Opinion ID: 2671506
Heading Depth: 2
Heading Rank: 2

Heading: Griggs’ Appeal

Text: Griggs raises six issues in his appeal: a challenge to his convictions based upon this court’s decision in Cochran, two sufficiency-of-the-evidence issues (the same two issues raised by Sharp), two instruction-related issues (the same two instruction-related issues as Sharp), and, finally, a challenge to the $500,000 fine imposed by the district court at sentencing. As with Sharp’s appeal, we conclude that all of the issues raised by Griggs lack merit. 1. Is Griggs entitled to have his convictions vacated on the basis of this court’s decision in Cochran? In his first issue on appeal, Griggs contends that the government’s evidence was insufficient to support his convictions. As we have noted, “[w]e review the sufficiency of evidence de novo.” Serrato, 742 F.3d at 472.
Griggs bases his sufficiency-of-evidence challenge on our decision in Cochran. The defendant in that case, Robert Cochran, was the head of the Oklahoma City Municipal Bond Underwriting Department of Stifel, Nicolaus & Company (Stifel), a company that participated in underwriting municipal bond issues. Stifel was a co-managing underwriter for almost $77 million in taxable 20-year revenue bonds issued by the Oklahoma City Airport Trust (OCAT). Stifel also, in connection with the deal, brokered a collateralized guaranteed 36 investment contract between OCAT and the Postipankki Bank, a Finnish bank. This contract allowed OCAT to invest the bond proceeds at a fixed rate until needed and earn a return in excess of most short-term investments. Stifel located Postipankki, the highest bidder in terms of the guaranteed interest rate offered, with the help of Pacific Matrix Financial Corporation, a California money broker. At the direction of Stifel, Postipankki reduced slightly the amount of the guaranteed interest percentage it offered in its original bid (Postipankki would have been the highest bidder even based on its net bid) to account for broker fees charged by Stifel and Pacific Matrix. Those fees totaled $529,241.09, of which Stifel received $489,241.09. OCAT was unaware of the fees or that Postipankki’s original bid was for a slightly higher guaranteed rate of interest. The return from the guaranteed investment contract earned OCAT more than $1.5 million, and the net rates it earned were over twice what it was making on short-term Treasury securities. As a result of the OCAT transaction, Cochran was indicted on two counts of wire fraud (specifically a telephone call directing the Postipankki bid reduction and a fax transmission from Pacific Matrix to Oklahoma bond counsel reflecting the reduced bid amount) and one count of money laundering. Cochran was subsequently convicted by a jury of these counts and was sentenced to a term of imprisonment and ordered to pay restitution in an amount equal to the broker fee received in the OCAT transaction. 37 On appeal, Cochran “argue[d] that he had no duty to disclose (to OCAT) the Stifel commission on the guaranteed investment contract placed with Postipankki bank.” 109 F.3d at 665. We agreed. In reaching this conclusion, we noted “[t]he evidence in this case does not support [the existence of a fiduciary] duty [between Stifel/Cochran and OCAT], nor does it support the government’s alternate theory that Stifel’s affirmative misstatements of fact (the net bids) induced false beliefs regarding the amount of the Postipankki bid to OCAT.” Id. We emphasized that we “analyze[d] the government’s alternate theory virtually the same way as its nondisclosure theory because the alternate theory presupposes a duty to disclose with any statements unaccompanied by such disclosure deemed fraudulent.” Id. “The record,” we noted, “ma[de] it clear that even among the government’s industry witnesses no consensus existed concerning proper reinvestment fee disclosure.” Id. at 666. Consequently, we held that “[t]he wire fraud counts pertaining to the OCAT transaction must be reversed.” Id. at 667. b. The district court’s rejection of Griggs’ Cochran-based challenge Griggs, citing Cochran, moved for a judgment of acquittal on all counts at the conclusion of the government’s case, at the conclusion of all the evidence, and after the jury had returned its verdict. The district court dismissed one of the mail fraud counts at issue (Count 51), 8 but rejected Griggs’ motions 8 In the project at issue in Count 51, the government’s evidence established (continued...) 