Court Opinion

ID: 2978922
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:33:15.852353+00
Date Added: 2024-06-11T15:41:05.917666
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                            Pursuant to Sixth Circuit Rule 206
                                   File Name: 10a0033p.06

               UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                 _________________

                                                  X
                           Plaintiff-Appellee, -
 UNITED STATES OF AMERICA,
                                                   -
                                                   -
                                                   -
                                                       No. 06-6397
          v.
                                                   ,
                                                    >
                                                   -
                         Defendant-Appellant. -
 CHARLES WILLIAM JOHNSTON,
                                                   -
                                                  N
                    Appeal from the United States District Court
                 for the Eastern District of Kentucky at Lexington.
             No. 05-00038—Jennifer B. Coffman, Chief District Judge.
                               Submitted: January 13, 2010
                         Decided and Filed: February 11, 2010
           Before: SUHRHEINRICH, COLE, and GILMAN, Circuit Judges.

                                   _________________

                                        COUNSEL
ON BRIEF: Gerald L. Gulley, Jr., GULLEY OLDHAM PLLC, Knoxville, Tennessee, for
Appellant. Charles P. Wisdom, Jr., Kenneth R. Taylor, ASSISTANT UNITED STATES
ATTORNEY, Lexington, Kentucky, for Appellee.
                                   _________________

                                        OPINION
                                   _________________

        RONALD LEE GILMAN, Circuit Judge. Charles William Johnston pled guilty to
mail fraud in connection with a fraudulent insurance scheme. Pursuant to the terms of his
plea agreement, Johnston was sentenced to 25 months in prison and ordered to pay
$1,000,000 in restitution. After Johnston failed to pay any of the restitution amount by the
deadline provided in the plea agreement, the government filed a motion to resentence him
pursuant to 18 U.S.C. § 3614. Finding that Johnston’s total failure to pay restitution by the
deadline was willful, the district court resentenced him to 51 months in prison and ordered

                                             1
No. 06-6397          United States v. Johnston                                         Page 2

him to pay restitution for the full amount of the loss, jointly and severally with two of his
codefendants, in excess of $6,600,000.

        Johnston argues on appeal that the district court’s willfulness finding was in error.
For the reasons set forth below, we AFFIRM the judgment of the district court.

                                    I. BACKGROUND

A.      Plea agreement

        In May 2005, Johnston was indicted along with four other defendants for
perpetrating a fraudulent insurance scheme. Johnston pled guilty to one count of mail fraud,
in violation of 18 U.S.C. § 1341. In return for his cooperation, he was relieved of joint and
several liability with his codefendants for the full amount of the loss, which was in excess
of $6,600,000. Instead, Johnston was sentenced in September 2005 to 25 months in prison
and was ordered to pay $1,000,000 in restitution in a lump sum due on November 9, 2005.
Johnston represented to the government that his net worth at the time was in excess of
$3,000,000.

B.      Evidentiary hearing

        By March 2006, Johnston had paid nothing toward the restitution amount, leading
the government to file a motion to resentence Johnston for willful failure to pay. The district
court then held an evidentiary hearing to determine whether Johnston’s failure to pay
restitution was in fact willful.

        During the hearing, various witnesses testified as to Johnston’s financial affairs.
Thomas Lee Gentry, the former chief of the Financial Litigation Unit within the United
States Attorney’s Office in Lexington, Kentucky, testified that he had previously deposed
Johnston’s wife, Margie, and Johnston’s son, Jeremiah. According to Gentry, Johnston’s
family owned various assets, including several automobiles, commercial real estate, and
rental properties, and they considered these assets to be “fungible within the family.” He
also noted that the family owned several profit-generating businesses, including multiple
Quiznos (fast food) and Jackson Hewitt (tax preparation) franchises, as well as an accounting
firm known as J and J Accounting. Gentry remarked that there was no evidence of any
No. 06-6397          United States v. Johnston                                            Page 3

efforts by Johnston or his family to liquidate these assets to pay his restitution obligation, and
that the family “seem[ed] to be acquiring assets rather than disposing of them.”

        Next, Johnston testified on his own behalf. He stated that, at the time of the plea
agreement, he had intended to pay the full amount of his restitution obligation. To further
this aim, Johnston said that he had attempted to obtain a loan from the Small Business
Association (SBA) and had hired a broker to help him value his Jackson Hewitt franchises.
Johnston testified that although the broker valued the franchises at $2,000,000, no potential
buyer was willing to pay more than $800,000. He added that he subsequently received an
offer to sell back his Jackson Hewitt franchises to the franchisor for $300,000, but this was
before Jackson Hewitt learned of Johnston’s felony conviction. At that point, Jackson
Hewitt withdrew its name from the franchises and made no further offer.

