURT: I see. It's a peculiar business where everybody stays in for years and loses money all the time.
THE COURT: Wouldn't you agree it's a peculiar business?
[MR. xxxxxxxx]: Not necessarily. I taught for years, and I could have made much more money doing something else.
THE COURT: But I'm now taking about people who bid against you for these contracts. You lost money, and they bid in the same ball park. They must have all lost money, too.
THE COURT: Just a minute. Something occurred to me. You were not in the business of making money out of these contracts. You were perfectly content to lose money on these contracts.
THE COURT: You were a philanthropist; you wanted to help these people.
[MR. xxxxxxxx]: No, I was hoping I could at least break even.
THE COURT: How did you figure your bids on these contracts, if you always came out a little bit too -- on the loss side.
[MR. xxxxxxxx]: Because you knew -- well, it was a very small group of investigators, and we knew each other, and we knew, like for instance, NGB -- I'm sorry, National Guard Bureau. They were going to set some limits on bids, and you bid over $2300, you can forget it. . . . We made little charts and graphs based on complexity and all that. And we knew that if a case was in a given location, had X number of issues, X number of complainants initially that it was going to run about this much, because we knew we could figure out what it was going to cost to fly there; we know about if you stayed at the Holiday Inn about what that was going to cost. After a while you get an idea of what it's going to cost, and you can bid accordingly.
THE COURT: I understand that. I'm just trying to figure out, find out from you, whether the bids just happened to come out the way that you lost money on them, or you'd go out and make the bids in order to lose money.
THE COURT: But you didn't want to make money.
[MR. xxxxxxxx]: I knew if I bid higher that I was not going to even get the bid, because someone was going to bid lower.
(5/21 p.m. Tr. 105-10) (emphasis added).
THE COURT: xxxxxxxx Enterprises didn't live in the house that the mortgage was on, did it?
[MR. xxxxxxxx]: Yes, it was, sir.
THE COURT: Do you have any checks that indicate that you took money from your personal account and put it back in the xxxxxxxx Enterprises account?
[MR. xxxxxxxx]: Would you repeat that, sir.
THE COURT: Do you have any evidence that indicates that you took money from your personal account to repay the corporate account? As I understand your testimony, you said that these were all matters that were expenses of your business and the corporate account; right?
[MR. xxxxxxxx]: Yes, sir. I had checks to show where I paid out of my personal account for the airline tickets, for the hotels.
[MR. xxxxxxxx]: No, sir. I was saying that I had paid for those expenses out of my personal account, and when I got the payment from the case, I reimbursed. Those checks that [the prosecutor] showed were checks that were going from the corporate account to repay what I had paid out of my personal account as up-front fees.
(5/22 a.m. Tr. 12-14) (emphasis added).
THE COURT: What was your relationship to xxxxxxxx Enterprises? Were you an employee?
[MR. xxxxxxxx]: I was employed by xxxxxxxx Enterprises on an as-needed basis, sir, yes.
THE COURT: You are also the sole owner of xxxxxxxx Enterprises?
[MR. xxxxxxxx]: That is correct, sir.
THE COURT: You were an employee of xxxxxxxx Enterprises?
THE COURT: Doesn't that fit in the paragraph Employment other than Self-employment? Under this heading, you must report all employment.
[MR. xxxxxxxx]: For which you receive wages.
THE COURT: It goes on to say if you perform work for which you were not paid, you must show a rate of pay of what it would have cost. You didn't put that in any of them?
[MR. xxxxxxxx]: I felt that was not applicable, sir, because there was no way to compute those figures.
[DEFENSE COUNSEL]: Your Honor, if I may just renew my objection.
THE COURT: You didn't put this on any form, did you?
[MR. xxxxxxxx]: Did I put it on a form? No, sir; this was a telephone conversation.
THE COURT: Did this Julio Mendez put it on a form?
[MR. xxxxxxxx]: I don't know, sir.
THE COURT: We just have to take your word for it?
THE COURT: Overruled. Is that right?
[MR. xxxxxxxx]: I'm sworn to tell the truth, sir.
THE COURT: I know, but we have to take your word for it; is that right?
[MR. xxxxxxxx]: I don't know if he has any record of it or not.
(5/22 a.m. Tr. 46) (emphasis added).
Dfense counsel's renewed motion for mistrial at the end of Mr. xxxxxxxx's testimony was summarily denied. (5/22 a.m. Tr. 70).