38 with respect to the remaining counts at issue. c. Griggs’ challenge to the district court’s decision Griggs argues that “[t]he district court’s attempt to distinguish this case from Cochran fails.” Griggs Br. at 19. In support, Griggs asserts that “[i]n Cochran, the broker [defendant] provided an affirmative representation concerning the interest rate offered to OCAT.” Id. “The ‘quoted’ rate,” Griggs asserts, “was less than the ‘original’ rate the bank was willing to pay,” and “[t]hat ‘original’ rate had been reduced to cover the broker fee to the defendant[].” Id. at 19-20. “In this case,” Griggs argues, “the quoted rate for the cost of the subcontractors was higher than the amount actually paid to the subcontractor because the quoted amount included profit and overhead for DRI.” Id. at 20. “In other words,” he argues, “the ‘retail rate’ charged to the insurance company included the ‘wholesale rate’ paid to the subcontractors plus a markup for profit and overhead.” Id. He argues that “DRI’s estimates for the insurance companies accurately represented what DRI was charging for the work of the subcontractors but omitted disclosing the amount of the markup DRI was charging for that work.” Id. “In Cochran,” he argues, “the quoted rate to OCAT was what the bank was paying, but omitted disclosing that the bank had reduced the rate it was 8 (...continued) that DRI dealt exclusively with the property owner, Steve Rosen, who was acting as his own general contractor overseeing the repair of his property. In other words, DRI did not make any representations to Rosen’s insurance company. 39 willing to pay in order to cover the cost of the broker fee.” Id. Ultimately, Griggs argues that, “[s]ince it is not contested that DRI had no duty to disclose to the insurance companies, this case is controlled by the holding in Cochran.” Id. “Indeed,” Griggs argues, “the relationship between DRI and the insurance companies was much more arms-length than that between the broker and OCAT in Cochran.” Id. According to Griggs, “[u]nder these facts, DRI charging the insurance companies a retail price for the work of subcontractors without disclosing that the subcontractors were paid a wholesale amount, when there was no duty of disclosure, cannot be deemed a nondisclosure coupled with an affirmative misrepresentation which induced a false belief among the insurers.” Id. at 21. We reject Griggs’ arguments and conclude that the district court correctly distinguished this case from Cochran. The basis for the fraud charges in Cochran was the defendant’s nondisclosure of information to OCAT. Although the defendant in Cochran truthfully informed OCAT of the guaranteed interest rate it would receive from the bank, he failed to disclose to OCAT (a) the fact that the bank had originally offered a slightly higher guaranteed interest rate, (b) the fact that he and Stifel would be receiving a commission from the bank, and (c) the fact that the bank effectively paid for the commission by lowering slightly the amount of the guaranteed interest rate. The case at issue involving DRI, in contrast, involves more than the 40 nondisclosure of information. In each of the counts at issue, DRI submitted to an insurance company a written estimate that included one or more line items listing work to be performed by a subcontractor, along with a dollar amount and a phrase such as “per detailed breakdown,” “per invoice,” “actual cost . . . per invoice,” “per estimate,” or “per proposal.” This information was truthful only in the sense that the amount listed on the subcontractor line item matched one of the two invoices submitted by the subcontractor to DRI. What DRI’s estimate failed to inform the insurer, however, was that the matching invoice was generated by the subcontractor only at DRI’s request and solely for the purpose of hiding the fact that DRI was paying the subcontractor a lesser amount, and DRI was receiving the difference. By structuring its estimates and supporting documentation in this manner, DRI falsely suggested to the insurer that the amount listed on the subcontractor line item was the precise amount that DRI would be paying the subcontractor for its work. Thus, in sum, the case at hand did not involve a mere nondisclosure, but rather involved an affirmative representation combined with a related nondisclosure. Together, these affirmative acts coupled with material omissions resulted in the deceitful concealment of material facts from the insurers. Griggs also argues that, “[b]ecause one cannot be guilty of conspiring to do something that is not a crime, the failure of the government to present sufficient evidence of mail fraud means there is insufficient evidence to 41 sustain [his] conspiracy conviction.” Griggs Br. at 21. This argument, however, fails for the reasons outlined above, i.e., there was sufficient evidence to support his convictions for mail fraud. Finally, Griggs argues that criminalizing the conduct at issue in this case violates due process. Id. at 22. This argument, like his other Cochran-based argument, rests largely, if not exclusively, on the notion that the conduct at issue involved the mere nondisclosure of information. In particular, Griggs argues that criminalizing the conduct at issue in this case retroactively imposed a duty on him and his codefendants, as private individuals, to disclose information in private business transactions. Id. Griggs also argues that “typical commercial actors, such as the defendants in this case, could not have contemplated or appreciated the fine lines drawn by the district court.” Id. at 23. Consequently, he argues, “constitutional notice of what constituted criminal conduct was not provided,” and