        Following Johnston’s testimony, David Rheinecker testified regarding a commercial-
loan business that he had started with Johnston in the months leading up to Johnston’s
indictment. On the eve of Johnston’s sentencing, Rheinecker submitted a letter to the court
stating that Johnston had “completed sale of his Jackson Hewitt franchises,” and that the
parties were waiting on an SBA loan that Rheinecker expected to close within 60 days of the
date of the letter. Rheinecker said that although he believed the letter to be accurate when
it was written, he later came to believe that it “was used to assure the prosecutor or the Court
that the plea agreement was valid.” He added that Johnston could have obtained a
$1,000,000 loan but, contrary to Rheinecker’s advice, Johnston elected to turn it down.

        According to Rheinecker, Johnston delayed accepting any loan until after Jackson
Hewitt had withdrawn its name from Johnston’s franchises, a move that significantly reduced
their value. He speculated that Johnston did not want to close the loan because there was a
debt against the Jackson Hewitt franchises that had not been disclosed to a potential third-
party lender. Rheinecker also noted that he brokered a real estate refinancing in August
2005 that netted Johnston $73,000, but he was unaware of how those proceeds were used.

        William Burford, an accounting-practices sales agent, was the next witness to testify
regarding his business dealings with Johnston. Burford stated that in the months following
Johnston’s sentencing, he helped sell two of Johnston’s businesses. Burford stated that he
attempted to sell a third business of Johnston’s, but “had difficulty” obtaining the
No. 06-6397         United States v. Johnston                                          Page 4

information he needed from Johnston. Despite this difficulty, Burford testified that he
believed Johnston was making “a genuine attempt” to sell the business. Burford added that
he also tried to obtain a loan on behalf of the Johnstons, but did not have the “cooperation
level” he needed from Jeremiah Johnston to secure the loan.

        Heidi McNeil, the general manager for Johnston’s J and J Accounting business, was
the last person to testify. McNeil stated that she acted as an intermediary for the business
negotiations between Johnston and Rheinecker, and that Johnston had requested her to
contact Burford regarding a loan because Rheinecker was acting too slowly. According to
McNeil, Johnston knew in the spring of 2005 that the Jackson Hewitt franchises could not
remain in Johnston’s name because he was soon to become a convicted felon.

        McNeil further testified that all of the proceeds from the sales of Johnston’s
businesses that Burford had helped arrange were used to pay employees, rent, and other
overhead costs, as well as to pay off debt. She also stated that both she and Jeremiah
possessed powers of attorney that authorized them to conduct Johnston’s financial affairs
while he was in prison.

        At the conclusion of the hearing, the district court found that Johnston had “willfully
failed and refused to pay” his restitution obligation. To support this finding, the court noted
that Johnston had held on to his Jackson Hewitt franchises despite his knowledge that the
franchises would lose significant value once Jackson Hewitt learned of Johnston’s felony
conviction. The court then determined that Johnston had used Rheinecker and their joint
commercial-loan business to give the appearance that Johnston was about to obtain an SBA
loan, and it found that Rheinecker’s letter to the court contained false statements and was
written with Johnston’s knowledge and consent. It further rejected Johnston’s claim that his
imprisonment had hindered his efforts to pay restitution, pointing out that Johnston gave
McNeil and Jeremiah powers of attorney and that Johnston had made several telephone calls
from prison. Asserting that Johnston’s willfulness was not a “close question,” it concluded
that Johnston had attempted to “play the Government and the Court like a fiddle from the
beginning” of the case.
No. 06-6397          United States v. Johnston                                         Page 5

C.      Resentencing

        Johnston was resentenced in October 2006. By this time, two of Johnston’s
codefendants, one of whom had negotiated a plea agreement and another who was convicted
by a jury, had paid close to $4,000,000 of the $6,635,054.18 owed in total restitution. (The
remaining two codefendants were not ordered to pay restitution.) The court noted that one
of the codefendants “promptly” paid a lump sum of $500,000, and that the government had
seized $3,000,000 to $4,000,0000 of the other’s assets. In contrast, Johnston had paid only
$14,000, all coming in after the evidentiary hearing but before his resentencing. Based on
its findings during the evidentiary hearing, the district court increased Johnston’s sentence
to 51 months in prison and ordered that he be jointly and severably liable, along with two
of his codefendants, for the full balance of the restitution owed.