This Court has placed "strict limits on the [trial] judge's power to intervene in the conduct of the trial, particularly in the examination of witnesses," United States v. McCord, 509 F.2d 334, 348 (D.C. Cir. 1974). Although the district court has discretion to conduct the trial, "that discretion has always been limited by the requirement that the defendant receive a fair trial." United States v. Donato, 99 F.3d 426, 438 (D.C. Cir. 1996). Trial counsel preserved Mr. xxxxxxxx's objection to the court's cross-examination of him by moving for a mistrial first thing the morning after it began (5/22 a.m. Tr. 5-6), objecting throughout the remainder of the cross-examination (5/22 a.m. Tr. 13, 29, 40, 46), and renewing the motion for mistrial at the end of Mr. xxxxxxxx's testimony (5/22 a.m. Tr. 70). See Fed. R. Evid. 614(c) ("Objections to . . . interrogation by [the court] may be made at the time or at the next available opportunity when the jury is not present.").
C. The Court's Obvious Disbelief Of Mr. xxxxxxxx's Testimony Was Highly Prejudial To His Defense.
This Court recently reemphasized that "[t]rial judges should, to the greatest extent possible, avoid giving any hint as to whether they believe a particular witness is credible. This is especially true when the witness in question is the defendant. Donato, 99 F.3d at 438 (emphasis added) (reversing where court made comments suggesting it did not trust the defendant and credibility was a crucial issue). Moreover, although a judge may question witnesses to clarify their testimony, the court must "steer clear of questioning that extends to advocacy." United States v. Winstead, 74 F.3d 1313, 1319 (D.C. Cir. 1996). See also United States v. Barbour, 420 F.2d 1319, 1321 (D.C. Cir. 1969) ("the judge must remain 'a disinterested and objective participant in the proceedings.'") (citation omitted).
Here, the trial judge's extensive and hostile cross-examination of Mr. xxxxxxxx put the judge in the role of advocate for the government's theory of the case and made clear that the court did find him or his defense credible. See United States v. Wyatt, 442 F.2d 858, 860-81 (D.C. Cir. 1971) (conviction reversed where trial judge's extensive questioning of defendant and alibi witnesses gave jury impression that court believed defendant was guilty). This Court has made clear that a trial judge should "hold to a minimum his questioning of witnesses in a jury trial" so as to avoid "assimilat[ing] the court' s role with the advocate's." Barbour, 420 F.2d at 1321. See also Jackson v. United States, 329 F.2d 893, 894 (D.C. Cir. 1964) ("a presiding judge can control the trial without participating actively in examination of witnesses"). Here, the court dominated large portions of the cross-examination of Mr. xxxxxxxx, quizzing him on 31 of 101 pages. Compare United States v. Filani, 74 F.3d 378, 382, 386 (court committed plain error when it substantively challenged the defendant's testimony on 16 of 60 pages ("over 25 percent")).
In ways big and small, the court picked away at Mr. xxxxxxxx's testimony until it was obvious to all that the court thought he was lying. The court expressed open incredulity at Mr. xxxxxxxx's explanation of his loan application. (5/21 p.m. Tr. 84-86). The court attempted (unsuccessfully) to catch Mr. xxxxxxxx in a lie about whether he was taking large amounts of cash out of his corporate account (5/21 p.m. Tr. 96-100) and suggested that Mr. xxxxxxxx had given inconsistent testimony when he had not. (5/22 a.m. Tr. 12-14) ("according to your latest testimony . . ."). The court used sarcasm to knock down Mr. xxxxxxxx's explanation for why he continued to work at a loss. (5/21 p.m. Tr. 105-110) ("You were a philanthropist"). (This was particularly unfair given that the court had refused to let Mr. xxxxxxxx explain one of the main reasons he was so anxious to stay busy -- to keep his mind off the fact that at any time his blood disease could mature into cancer.). The court asked extremely pointed questions about the crux of the entire case -- Mr. xxxxxxxx's understanding of the questions on the 1032 Form. (5/22 a.m. Tr. 38, 40). Finally, the judge let Mr. xxxxxxxx (and the jury) know in no uncertain terms that, oath or no oath, he did not consider Mr. xxxxxxxx's "word" worth much. (5/22 a.m. Tr. 70).