his convictions must therefore be reversed. Id. “[D]ue process requires citizens be given fair notice of what conduct is criminal.” United States v. Apollo Energies, Inc., 611 F.3d 679, 687 (10th Cir. 2010). “A criminal statute cannot be so vague that ‘ordinary people’ are uncertain of its meaning.” Id. (quoting Kolender v. Lawson, 461 U.S. 352, 357 (1983)). “As generally stated, the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not 42 encourage arbitrary and discriminatory enforcement.” Kolender, 461 U.S. at 357. The mail fraud statute Griggs was convicted of violating, 18 U.S.C. § 1341, makes it a crime to engage in a scheme or artifice to defraud or obtain money or property “by means of false or fraudulent pretenses, representations, or promises.” As the district court’s instructions in this case correctly informed the jury, a representation is “false” if it is known to be untrue or is made with reckless indifference as to its truth or falsity, and a representation is “false” when it constitutes a half truth, or effectively omits or conceals a material fact, provided it is made with intent to defraud. Tenth Circuit Pattern Jury Instructions, Criminal, § 2.56 (2011). Notably, Griggs does not appear to dispute that the mail fraud statute adequately placed him on notice that it was illegal to engage in a scheme or artifice to obtain money by means of false statements. Rather, his due process arguments appear to be confined to the mere nondisclosure of information. As we have explained, however, the government’s case against Griggs, Sharp and their codefendants did not rest on the mere nondisclosure of information. Rather, the government’s case focused on half-truths or representations that effectively omitted or concealed material facts. Moreover, it is worth noting that the manner in which Griggs and Sharp structured their system of subcontractor invoicing (requiring subcontractors to submit two invoices), combined with the manner in which DRI provided estimates to insurers (falsely implying that the amounts 43 listed for subcontractor work were the actual amounts to be paid by DRI to the subcontractors), clearly suggested that Griggs and Sharp knew that insurers would not, if they knew all of the facts, pay DRI the inflated subcontractor amounts listed on its estimates. Indeed, the government’s evidence established that Sharp told DRI employees during a meeting concerning this system of subcontractor invoicing “that if the insurance companies found out what we were doing, our life would end as we know it.” ROA at 130 (testimony of Greg Rye, former project manager at DRI). Consequently, we conclude there is no merit to Griggs’ due process arguments. 2-5. Incorporation of issues raised by Sharp In his second, third, fourth, and fifth issues on appeal, Griggs incorporates by reference four of the arguments asserted by Sharp: that the evidence presented at trial was insufficient to establish that he obtained money by false pretenses or representations; that the evidence presented at trial was insufficient to establish that the alleged omissions or misstatements were material; that the district court erred by refusing to instruct the jury that Griggs could be convicted on the basis of a material omission only if he had a duty to disclose the withheld fact; and that the district court erred by giving the jurors an Allen instruction after they indicated that they could not reach a unanimous verdict. Griggs Br. at 25-27. For the reasons we outlined in addressing Sharp’s appeal, we conclude that these issues lack merit. 44 6. Was the $500,000 fine imposed by the district court unreasonable? In his sixth and final issue on appeal, Griggs challenges the procedural and substantive reasonableness of the $500,000 fine that was imposed by the district court as part of his sentence. In particular, Griggs argues that the fine imposed in his case “is procedurally unreasonable because . . . the district court (1) failed to calculate the Guideline range fine, (2) failed to explain why it was necessary to deviate from the Guideline-range fine urged by the government or reject the $15,000 fine recommended in the PSI to accomplish its sentencing goal; [sic] (3) neither considered nor accounted for restitution of more than $477,000 that . . . Griggs was ordered to pay; and (4) did not consider the burden the fine placed on . . . Griggs’ wife and daughter who are dependent on him at a time the court also was imposing a 50-month term of imprisonment.” Griggs Br. at 32. Griggs also argues that the fine is substantively unreasonable for these same reasons. Id. at 36 (“The failings that render this fine procedurally unreasonable also make this fine substantively unreasonable and an abuse of discretion.”). a. Procedural background The presentence investigation report (PSR) recommended that a fine in the amount of $15,000 be imposed against Griggs. Griggs agreed with this recommendation. The government, however, objected to this recommendation and argued that a fine of $125,000, an amount at the top of the Guidelines range, 45 was warranted. At