Court Opinion

ID: 1010470
Source: CourtListenerOpinion
Date Created: 2013-07-04 20:11:57.625533+00
Date Added: 2024-06-11T15:12:41.893706
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA,               
                 Plaintiff-Appellant,
                 v.                              No. 02-4034
MANUS E. SUDDRETH,
              Defendant-Appellee.
                                        
UNITED STATES OF AMERICA,               
                 Plaintiff-Appellee,
                 v.                              No. 02-4042
MANUS E. SUDDRETH,
             Defendant-Appellant.
                                        
           Appeals from the United States District Court
            for the District of Maryland, at Baltimore.
                 Marvin J. Garbis, District Judge.
                         (CR-00-507-MJG)

                      Argued: February 27, 2003

                       Decided: April 28, 2003

      Before MICHAEL, KING, and SHEDD, Circuit Judges.

Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.
2                    UNITED STATES v. SUDDRETH
                             COUNSEL

ARGUED: Samuel Robert Lyons, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant.
Caroline D. Ciraolo, MARTIN, SNYDER & BERNSTEIN, P.A., Bal-
timore, Maryland, for Appellee. ON BRIEF: Eileen J. O’Connor,
Assistant Attorney General, Robert E. Lindsay, Alan Hechtkopf, Tax
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellant.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                              OPINION

PER CURIAM:

   Manus E. Suddreth was indicted on two counts of willfully filing
materially false individual income tax returns for tax years 1993 and
1994. A jury returned a guilty verdict on both counts. The district
court sentenced Suddreth to 12 months of imprisonment with a rec-
ommendation that the sentence be served in community confinement
with work release.1 The government appeals, alleging that the district
court (1) incorrectly calculated Suddreth’s criminal history category;
and (2) improperly granted Suddreth a downward departure based on
his accountant’s incompetence in preparing his tax returns. Suddreth
cross-appeals, contending that there was insufficient evidence to sup-
port the jury’s finding that he willfully made false statements on his
1993 and 1994 federal tax returns.

    1
   The government alleges that the Federal Bureau of Prisons accepted
the district court’s recommendation, and that Suddreth was scheduled to
complete his community confinement on March 1, 2003.
                     UNITED STATES v. SUDDRETH                      3
                                  I.

   Because a ruling in favor of Suddreth on his cross-appeal would
render the government’s appeal moot, we decide the cross-appeal
first. In evaluating the sufficiency of the evidence, we consider
whether any rational trier of fact could have found the essential ele-
ments of the crime beyond a reasonable doubt. United States v.
Lomax, 293 F.3d 701, 705 (4th Cir. 2002). In doing so following a
conviction, we view all the evidence and the reasonable inferences
drawn therefrom in the light most favorable to the government. Id.

    Suddreth, a man with little formal education, has nevertheless
owned and operated several businesses in the Baltimore area. One of
his primary ventures is Patapsco Excavating Company (PEC), a land-
fill and excavating business, which Suddreth formed in the late 1980s.

   During the early 1990s, Suddreth employed two individuals to run
the office at the PEC landfill site. Neither had any bookkeeping or
accounting education or experience.

   When customers paid by check, Suddreth would often have the
checks cashed for a fee at a check-cashing company several miles
away, even though PEC maintained an account at a bank just one mile
from its office. Some of this cash was used to pay the wages of PEC
employees. After the checks were negotiated, the cash was placed in
separate envelopes and given to each employee, and Suddreth would
receive the surplus in an envelope after the processing fee was paid.
Suddreth always received the most money.

   Many PEC customers paid in cash. Often, PEC would receive any-
where from $200 to $1,000 per day in cash. These monies were
placed in an envelope by the office staff and given to Suddreth at the
end of each day. Suddreth told the office staff not to keep records of
the amount of cash received from these cash transactions.

  Suddreth also had his office staff pay many of his personal
expenses by writing checks from the PEC account. In 1993 and 1994,
Suddreth used PEC monies to, among many other things, buy per-
sonal vehicles, recondition an antique car and a boat, make extensive
4                    UNITED STATES v. SUDDRETH
renovations at his hunting camp in West Virginia, pay personal
expenses for family and friends, purchase real property, and establish
a tanning salon. Also, when Suddreth needed money to go on trips to
Florida or to go to his hunting camp in West Virginia, he would have
his office employees cash PEC checks at the check-cashing company
and give the cash to him for his expenses.

  The government adduced evidence that in 1993 Suddreth diverted
more than $330,000 of PEC monies for his personal use. Also, in
1994 Suddreth diverted more than $160,000 of PEC monies for his
personal use.