This is not a case in which the court merely clarified "fuzz[y]," "inarticulat[e]", or "reluctantly given" testimony. See Barbour, 420 F.2d at 1321. Compare United States v. Spencer, 25 F.3d 1105, 1109-10 (D.C. Cir. 1994) (court's questions sought only to clarify details and, if anything, assisted the defense). Rather, throughout its examination, the court appears to have been challenging Mr. xxxxxxxx's testimony rather than attempting to elucidate it. The prosecutor in this case did an able job of highlighting the points of dispute and pressing Mr. xxxxxxxx on what the government perceived as the weaknesses in his defense. The prosecutor's questions were clear and they were answered forthrightly. There was absolutely no need for the court to join in. Where the prosecutor and the court take turns asking essentially the same line of questions, the jury can reasonably infer that the court is siding with the government on the point at issue. See Filani, 74 F.3d at 387 (judge's questioning of defendant deprived him of fair trial where court joined in cross-examination and created "tag team" situation that gave jury "impression of bias").
The court's suggestions of agreement with the government were devastating, for "a jury is likely to give great credence to a judge's view of the credibility of a witness." Donato, 99 F.3d at 438. See also United States v. Mazzilli, 848 F.2d 384, 388 (2d Cir. 1988) ("the jury cannot be regarded as having freely come to its own conclusions about the defendant's credibility when the court has already indicated, directly or indirectly, that it disbelieves his testimony"). The court's stock instruction to the jurors concerning their exclusive role as factfinder (5/22 p.m. Tr. 74-75) could not, therefore, have eliminated the emotional impact of the judge's vigorous and one-sided interrogation of Mr. xxxxxxxx. See Filani 99 F.3d at 386 (such curative instructions cannot remove impression that judge believes one version of the facts once created); Quercia v. United States, 289 U.S. 466, 472 (1933) (court's repudiation of defendant's testimony not cured by instruction that judge's opinion of evidence was not binding on jury); Blunt v. United States, 244 F.2d 355, 366 (D.C. Cir. 1957) (judge's improper interrogation of defense witnesses not cured by standard instruction that it was for jury to find facts).
Significantly, this Court previously has admonished the district judge who presided over this case that excessive questioning of witnesses by the trial court can constitute reversible error. See United States v. Williams, 113 F.3d 243, 248 (D.C. Cir. 1997) ("We have seen an increasing number of cases in which our trial judges have been overly pointed in questioning witnesses, particularly defendants;" challenged exchange was "error" but not "plain error"); United States v. Rawlings, 73 F.3d 1145, 1146 n.1 (D.C. Cir. 1996) ("we remind the district court that 'overzealous quizzing by the judge . . . [may cause] a breach of the atmosphere of judicial evenhandedness that should pervade the courtroom'") (citation omitted); United States v. Norris, 873 F.2d 1519, 1526 (D.C. Cir. 1989) ("We nonetheless feel constrained to once again put forth the admonition that '[p]articularly when the questioning is designed to elicit answers favorable to the prosecution, "it is far better for the trial judge to err on the side of [a]bstention from intervention in the case."' . . . '[p]rosecution and judgment are two quite separate functions in the administration of justice; they must not merge.") (citations omitted). This Court should hold that the trial judge crossed the line in this case and, in so doing, deprived Mr. xxxxxxxx of a fair trial.
II. THE COURT ERRED IN TREATING THE GROSS INCOME OF xxxxxxxx ENTERPRISES AS THE GOVERNMENT'S "LOSS."
A. The Court's "Loss" Finding.
Under U.S.S.G. § 2F1.1(b)(1), the defendant's offense level for a crime of fraud or deceit is increased depending on the amount of the victim's "loss." The probation officer initially calculated the government's "loss" to be $105,592.54, "which represents their overpayment to the defendant, based on the income earned during his compensation period." (Original PSR at 6-7). Mr. xxxxxxxx objected to the use of this gross income figure, arguing that the proper loss was zero because xxxxxxxx Enterprises never had any net earnings and, therefore, even if he had reported this wage-earning capacity, his benefits would have remained unchanged. (A:40, 42, 53, 65-66, 69). (14) The government also objected, arguing that since Mr. xxxxxxxx forfeited his right to any compensation by giving false information, the government's loss was the total compensation he received between 1982 and 1996 -- $485,599.38. (A:78-85). When the probation officer adopted the government's theory in the revised PSR (Revised PSR at 6-7), Mr. xxxxxxxx again objected that, even counting all possible relevant conduct, at most, the loss would be the amount of net earnings over that period. (A:92-98).