Griggs’ sentencing hearing, the government argued that Griggs had hidden assets during the course of the probation office’s presentence investigation. In particular, the government argued that Griggs “actively misled” the probation officer “about his current control and ownership of Restoration Logics,” a company that had taken over DRI’s business, “through his ownership and control of [a third entity called] JENMAR.” Griggs App. at 448. The district court agreed with the government on this point. In the course of pronouncing Griggs’ sentence, the district court found that the presentence investigation “[wa]s sort of a cat and mouse game” in which “Griggs did not come forward and disclose voluntarily all of his financial information.” Id. at 467. In particular, the district court noted that Griggs failed to provide information to the probation officer regarding a number of “assets and transfers that [were] made during the course of this case.” Id. at 468. This included, the district court noted, information regarding “the actual worth of Restoration Logistics, which bought out DRI,” “whether this was an asset sale or a stock sale,” “what purchase price was paid,” and how much Griggs received from the sale of DRI. Id. at 467. The district court also “f[ound] some of the representations that . . . Griggs made to the probation officer to be somewhat insincere and incredible.” Id. at 469. Ultimately, the district court found that there was an “attempt [by Griggs] to shelter assets from collection in anticipation 46 of imposition of a restitution amount and a forfeiture award and a fine.” Id. And Griggs’ actions in that regard, the district court stated, factored into its sentencing decisions. Id. The district court adopted most of the information contained in the PSR and found that Griggs’ “Total Offense Level [wa]s 27,” and his “Criminal History Category [was] I,” resulting in a guideline sentencing range “of 70 to 87 months, 1 to 3 years of supervised release on each count, a fine of $12,500 to $3,500,000, and a special assessment of $100 per count.” Id. at 463. The district court then imposed a below-Guidelines term of imprisonment of fifty months, “followed by 3 years of supervised release, a fine of $500,000, a restitution obligation of [$]477,643.49, . . . and a special assessment of $1,400.” Id. After imposing this sentence, the district court asked if “there [was] any need for clarification, further explanation, objection, or request for continuance?” Id. The prosecutor asked if the district court “could . . . make a record as to why that particular $500,000 [fine] number was chosen” since it was “above the guideline range.” Id. at 471. The district court responded: “The guideline range is $12,500 to 3,500,000.” Id. The prosecutor then stated, “The top end of that range that you cited is the statutory maximum allowed by the counts of conviction,” but “the guideline range . . . for an offense category of 27 47 is $12,500 to $125,000.” 9 Id. The district court responded, “This is a variant sentence.” Id. at 472. Pursuant to the prosecutor’s request, the district court then specified its reasons for imposing a fine that varied from the Guidelines range: I carefully studied the financial information that was contained in the presentence report, that which was supplied, including the income that was reported by Mr. Griggs over years 2006 through 2011. 2006, it was $696,000; 2007, $292,000; 2008, $385,000; 2009, $174,000; 2010, $358,000; and 2011, $273,000. Given that amount of income and the relatively small number of assets that are reflected in the presentence report, I believe both that Mr. Griggs has a capacity to earn money, and I suspect that the disclosure of the assets that were acquired during that time is not accurate or complete. Id. Immediately following its explanation, the district court asked Griggs’ counsel if he had any response. Id. at 473. Griggs’ counsel responded: Of course, Your Honor, we continue and persist in the position that the fine should be imposed within the fine range, especially given that the counts were grouped in this case. We understand the Court’s ruling. I think our position is already made known and clear in the record. But we think the fine at the level announced by the Court is inappropriate and that the fine should be 9 A review of the record suggests that the district court’s misunderstanding of the guideline fine range derived from the original and revised PSRs, both of which stated erroneously that “[t]he fine range is from $12,500 to $3,500,000, pursuant to §5E1.2(c)(3).” Dist. Ct. Docket Nos. 1530 and 1558 at ¶ 110. Notably, neither Griggs nor the government objected to this portion of either PSR. Thus, it was not until the time of sentencing that the prosecutor brought this error to the district court’s attention. 48 imposed within the guideline range. Id. The district court then asked, “Even though this is a variant sentence?” Id. Griggs’ counsel responded, “I understand that it’s a variant sentence, but it’s not on the Government’s motion. And I think I’ve made my record.” Id.