                                      II. ANALYSIS

A.      Standard of review

        Johnston’s sole challenge on appeal is to the district court’s finding that his failure
to pay restitution was willful. This court reviews a district court’s factual findings in
connection with a sentencing under the clear-error standard. United States v. Jeross, 521
F.3d 562, 569 (6th Cir. 2008). A district court’s decision is clearly erroneous “where, having
reviewed all of the evidence, we are left with the definite and firm conviction that a mistake
has been made.” Id.

B.      Discussion

        The district court increased the restitution amount Johnston owes pursuant to
18 U.S.C. § 3614. Under that statute, where a defendant “knowingly fails” to pay restitution,
a court “may resentence the defendant to any sentence which might originally have been
imposed.” 18 U.S.C. § 3614(a). Such resentencing is permissible where a restitution debtor
has “willfully refused to pay or failed to make sufficient bona fide efforts legally to acquire
the resources to pay.” Bearden v. Georgia, 461 U.S. 660, 672 (1983).
No. 06-6397         United States v. Johnston                                            Page 6

        This court addressed a similar resentencing for failure to satisfy a restitution
obligation on one other occasion, in United States v. Menichino, 103 F. App’x 884 (6th Cir.
2004). There, Menichino had set up a “sham” trust while on supervised release and, despite
hundreds of thousands of dollars flowing through the trust’s accounts, had paid only $7,000
of his $300,000 restitution obligation. Id. at 885-86. The court affirmed the district court’s
finding of willfulness because Menichino “had been intentionally obscuring his financial
condition,” with the trust merely “provid[ing] a cover for Menichino’s activities involving
hundreds of thousands of dollars.” Id. at 887. Similarly, the Eighth Circuit found
willfulness to exist where a restitution debtor engaged in deceptive and misleading behavior.
See United States v. Montgomery, 532 F.3d 811, 814 (8th Cir. 2008) (affirming the district
court’s finding of wilfulness where Montgomery exhibited a “history of manipulation,”
including the making of various excuses as to why she was unable to maintain steady
employment, and had made payments towards her restitution obligation only in miniscule
amounts when she was employed).

        Johnston’s conduct was likewise misleading. As the district court noted, Rheinecker,
with Johnston’s knowledge and consent, wrote a letter to the court containing “false
statements,” including the misrepresentation that Johnston was about to obtain an SBA loan.
The court further found that Johnston’s dealings with Rheinecker in general were “designed
to make it look as though the loan was going to take place.” Moreover, Johnston failed to
disclose prior to sentencing that he, as a convicted felon, would be unable to retain his
Jackson Hewitt franchises and that his tax-preparation business would depreciate in value
as a result.

        In addition to the district court’s reliance on the above facts in its stated reasons for
the willfulness finding, further evidence presented at the evidentiary hearing supports the
court’s conclusion. The Johnston family had numerous assets, for example, including
automobiles, commercial real estate, and rental properties, but instead of liquidating these
assets, they appeared to be acquiring new ones. Johnston also turned down an $800,000
offer for his Jackson Hewitt franchises, and he used the proceeds from the sale of some of
his other businesses to pay off his own debt rather than to make restitution. And unlike the
No. 06-6397         United States v. Johnston                                         Page 7

restitution debtors in Menichino and Montgomery, and also unlike his two codefendants who
were ordered to pay restitution, Johnston made no payments at all until after his evidentiary
hearing. Johnston contended at the evidentiary hearing that he was unaware of any
opportunity to make partial payments, but there is no evidence that he made any effort to
verify this belief or to request an extension of the payment deadline. See United States v.
Reid, 275 F. App’x 911, 914 (11th Cir. 2008) (faulting a restitution debtor for not contacting
his probation officer “to discuss his financial difficulties and request a different payment
schedule”).

        To support his argument that the willfulness finding was erroneous, Johnston claims
that his efforts to pay were “frustrated by events and acts beyond his control.” He
emphasizes his attempt to obtain an SBA loan as well as his efforts to sell his Jackson Hewitt
franchises prior to the termination of his franchise rights. And he maintains that although
other businesses he owned were generating money while he was in prison, the funds had to
be used to pay employees, rent, and overhead expenses, leaving nothing to pay toward his
restitution obligation. None of these points are persuasive, however, because they do not
refute the district court’s factual findings evidencing Johnston’s deception and manipulation
regarding his finances. We therefore conclude that the district court’s wilfulness finding was
not clearly erroneous.

                                   III. CONCLUSION

        For all of the reasons set forth above, we AFFIRM the judgment of the district court.