Court Opinion

ID: 2716433
Source: CourtListenerOpinion
Date Created: 2014-08-08 16:00:38.186621+00
Date Added: 2024-06-11T13:26:59.117301
License: Public Domain

United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 13-3217
                         ___________________________

                             United States of America

                        lllllllllllllllllllll Plaintiff - Appellee

                                           v.

                                Rodney W. Callaway

                       lllllllllllllllllllll Defendant - Appellant
                                       ____________

                     Appeal from United States District Court
                for the Western District of Arkansas - Fayetteville
                                 ____________

                              Submitted: June 13, 2014
                               Filed: August 8, 2014
                                  ____________

Before MURPHY, COLLOTON, and KELLY, Circuit Judges.
                         ____________

MURPHY, Circuit Judge

       Rodney Callaway was convicted of ten counts of wire fraud and one count of
mail fraud for obtaining from his disabled cousin some $300,000 through a fraudulent
scheme. The district court1 sentenced Callaway to 71 months imprisonment and
imposed a $25,000 fine. Callaway appeals. We affirm.

      1
      The Honorable Jimm Larry Hendren, United States District Judge for the
Western District of Arkansas.
                                          I.

       Rodney Callaway was charged in October 2012 with ten counts of wire fraud
and one count of mail fraud for defrauding his cousin Irene Bryant of $300,000 she
had received from a negligence and abuse suit against a nursing home. A trial was
held in January and February 2013, which established the following record.

       Callaway was contacted in June 2005 by his first cousin, Sharon Carter, who
sought his advice on investing $300,000 in settlement money her sister, Irene Bryant,
had received in a negligence and abuse suit against a nursing home. Carter had begun
caring for the sister and had obtained power of attorney to handle her affairs after
Bryant suffered a massive stroke in 2002 which paralyzed her on the right side. In
addition to paralysis, Bryant suffers from deafness and expressive aphasia, a condition
which makes her unable to speak despite knowing what she wants to say. Carter
worried that the $300,000 would not pay for all of the care Bryant would need. She
contacted Callaway for investment advice both because he was a family member and
because he had told her he was an experienced, successful asset manager. Callaway
did in fact own and control a Georgia investment firm, Heritage Corner Ltd.

       Callaway advised Carter to loan Bryant's money to the Environmental
Protection of Asia Foundation, a charitable humanitarian and environmental
organization. He claimed he was a trustee of the foundation and a business partner of
its chairman, whom he claimed he met while performing military service in Vietnam.
Callaway promised Carter a 12% return on the loan, which could be received as a
payment or reinvested in the foundation on June 30, the end of the foundation's fiscal
year. He also promised that funds could be withdrawn in any amount at any time
upon 30 days notice. Callaway assured Carter that his own money was invested in the
account and that Bryant's funds would "piggyback" onto his own. Carter decided to
follow Callaway's advice. After signing an agreement Callaway faxed to her, she
wired $300,000 from Bryant's account in Arkansas to the Heritage Corner account in
Georgia. Callaway did not lend the money to the foundation as promised, however,

                                         -2-
but converted it to his own personal use, primarily by paying the balances due on his
credit cards.

        In June 2006 Callaway sent a $36,000 payment to Bryant, falsely representing
that it was interest earned on the $300,000 she gave him to invest in the foundation.
Carter later contacted Callaway in December about an early withdrawal of the funds,
but Callaway put her off, indicating that he did not want to think about business over
the holidays. When Carter again approached Callaway about an early withdrawal in
early January 2007, he told her that he would face a huge penalty if her funds were
withdrawn because they were piggybacked with his. Carter decided to wait until the
end of fiscal year disbursement and called Callaway at the end of June to verify that
Bryant would receive a $36,000 interest payment as promised. Although Callaway
indicated there would be a delay, he confirmed that the funds would be sent in a few
days. After a month passed without a payment, Carter told Callaway the money was
needed for Bryant's care. Callaway sent Bryant $5,000 on August 2, promising that
the rest of the funds would also arrive soon.

      After Callaway failed to send Carter the remaining $31,000 he promised, Carter
informed him in a September 4 email that the Medicare Recovery Unit was
demanding payment for Bryant's care. She told him that if he did not send the
payment by September 21, she would refer the matter to an attorney. She also sent
Callaway a letter the same day requesting reimbursement of all funds with interest
from July 2006. Callaway claimed in a reply email that he would pay her $50,000 on
September 21 and the remaining funds on or after October 2. He again failed to make
any payments, however.