Generally speaking, we review sentences, including fines, for reasonableness under a deferential abuse-of-discretion standard. See United States v. Vigil, 644 F.3d 1114, 1123 (10th Cir. 2011). “Reasonableness review is a two-step process comprising a procedural and a substantive component.” United States v. Friedman, 554 F.3d 1301, 1307 (10th Cir. 2009) (internal quotation marks omitted). “Procedural reasonableness involves using the proper method to calculate the [fine].” United States v. Conlan, 500 F.3d 1167, 1169 (10th Cir. 2007). Substantive reasonableness, in contrast, involves whether the amount of the fine at issue is reasonable given all the circumstances of the case in light of the statutory and Guidelines factors. See generally United States v. Sayad, 589 F.3d 1110, 1116 (10th Cir. 2009). The government argues, however, and we agree, that plain error review applies to Griggs’ challenges to the procedural reasonableness of the fine imposed by the district court. As outlined above, Griggs’ counsel argued only that the fine was “inappropriate” and should fall “within the guideline range.” App. at 473. Nothing about these general objections was sufficient to alert the 49 district court to the more-specific procedural objections that Griggs now asserts on appeal. Accordingly, we conclude that Griggs’ objections to the procedural reasonableness of his fine are unpreserved and thus subject to review only for plain error. See United States v. Romero, 491 F.3d 1173, 1177-78 (10th Cir. 2007). “We find plain error only when there is (1) error, (2) that is plain, (3) which affects substantial rights, and (4) which seriously affects the fairness, integrity, or public reputation of judicial proceedings.” Id. at 1178.
Griggs’ first two procedural challenges, i.e., that the district court failed to calculate the Guidelines range for the fine and failed to explain its reasons for deviating from the Guidelines range, are without merit. Although the PSR misstated the upper end of the Guidelines fine range, neither party objected to that error. Thus, it was not until the time of sentencing, when the district court expressly adopted the Guidelines fine range stated in the PSR, that the prosecutor realized the error and brought it to the attention of the district court. The district court in turn recognized the error and thus effectively adopted the proper Guidelines fine range as outlined by the prosecutor. The district court also, at the urging of the prosecutor, explained its reasons for imposing a fine that varied above the Guidelines range. Consequently, there was no procedural error in this regard, and thus no plain error. Griggs’ latter two procedural arguments also lack merit. To be sure, 50 the district court did not expressly discuss the interplay of the restitution and fine that it imposed, nor did it discuss any potential burden the fine might place on Griggs’ wife and daughter. But the district court did, in explaining its reasons for imposing an above-Guidelines-range fine, find that Griggs had hidden assets from the probation office, or at least effectively prevented the probation office from discovering substantial assets. As a result of this conduct, the district court clearly concluded that both restitution and a substantial fine were appropriate and warranted. Notably, Griggs makes no effort to challenge the district court’s finding on this point. Consequently, he has failed to establish that any error on the part of the district court affected his substantial rights, or otherwise seriously affected the fairness, integrity, or public reputation of the judicial proceedings. Having concluded that the district court’s sentencing decision was “procedurally sound” under the plain error standard of review, we are left to “consider the substantive reasonableness of the [fine] imposed under an abuse-ofdiscretion standard.” Gall v. United States, 552 U.S. 38, 51 (2007). In doing so, we must “take into account the totality of the circumstances, including the extent of any variance from the Guidelines range.” Id. Because the fine in this case “is outside the Guidelines range,” we “must give due deference to the district court’s decision that the § 3553(a) factors, on a whole, justify the extent of the variance.” Id. The extent