At the sentencing hearing, the government did not call any witness to calculate, or even estimate, how Mr. xxxxxxxx's benefits would have changed if DOL had known of his work for xxxxxxxx Enterprises. Indeed, instead of calling Gloria Watson, the DOL Senior Claims Examiner who had access to the "Shadrick formula," the government put on Agent Davis, who simply testified that Mr. xxxxxxxx received total compensation of $485,000 and that Ms. Watson had told him that, if Mr. xxxxxxxx had reported his ability to work, "depending on his earnings, the disability payments could have been reduced or he would have been -- they would have attempted to place him back in a working position." (9/26 Tr. 12-13). He acknowledged that the reduction would not necessarily be "dollar-for-dollar" but would be based on application of a "complicated formula" to the defendant's earnings. (9/26 Tr. 15).
The court pressed the government for its actual loss, explicitly asking the prosecutor to explain DOL's "rule" or "standard policy" for reducing benefits, but the prosecutor refused to engage in the relevant analysis, claiming that "it's impossible to calculate exactly what would have happened had Mr. xxxxxxxx been honest." (9/26 Tr. 19-21). The court ruled that it would use the $105,592.54 gross income figure as the government's "loss" because that figure was "fairer" than the $485,000 figure "in light of [the goverment's] inability to give me a certain number." (9/26 Tr. 36).
"The government bears the burden of establishing 'loss' under § 2F1.1 by a preponderance of the evidence." United States v. Leonzo, 50 F.3d 1086, 1087-88 (D.C. Cir. 1995), citing United States v. Salmon, 948 F.2d 776, 778-79 (D.C. Cir. 1991). Defense counsel objected below to the government's failure to meet that burden. See, e.g., 9/26 Tr. 28 ("[I]t's the government's burden to prove loss. They have not done so. There is no Department of Labor individual that came to the stand this morning. [Agent Davis] was a man from the Department of Agriculture. He doesn't know how the Department of Labor would compute loss. They haven't proved their case."). Mr. xxxxxxxx also clearly objected to the $105,592 "loss" figure and argued that the proper loss was zero. (A:40, 42, 53, 65-66, 69). This Court reviews the district court's "loss" finding for clear error. Leonzo, 50 F.3d at 1088, citing United States v. Kim, 23 F.3d 513, 517 (D.C. Cir. 1994).
C. The Government Did Not Meet Its Burden Of Proving By How Much -- If Any -- It Overcompensated Mr. xxxxxxxx.
The court's use of the $105,592 figure as the government's "loss" under U.S.S.G. § 2F1.1 was clear error because, under the government's own evidence, xxxxxxxx Enterprise's gross income did not represent "the value of the money . . . unlawfully taken." Id. at Application Note 7. "The purpose of the [loss calculation] exercise is to measure the economic harm [the defendant] caused." United States v. Gottfried, 58 F.3d 648, 651 (D.C. Cir. 1995). Here, that would be the amount, if any, of overcompensation -- the amount the government would not have paid to Mr. xxxxxxxx if he had informed the government of the work he was doing for xxxxxxxx Enterprises. Cf. Gottfried, 58 F.3d at 652 (basing loss on how much government had to spend that it would not have had to spend "[i]f Gottfried had not violated the law"); U.S.S.G. § 2F1.1, Application Note 7(e) (loss from a Davis-Bacon Act violation is "the difference between the legally required and actual wages paid").
The $105,592 gross revenue figure simply bore no rational relationship to the government's loss. First, it is earning capacity that is relevant to the Department of Labor and the gross -- as opposed to net -- receipts of xxxxxxxx Enterprises say nothing about Mr. xxxxxxxx's earning capacity. Second, the government's own evidence was that Mr. xxxxxxxx's benefits would not have been reduced "dollar-for-dollar" and that "[i]f a person is working less than four hours a day and is making only a minimum percentage of their pay, . . . it would not make a difference" in their benefits under the Shadrick formula. (5/13 p.m. Tr. 69-70; 5/14 Tr. 88; 9/26 Tr. 15). (Indeed, when Mr. xxxxxxxx reported in 1991 that he had made $1500, his benefits remained the same).
In Leonzo, this Court found that "the government's evidence failed to prove a loss" where the government merely put in evidence of the average percentage loss on a portfolio of loans that included the fraudulent loan. 50 F.3d at 1087. Just as that average number provided no information about the amount of loss, if any, on the particular loan at issue, the gross revenue paid to xxxxxxxx Enterprises provided no information on the amount, if any, by which the government overcompensated Mr. xxxxxxxx. "Many loss amounts, including zero, are consistent with [the government's evidence]." Leonzo, 50 F.3d at 1088.