      Carter began to call Callaway every week from October 2007 to September
2009 seeking funds. At first Callaway only made promises and excuses for missed
deadlines. Then in November 2007 he sent Bryant $5,000 after Carter told him it was
desperately needed to pay Bryant's medical expenses. He sent another $1,000 in
December after Carter told him Bryant had suffered a stress fracture and needed to

                                         -3-
buy a brace. In February 2008 he sent $1,500 to pay for dental care to Bryant's broken
tooth and then $5,300 more for dental work as well as Bryant's rent after Carter was
delinquent on her mortgage payment. Callaway then sent $50,000 in April for
Bryant's medicare bill and $25,000 in July 2008 for her hospital bill when he learned
that Bryant would be sued if her delinquent accounts were not paid.

      Carter filed complaints against Callaway with the Georgia Securities
Department in the Fall of 2008 and with the Arkansas Securities Department, the IRS,
the SEC, and the FBI in 2009. Callaway sent Carter a $10,000 check in June 2009 in
response to her warning that it was necessary to keep Bryant in her assisted living
home. As late as November 2009 Callaway continued to make false statements
purportedly explaining why he was unable to return all of Bryant's funds.

       In February 2013, Callaway was represented at trial by a federal public
defender, and a jury found him guilty of ten counts of wire fraud and one count of
mail fraud. The presentence report stated that Callaway had told an FBI special agent
that he stopped making payments to Carter because he believed she was using the
money to send her "spoiled grandson" to college rather than to provide for Bryant's
care. Carter declared in her victim impact statement that her grandson had in fact
postponed going to college in order to help her care for Bryant after Callaway failed
to reimburse Bryant. Callaway also told the special agent that he had incurred much
of his credit card debt by charging trips he made to the Philippines on behalf of the
Environmental Protection of Asia Foundation. He explained that he believed keeping
Bryant's money instead of loaning it to the foundation was apparent return for his
uncompensated efforts on the foundation's behalf.

       Callaway's presentence report identified a base offense level of 7. It added 12
levels for the total loss amount, which it determined to be $300,000 based on the "total
amount of loan funds fraudulently diverted." It added another 2 levels because
Callaway had represented to Bryant that he worked for the Environmental Protection
of Asia Foundation, a charitable organization. Although it recommended no

                                          -4-
adjustment for an offense involving a vulnerable victim, it recommended a 2 level
enhancement for abuse of a position of trust. The final offense level calculated in the
report was 23. The government objected that a 2 level enhancement for victim
vulnerability should be applied under United States Sentencing Guideline §
3A1.1(b)(1). Callaway objected to the abuse of trust enhancement, but not the
calculated amount of loss.

        The presentence report also indicated that the fine range for Callaway's offense
was $10,000 to $100,000. Callaway's assets were listed at just over $150,000 and his
liabilities at $1.54 million, including nearly $1.3 million in civil judgments stemming
from his fraud. His income from retirement, social security, and military disability is
$4873 a month, a few hundred dollars more than his expenses. The report concluded
that "[i]t is believed he can make payments toward a fine and restitution as he is
capable of working and earning an income." After noting Callaway's declaration that
he would lose his social security and military disability benefits if he were
incarcerated, the report stated that "[i]f incarcerated, defendant could work and make
payments toward a fine/restitution through the Bureau of Prisons Inmate Financial
Responsibility Program."

       Callaway was sentenced in August 2013. The parties agreed at the sentencing
hearing on a restitution amount of $228,582. The government argued for a
vulnerability enhancement on the basis that Callaway knew Bryant was vulnerable and
relied on others to protect her interests. Callaway objected that Bryant's interests were
being protected by Carter, who had experience in the nursing home business and ran
her own bed and breakfast. He contended that with Bryant's power of attorney, Carter
had a fiduciary duty to manage her funds. The district court found that Callaway knew
that Bryant was vulnerable and that she relied on the funds he had taken from her,
adding that Callaway also knew the funds had come from a lawsuit over neglect
Bryant had suffered at a nursing home. It rejected Callaway's argument that Carter's
involvement shielded him from the vulnerable victim enhancement. The district court
also rejected Callaway's argument that he had not abused a position of trust when

                                          -5-
carrying out the fraud, finding that he had held himself out to Carter as a business
consultant and asset manager.

       The district court added 2 levels for a vulnerable victim to Callaway's offense
level, bringing the total to 25. Given a criminal history category of I, the resulting
guideline range for sentencing was 57 to 71 months imprisonment, while the fine
range was $10,000 to $100,000. The government asserted that an upward variance
from this range was appropriate because of the serious harm Callaway had caused.
Callaway sought a downward variance, citing his heart condition, diabetes, and high
blood pressure, as well as his history of decorated military service. Callaway also
asked the court not to impose a fine. He noted that he was already obliged to pay
restitution as well as civil judgments and that much of his limited income would be
lost during his incarceration.