of the variance of the fine imposed in this case was, to be 51 sure, substantial. Although the upper end of the Guidelines range fine was $125,000, the district court concluded that a fine four times greater than the upper end of the Guidelines range, i.e., $500,000, was warranted based upon its findings that Griggs attempted to conceal assets from the probation office during its presentence investigation. The question for us is whether, giving due deference to the district court’s decision, the circumstances of this case, including Griggs’ conduct during the presentence investigation, justified the extent of the variance. Two of the Application Notes to U.S.S.G. § 5E1.2 provide useful guidance in making our determination. To begin with, Application Note 4 provides that a significant amount of loss may justify a fine that exceeds the Guidelines range: The [Sentencing] Commission envisions that for most defendants, the maximum of the guideline fine range from subsection (c) will be at least twice the amount of gain or loss resulting from the offense. Where, however, two times either the amount of gain to the defendant or the amount of loss caused by the offense exceeds the maximum of the fine guideline, an upward departure from the fine guideline may be warranted. Moreover, where a sentence within the applicable fine guideline range would not be sufficient to ensure both the disgorgement of any gain from the offense that otherwise would not be disgorged (e.g., by restitution or forfeiture) and an adequate punitive fine, an upward departure from the fine guideline range may be warranted. U.S.S.G. § 5E1.2, cmt. n.4. In this case, it was undisputed that the amount 52 of loss caused by Griggs’ conduct was $477,643.49. Because “two times” this amount of loss ($955,286.98) greatly “exceeds the maximum of the fine guideline” ($125,000), this is, without question, a case where it was appropriate for the district court to consider “an upward departure” or variance “from the fine guideline range.” Id. Application Note 6 also provides that “[t]he existence of income or assets that the defendant failed to disclose may justify a larger fine than that which otherwise would be warranted under this section.” U.S.S.G. § 5E1.2, cmt. n.6. That certainly captures the situation before us. As we have noted, the district court expressly found that Griggs concealed assets from the probation office during the course of its presentence investigation. And Griggs, though now challenging the amount of the fine imposed, makes no attempt to challenge the district court’s findings regarding his concealment of assets. We are persuaded from reviewing the transcript of the sentencing hearing that the district court’s decision to impose a $500,000 fine on Griggs was consistent with Application Notes 4 and 6. Not only was the district court well aware of the amount of loss at issue, it expressly emphasized, and expressed displeasure with, Griggs’ efforts to conceal assets during the presentence investigation. And it was this latter factor that the district court mentioned when asked by government counsel to explain its reasons for varying upward from the Guidelines range. 53 The only potentially unusual factor in this case, and the one that appears to concern the dissent, was the district court’s decision, when informed by the government that the upper end of the Guidelines range was $125,000 rather than $3,500,000, to stick with the amount of the fine that it originally selected and vary upwards from the Guidelines range. We are not persuaded, however, that this circumstance renders the amount of the fine “arbitrary, capricious, whimsical, or manifestly unreasonable.” United States v. Naramor, 726 F.3d 1160, 1171 (10th Cir. 2013) (internal quotation marks omitted). To the contrary, we are convinced that the district court in this case carefully selected the amount of the fine — approximately equal to the amount of the loss associated with Griggs’ offense — both to ensure the disgorgement of any gain from the offense and to ensure that Griggs was adequately punished for his offense and for his concealment of assets during the presentence investigation. Thus, in sum, we conclude that the amount of the fine imposed by the district court was substantively reasonable.