Here, the government refused to put on any evidence whatsoever to aid the court in making a proper loss inquiry. Instead, the government argued, inexplicably, that the government's loss was all the compensation payments ever paid to Mr. xxxxxxxx. In the alternative, the government asked the court to use the $105,592 gross revenue figure (which assumed zero expenses and a dollar-for-dollar reduction in benefits -- both of which were inconsistent with the government's evidence), claiming it could not "unwind the clock" and determine its actual loss.
While it is true that "loss need not be determined with precision" and that "[t]he court need only make a reasonable estimate of the loss, given the available information," § 2F1.1, Application Note 8, that is not what happened here. The court never suggested that it was attempting to make a "reasonable estimate" of the actual loss. Instead, the court simply found that, as between the two loss figures urged by the government, "the fairer amount" was $105,592.54 "in light of their inability to give me a certain number." (9/26 Tr. 36). This amount may have been more "fair" than the $485,000 figure urged by the government (in the sense that, although equally meaningless as a loss measure, it was at least less punitive), but it was still demonstrably inconsistent with the government's own evidence.
Moreover, the government's own witnesses testified that Mr. xxxxxxxx had to pay for most of the many on-site visits documented in its timelines, including airfare and hotel. He also had to pay for the transcription of most of the witness interviews (which defense counsel proferred cost $8 per page) (5/15 Tr. 83) and all typing and other labor costs. Because the government could establish at most de minimis net earning capacity, it put forth no evidence that Mr. xxxxxxxx's negative responses on the Form 1032's caused him to receive extra benefits, and the loss proved under § 2F1.1 was zero.
D. Because The Government Is Not Entitled To A Second Chance To Prove Loss, The Case Should Be Remanded For Resentencing At Offense Level 8.
In Leonzo, this Court held that, on remand for resentencing, the government should not have the opportunity to put in new evidence to support its claim of loss where it failed to adequately support its loss claim at the initial sentencing: "The government had the burdens of production and persuasion, and we see no reason why it should get a second bite at the apple." 50 F.3d at 1088 (emphasis added).
Here, as in Leonzo, "[n]o special circumstances justified, or even explained, the government's failure to sustain these burdens." Id. In fact, the district court gave the government every chance to meet its burden of proving loss. When the court asked the prosecutor, "do you have somebody here from the Department of Labor?" (9/26 Tr. 10), and the government proffered instead Agent Davis from Agriculture, the court said, "Well, it's up to you. You have the burden." See also 9/26 Tr. 22 ("Do you have further evidence on the amount of loss? I don't want to preclude you . . .").
The court asked the right questions but the government stubbornly claimed to have no answer. See 9/26 Tr. 19 (COURT: "[W]ould they have reduced the $485,000 that -- I mean would they have permitted him to get some benefits when he didn't make more than 105,000?" PROSECUTOR: "Well, Your Honor, its unclear . . ."); 9/26 Tr. 20 ( COURT: "But the question is how much did the government lose." PROSECUTOR: ". . . it's impossible to calculate") . Indeed, when the government pleaded ignorance as to what the Department of Labor would have done if it had been given correct information, the court asked the prosecutor directly: "[D]on't they have a regulation or a standard policy, or is it just something that somebody in the Department of Labor makes up as they go along?" (9/26 Tr. 20) (emphasis added). When the government dodged the question, simply rehashing the reasons DOL needs accurate information, the court tried to bring the government back to the relevant question ("We know that. . . . We are trying to determine the amount of loss") (id.), but the government never did make any effort to help the court determine whether, or by how much, DOL would have reduced Mr. xxxxxxxx's benefits but for the offense conduct.
As defense counsel below rightly put it: "We don't know the magic formula that they use, but the government should know. The government could have put that witness on the stand today and told us what the magic formula is. They didn't do that." (9/26 Tr. 28) (emphasis added). Because the government "failed -- failed utterly -- to prove any loss," the government "did not earn a bonus [of offense level points] in this case." Leonzo, 50 F.3d at 1088 (quoting United States v. Schneider, 930 F.2d 555, 559 (7th Cir. 1991)). Here, as in Leonzo, the case must be remanded for resentencing without the 6 loss points the government failed to prove (Offense Level 8).