       The district court sentenced Callaway to 71 months for each of the 11 counts,
to be served concurrently, and imposed a $25,000 fine over his objection. The district
court noted Bryant's need for the funds and the fact that Callaway should have
returned them immediately but did not. It considered Callaway's health problems and
military service but found that the former were ordinary for a person his age and
controlled by medication. While his military service was honorable, it did not "give
[him] a pass to steal and defraud helpless women." The court pointed out that the fine
was at the low end of the recommended range and that there was no reason why
Callaway could not return to earning "relatively large sums of money" in the future.
Callaway appeals his sentence, challenging both its procedural and substantive
reasonableness.

                                         II.

      Sentences are reviewed first for procedural error and then for substantive
reasonableness. United States v. Dengler, 695 F.3d 736, 739 (8th Cir. 2012). When
analyzing a sentence for procedural error, we review a district court's interpretation

                                         -6-
and application of the guidelines de novo and its factual findings, including its
calculation of loss amounts, for clear error. Id.; see also United States v. Jenkins-
Watts, 574 F.3d 950, 961 (8th Cir. 2009). Procedural errors not objected to at
sentencing are reviewed for plain error, however. United States v. Rice, 699 F.3d
1043, 1049 (8th Cir. 2012). To establish plain error a defendant must show an error
that is plain and that affects substantial rights. Id. We have discretion to correct plain
error "'only if it seriously affects the fairness, integrity, or public reputation of judicial
proceedings.'" Id. (quoting United States v. Phelps, 536 F.3d 862, 865 (8th Cir.
2008)).

       Callaway asserts that the district court committed procedural error by applying
a 12 level enhancement for the total loss amount. He contends the court should have
credited over $100,000 repaid to Bryant against the loss amount, reducing the total
loss to $197,200 that would have resulted in an enhancement of 10 levels rather than
12. Because Callaway failed to object at sentencing to the district court's loss
calculation, we review it for plain error. See Rice, 699 F.3d at 1049.

       The guidelines instruct that loss amount "is the greater of actual loss or intended
loss." U.S.S.G. § 2B1.1 cmt. 3(A). Actual loss is the "reasonably foreseeable
pecuniary harm that resulted from the offense," while intended loss is "the pecuniary
harm that was intended to result." Id. cmt. 3(A)(i)–(ii). Sentencing courts have
typically focused on intended loss rather than actual loss because "actual loss normally
includes credit for repayments received prior to discovery of the crime." United States
v. Hartstein, 500 F.3d 790, 798 (8th Cir. 2007). Intended loss is based on "a
defendant's actual, subjective intent," id., but is not to be confused with "good
intentions." The Seventh Circuit has pointed out that while "the author of a Ponzi
scheme might not intend that any of his investors lose anything . . . [and] that the
scheme [would] continue until the end of the world," that does not excuse his fraud.
United States v. Lauer, 148 F.3d 766, 767 (7th Cir. 1998). We have agreed,
concluding that "when a defendant's only subjective intent regarding payments relates
to [the] illegal purpose of perpetuating the [fraudulent] scheme, a sentencing court

                                             -7-
may refuse to credit repayments against sums received from the victims." Hartstein,
500 F.3d at 800 (citing Lauer, 148 F.3d at 767).

       The record shows that Callaway intended to defraud Bryant of the full $300,000
he took from her and that any payments he made to her were intended to keep Carter
from discovering the fraud. Callaway sent the first $36,000 to Carter under the pretext
that it was an interest payment promised under the agreement, an act that was
necessary to give his scheme a veneer of legitimacy. He sent the next payment more
than a year later, after Carter told him it was critically necessary for Bryant's care. He
made subsequent payments only after Carter's September 4, 2007 letter threatening to
contact an attorney if he did not meet his payment obligations. Even then, he paid
only when repeatedly confronted with Bryant's desperate medical needs or threats of
legal action by third parties, either of which could have foreseeably led to discovery
of the scheme. In addition, Callaway showed no remorse in his interview with a
special agent, telling him he had taken Bryant's money to "pay himself back" for
contributions he allegedly made to the same foundation in which he had promised to
invest Bryant's money and also accusing Carter of spending the money on her "brat"
of a grandson. On this record, we conclude that the district court did not err in
calculating the loss amount at $300,000 or in applying a 12 level increase for it.

       Callaway also asserts that the district court committed procedural error by
applying the 2 level vulnerable victim penalty. A 2 level enhancement for a
vulnerable victim is appropriate "if the defendant knew or should have known that a
victim of the offense was a vulnerable victim." U.S.S.G. § 3A1.1(b)(1). A vulnerable
victim is "a person (A) who is a victim of the offense . . . and (B) who is unusually
vulnerable due to age, [or] physical or mental condition." Id. cmt. 2. Callaway argues
that the vulnerable victim enhancement is inappropriate in his case because the
government failed to prove that a "nexus" existed between Bryant's vulnerability and
his crime's success. He asserts that no such nexus could be proven because he had not
targeted Bryant and because Carter had represented her financial interests. The
Sentencing Commission has eliminated the nexus requirement, however, by amending

                                           -8-
§ 3A1.1 and striking a note requiring that the defendant have targeted his victim
because of her vulnerability. See United States v. Anderson, 349 F.3d 568, 572 (8th
Cir. 2003). The government need only to show that Callaway "knew or should have
known of [Bryant's] unusual vulnerability.'" Id.