III. THE DISTRICT COURT SIMILARLY ERRED IN TREATING MR. xxxxxxxx'S DISABILITY COMPENSATION AS THE GOVERNMENT'S LOSS FOR RESTITUTION PURPOSES.
A. The Court's Restitution Order.
The Court may order restitution for only the counts of conviction. Count 4 charges that on June 16, 1993, the defendant submitted a Form 1032 to the DOL, on which he failed to report income from employment for the previous 15 months (6 months in 1993 and 9 months in 1992). The probation officer has used benefits received by the defendant in 1992 as a restitution figure in Count 4. That amount was $41,393.84. As the defendant's yearly benefits increased in 1993, this figure is conservative. Count 5 charges that the same offense conduct occurred on March 6, 1994, involving 3 months in 1994 and 12 months in 1993. The probation officer has used benefits received by the defendant in 1993 as a restitution figure in Count 5. That amount was $42,699.28. The benefits received in 1992 and 1993 total $84,093.12.
Mr. xxxxxxxx objected that "no restitution is due," reasoning that "there could have been no loss to the government" since, after deducting expenses, his business made no money. (A:61-62). The government also objected to the PSR's restitution recommendation, arguing that the restitution should be all the compensation paid to Mr. xxxxxxxx after June 16, 1993 -- the date of the Count 4 1032 Form -- for a total of $118,388. (A:88-89).
I require restitution of $84,093.12, which is the amount that is involved here, not counting the relevant conduct which has no basis under the restitution provisions of the statute and guidelines. In the event that the Department of Labor, or whoever does these things for the Department of Labor, provides for some kind of forfeiture, or whatever name it is called, I will reduce the restitution by that amount because I think it wouldn't be fair to the defendant to have both of those piled on each other.
Mr. xxxxxxxx objected to the imposition of any restitution in light of the absence of any loss to the government. (A:61-62). "Any dispute as to the proper amount or type of restitution shall be resolved by the court by the preponderance of the evidence. The burden of demonstrating the amount of the loss sustained by a victim as a result of the offense shall be on the attorney for the Government." 18 U.S.C. § 3664(d) (now § 3664(e), by virtue of Pub. L. No. 104-132 (1996)). (17) A factual finding of loss is reviewed for clear error. Kim, 23 F.3d at 517.
C. The Government Failed To Prove Any Loss During The Period Covered By The Offenses Of Conviction.
The proper amount of restitution is the amount of the victim's loss resulting from the crime of conviction. See 18 U.S.C. § 3663(b)(1)(a) ("The [restitution] order may require that such defendant -- in the case of an offense resulting in . . . loss . . . of property of a victim of the offense -- return the property to the owner of the property"); § 3664(a) ("The court, in determining whether to order restitution under [§ 3663] and the amount of such restitution, shall consider the amount of loss sustained by any victim as a result of the offense, the financial resources of the defendant, the financial needs and earning ability of the defendant and the defendant's dependents, and such other factors as the court deems appropriate.") (emphasis added).
For reasons similar to those discussed in Point II of this brief, the loss sustained by the government as a result of the conduct for which Mr. xxxxxxxx was convicted in Counts 4 and 5 was zero. Under the government's own evidence, xxxxxxxx Enterprise's gross income for the two-year time period covered by the June 16, 1993 Form 1032 (Count 4) and the March 6, 1994 form (Count 5) -- March 16, 1992 to March 6, 1994 -- was only $ 7177.49. (18) With expenses and overhead, it is inconceivable that the actual net earnings on the five contracts at issue exceeded the $1500 per year that we know had no impact on Mr. xxxxxxxx's benefits when he reported that amount in 1991. (For example, Mr. xxxxxxxx performed only one contract in 1993 and the $2300 contract price had to pay for an on-site visit to Austin, Texas).
Even if there was some small overpayment in benefits for the two years covered by the 1993 and 1994 forms, the government's theory that its loss continued until Mr. xxxxxxxx's benefits were terminated after his conviction is flawed. The Austin, Texas investigation (completed in February 1993) was Mr. xxxxxxxx's last contract. After 1993, Mr. xxxxxxxx was not able to work on even the extremely limited basis he had been working before. Therefore, even if Mr. xxxxxxxx had told the government about every penny he earned during the period covered by Counts 4 and 5, there would have been no change of benefits for those years, and certainly no change of benefits for the subsequent years when he was doing no work at all.
For the foregoing reasons, the judgment against Mr. xxxxxxxx must be vacated and the case remanded to the district court for a new trial. At a minimum, the case must be remanded for resentencing at Offense Level 8 with no restitution.
I hereby certify that the foregoing Brief for Appellant Warren P. xxxxxxxx contains 14,124 words.
I hereby certify that two copies of the foregoing Brief for Appellant Warren P. xxxxxxxx have been served by first class mail to Asst. United States Attorney John R. Fisher, Chief, Appellate Division, 555 Fourth Street, N.W., Room 10-435, Washington, D.C., 20001, this 8th day of August, 1997.
1. Transcript pages are cited by date, all of which are in 1996. For example, "5/16 a.m. Tr. 61" refers to page 61 of the trial transcript of the morning of May 16, 1996. "A:__" refers to pages of the Appendix filed with this brief. "GX-__" and "DX-__" refer to the relevant government and defense exhibit numbers.
2. The National Guard Bureau did pay for the expense of transcription, but not travel or other administrative expenses (5/16 p.m. Tr. 32, 65-67), and a few of the contractors for whom Mr. xxxxxxxx subcontracted did pay expenses.
3. As explained by Dr. Ammerman, there was nothing inconsistent with Mr. xxxxxxxx's ability to perform these investigations and the Department of Labor's finding that he was disabled from his job at the Department of Agriculture. Dr. Ammerman explained that Mr. xxxxxxxx's was not disabled to the point that he could not do the activities associated with daily life and that, from a medical standpoint, there is a big difference between working part-time out of your own home at your own pace (including occasional airplane trips) and commuting to a 20-40 hours-per-week job where he could not lie down or go home if he was in pain or sedated from pain medications. (5/16 p.m. Tr. 82-87, 94-95, 103-07). Indeed, Dr. Ammerman had informed DOL that Mr. xxxxxxxx was capable of attempting a trial period of working four hours a day with breaks as needed. As a practical matter, though, he expressed doubt that an employer would be able to accommodate Mr. xxxxxxxx to the degree that he would need in order to perform in an office environment. (5/14 Tr. 83; 5/16 p.m. Tr. 85, 95-98, 105).
4. The government contended that Mr. xxxxxxxx was also making money selling hand-made ceramics, introducing in evidence fliers containing order forms and a price list. (5/22 a.m. 25-35). Mr. xxxxxxxx admitted that he enjoyed making and handpainting ceramics in his spare time and that he had a large collection of them, but denied running a "ceramics business" or selling them for personal profit. (5/21 p.m. Tr. 41-48, 62-63, 70; 5/22 a.m. Tr. 19-20). He testified that the price list had been made up in connection with church fundraisers (5/22 a.m. Tr. 27) and his minister confirmed that Mr. xxxxxxxx and his wife had sold ceramics on three occasions as part of a church fundraiser. (5/21 a.m. Tr. 12-16). Ms. Firmani confirmed that she understood Mr. xxxxxxxx to make ceramics as "more or less a hobby" and that he gave them away as gifts. (5/20 Tr. 109-10). See also 5/20 Tr. 123 (neighbor John Dogan "knew he had a hobby at ceramics but not as a business, no. . . . And I have gotten a lot of ceramics from him").
5. An earlier version of the form (which Mr. xxxxxxxx had answered accurately five times) had asked for the "rate of pay" only "If you performed work for a relative's or spouse's business." (A:121).
6. The government's Department of Labor witness, Gloria Watson, acknowledged that if an individual received no payments, the correct answer to this question is "No." (5/14 Tr. 71).
7. Mr. xxxxxxxx testified he was working an average of only 5-6 hours per week and completed only 4-8 cases per year (5/21 p.m. Tr. 40). The government's timelines confirm that he worked on a very sporadic basis. (A:169-87).
8. Not surprisingly, Mr. xxxxxxxx's work on behalf of EEO complainants attracted unfavorable attention from Department of Agriculture managers, who several times asked Mr. Clark how much Mr. xxxxxxxx was charging him. (5/20 Tr. 139). His former boss, Mr. Franklin, testified that he knew of people at Agriculture who felt that Mr. xxxxxxxx was not totally disabled and ought to be back at work. (5/17 Tr. 15). In fact, based on Dr. Ammerman's approval of a trial 4-hour work day, the Department of Agriculture did offer Mr. xxxxxxxx a part-time job in October 1988. He interviewed for the position and signed a form stating he would accept it, but then received a letter from Agriculture rescinding the offer when medical approval was not received within 30 days. (5/14 Tr. 46, 51-59, 83, 85-86; 5/21 p.m. Tr. 38-40; DX-2 (A:189)).