       The record amply demonstrates Bryant's unusual vulnerability. She is deaf,
paralyzed on the right side by a stroke, unable to speak despite knowing what she
wants to say, unable to live by herself, and dependant on paid care provided by a
nursing home. In fact, this case arose because Bryant needed to invest settlement
money from her negligence suit against a nursing home to provide for her future care.
The fact that she had to turn to her sister to make an investment and to collect on it is
further evidence of her need to rely on others for basic care. Callaway became aware
of her vulnerability when Carter approached him for advice on investments that would
pay for her sister's care. Callaway also knew that Bryant was growing increasingly
vulnerable because he had taken for himself the money she had entrusted to him for
that purpose. It is thus plain from the record that Callaway knew of Bryant's unusual
vulnerability, and the district court did not err in applying a 2 level enhancement for
victim vulnerability.

        Callaway argues that his prison sentence at the highest end of the guideline
range was substantively unreasonable because the court gave too much weight to the
nature and circumstances of the offense and not enough to his history and
characteristics or to the limits imprisonment would place on his ability to pay
restitution. Substantive reasonableness is reviewed "'under an abuse-of-discretion
standard.'" Dengler, 695 F.3d at 739 (quoting Gall v. United States, 552 U.S. 38, 51
(2007)). We evaluate the "substantive reasonableness of [a] sentence with reference
to the factors enumerated in 18 U.S.C. § 3553(a)." United States v. Zauner, 688 F.3d
426, 429 (8th Cir. 2012) (internal quotation marks omitted). A sentence which falls
within the guideline range is presumed to be reasonable, and district courts are
allowed "'wide latitude to weigh the § 3553(a) factors in each case and assign some
factors greater weight than others in determining an appropriate sentence.'" United

                                          -9-
States v. Maxwell, 664 F.3d 240, 247 (8th Cir. 2011) (quoting United States v.
Bridges, 569 F.3d 374, 379 (8th Cir. 2009)).

       As Callaway concedes, the 71 month sentence imposed by the district court fell
within the guideline range for his offense. In imposing this sentence, the district court
considered Callaway's medical condition and military service, but decided that the
former was ordinary for a person his age and the latter did not excuse his crime. It
decided to assign significant weight to the fact that Callaway knew of Bryant's acute
state of need, knew his fraudulent scheme was making it worse, was repeatedly
reminded of her worsening circumstances, had numerous opportunities to alleviate the
condition he helped cause, and yet resisted every time. We conclude the district
court's weighing of these matters was not an abuse of discretion.

       Finally, Callaway maintains the district court clearly erred in imposing a
$25,000 fine since he asserts the record demonstrates that he cannot pay it. The
sentencing guidelines instruct courts to "impose a fine in all cases, except where the
defendant establishes that he is unable to pay and is not likely to become able to pay
any fine." U.S.S.G. § 5E1.2(a). The defendant has the burden of proving inability to
pay. United States v. Berndt, 86 F.3d 803, 808 (8th Cir. 1996). Representation by
appointed counsel is a "significant indicator[] of present inability to pay any fine."
U.S.S.G. § 5E1.2 cmt. 3. Other factors courts are to consider when determining the
amount of a fine include "the need for the combined sentence to reflect the seriousness
of the offense . . . to promote respect for the law, to provide just punishment and to
afford adequate deterrence." U.S.S.G. § 5E1.2(d)(1). Although it "need not provide
detailed findings under each of the factors," a district court "must provide enough
information on the record to show that it considered the factors . . . so that the
appellate court can engage in meaningful review." Berndt, 86 F.3d at 808.

     Callaway was represented by a public defender, and the district court
acknowledged that the presentence report indicated his finances were "not in terribly
good shape at this point." However, the presentence report also indicated that

                                          -10-
Callaway would be able to make payments toward a fine and restitution even if he
were incarcerated. The district court thus concluded that Callaway "has had the ability
to earn relatively large sums of money" and that there was no "reason why he can't
again in the future." It then imposed a fine at the low end of the $10,000 to $100,000
range recommended by the guidelines. Because it reasonably concluded that
Callaway would be able to pay the $25,000 fine, the district court did not err in
imposing it.

                                          III.

      Because the district court did not plainly err in its calculation of the total loss
amount from Callaway's fraudulent acts or in adding a 2 level enhancement for a
vulnerable victim and because the sentence imposed is substantively reasonable, we
affirm Callaway's sentence of 71 months in prison. We also affirm the district court's
imposition of a $25,000 fine based on his earning capacity.
                       ______________________________

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