9. This question was apparently prompted by photographs Mr. xxxxxxxx's ex-wife had taken of him doing yard and maintenance work. (5/16 a.m. Tr. 59-60, 72-77).
10. The government put in evidence that Jefferson Bank had been taken over by Suburban Bank. (5/14 Tr. 144).
11. This figure included Mr. xxxxxxxx's disability benefits.
12. The next morning it was established that, while Mr. xxxxxxxx had received cash for some smaller checks, the "cash" checks inquired about by the prosecutor were in fact account transfers. (5/22 a.m. Tr. 8-10).
13. Although Mr. xxxxxxxx may have thought his bids were competitive, the DLA's records indicate otherwise. Mr. xxxxxxxx was awarded 10 of the 13 contracts he bid on, and, of the two contracts he won that indicate the bid amounts, the bids were $2400, $3685 and $4140 (GX-22 (A:138)) and $1800, $2035 and $4009 (A:142). In addition, other contractors presumably were handling a much larger caseload, thereby increasing their profitability by greatly reducing their per case overhead expenses.
14. Mr. xxxxxxxx argued in the alternative that, because the court should not include acquitted conduct as relevant conduct, at most, the loss should be the $2300 in gross income xxxxxxxx Enterprises earned in 1993. (A:65-66). Mr. xxxxxxxx does not raise this relevant conduct argument on appeal.
15. The government presented evidence that in 1985 xxxxxxxx Enterprises leased a Lanier copier and sorter for $526.94 per quarter (GX-73 (A:166-68); 5/17 Tr. 61) -- later reduced to $339.41 per quarter (GX-39 (A:161-63); 5/20 Tr. 18; see also 5/21 p.m. 21-23, 28). In 1985 xxxxxxxx Enterprises leased a 9-track tape unit for $242.03 per month that he purchased after completing the two-year lease. (GX-40 (A:164-65); 5/17 Tr. 64-65; GX-32(B) (A:155-157c); 5/20 Tr. 18-20; see also 5/21 p.m. 24, 28-29). The government also put in evidence of a $282.66/month lease of a microbank bar code reader, transcriber, cassette printer, and recorder, worth $5766.25, which Mr. xxxxxxxx purchased in 1990 (GX-32(B) (A:157d); GX-33 (A:158-60); 5/20 Tr. 20; 5/21 p.m. Tr. 30-31). There was also government evidence of the lease/purchase of two KSR typewriters worth $1598 (GX-32(B) (A:157e-157g); 5/20 Tr. 19-20; 5/21 p.m. Tr. 30). The government introduced 1985 corporate minutes ratifying the purchase of a computer and accessories for $8000 computer (GX-29 (A:153); 5/17 Tr. 56-57), which Mr. xxxxxxxx testified was stolen and replaced with a $2500 computer (5/21 p.m. Tr. 20-21).
16. Because the Department of Labor charges back to each agency the cost of its employees' compensation benefits, Mr. xxxxxxxx's benefits were ultimately paid by the Department of Agriculture. (5/17 Tr. 23).
17. The Victim and Witness Protection Act, 18 U.S.C. § 3663 et seq., was modified by the passage of the Mandatory Victims Restitution Act of 1996, which was enacted as part of the Antiterrorism and Effective Death Penalty Act of 1996. Section 211 of Pub. L. 104-132 states that the new restitution provisions "shall, to the extent constitutionally permissible, be effective for sentencing proceedings in cases in which the defendant is convicted on or after the date of enactment of this Act [Apr. 24, 1996]." See 18 U.S.C. § 2248 (statutory notes) (emphasis added). Although Mr. xxxxxxxx was "convicted" after April 24, 1996, application of the restitution amendments in this case is not "constitutionally permissible" because the offense conduct preceded their enactment. See United States v. Thompson, 113 F.3d 13, 15 n.1 (2d Cir. 1997) (parties and court agree that application of the new restitution provisions to conduct that occurred prior to enactment is barred by ex post facto clause of Constitution).
18. This figure is derived from the government's 1992 and 1993 "timelines" (A:185-87), showing payments of $835.46 on October 23, 1992, $1077.81 on November 13, 1992, $2100 on November 17, 1992, $864.22 on December 10, 1992, and $2300 on September 2, 1993.

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