   Suddreth met Marc Einstein, a former IRS revenue agent and CPA,
in the late 1980s. Suddreth initially retained Einstein to advise him
regarding a potential real estate development. Thereafter, Einstein’s
role broadened. He helped Suddreth restructure corporate entities,
market an industrial park, collect rents and pay mortgages, prepare
loan applications with banks, and negotiate with the City and County
of Baltimore on problems relating to PEC’s landfill. Einstein was also
retained to prepare the corporate return for one of Suddreth’s busi-
nesses, but Suddreth never hired Einstein to do the corporate return
for PEC. Eventually, Suddreth hired Einstein to do his individual
returns.

   Even though Suddreth diverted nearly half a million dollars from
PEC to pay his personal expenses in 1993 and 1994, Suddreth
reported income of only $76,984 in 1993 and $4,700 in 1994 on the
tax returns prepared by Einstein. After receiving his 1993 return from
Einstein, Suddreth told him that he was disappointed over how much
tax he owed. Suddreth signed both of these returns, verifying: "Under
penalties of perjury, I declare that I have examined this return and
accompanying schedules and statements, and to the best of my knowl-
edge and belief, they are true, correct, and complete." J.A. 193, 221.

  Suddreth was indicted on two counts of violating 26 U.S.C. §
7206(1) (1993 and 1994), which provides: "Any person who . . .
[w]illfully makes and subscribes any return, statement, or other docu-
ment, which contains or is verified by a written declaration that it is
made under the penalties of perjury, and which he does not believe
                      UNITED STATES v. SUDDRETH                        5
to be true and correct as to every material matter . . . shall be guilty
of a felony . . . ."

   At trial, Suddreth raised the defense of reliance in good faith on his
accountant, Einstein. Suddreth claimed that Einstein had full access
to all of his records but made no effort to obtain any documentation
to properly prepare the returns. Einstein testified that Suddreth gave
him full access to request any records he wanted from the office
employees, but that he did not think there would be many records that
would be helpful for preparing the returns, because Suddreth’s record
keeping was so poor. Einstein also testified that he knew that Sud-
dreth was spending more than his rental income could sustain in 1993,
so Einstein merely estimated what that amount was based on what he
generally knew about Suddreth’s living expenses.

   The district court instructed the jury on the good faith defense as
follows:

    If the defendant while acting in good faith . . . believed Marc
    Einstein to be competent to prepare Federal income tax
    returns provided Marc Einstein with full and complete infor-
    mation with relation to his taxable income and expenses
    during the years 1993 and 1994, and the defendant then in
    good faith adopted, signed and filed the tax returns as pre-
    pared by Marc Einstein, without having reason to believe
    that they were not correct, then you should find the defen-
    dant not guilty. J.A. 156.

Thus, Suddreth had to prove both that he gave Einstein full and com-
plete information about his taxable income, and that he had no reason
to believe that the returns were not correct.

   There is more than sufficient evidence in the record establishing
that Suddreth knew the amount of income he reported on both the
1993 and 1994 returns was not correct. He diverted more than
$330,000 of PEC monies in 1993 for his personal use, but he reported
less than $77,000 income for that same period. Likewise, in 1994, he
diverted more than $160,000 but reported income of only $4,700.
When viewed in the light most favorable to the government, a reason-
able jury could find beyond a reasonable doubt that Suddreth did not
6                      UNITED STATES v. SUDDRETH
file his returns in good faith and, instead, falsely declared that the
returns were true and complete as to the amount of his income. Find-
ing the jury verdict to be appropriate, we now turn to the sentencing
issues raised by the government.

                                   II.

                     A. Criminal History Category

   The government contends the district court erred by reducing Sud-
dreth’s criminal history category. We review the grant of a downward
departure relating to a defendant’s criminal history category for abuse
of discretion. See Koon v. United States, 518 U.S. 81, 99 (1996). A
district court abuses it discretion, by definition, when it makes an
error of law. Id. at 100.

   Suddreth’s criminal history includes the following four convic-
tions:

    1.   1991:   Unauthorized fill of wetlands                  1
    2.   1995:   Litter dump over 500 pounds                    1
    3.   1995:   Driving under influence                        1
    4.   1997:   Litter dump over 500 pounds                    1
                                                                4

Under the Sentencing Guidelines, a criminal history score of four
placed Suddreth in criminal history category III. A score of three
would have placed him in category II.

   At sentencing, Suddreth argued, pursuant to guideline § 4A1.3, that
category III over-represented the seriousness of his criminal history.
In response, the district court decided not to count Suddreth’s 1995
DUI conviction. The judge subtracted the one point assigned for that
conviction based on his own "rule" that he does not count DUIs
unless the underlying crime (in this case, filing false income tax
returns) has some "driving relationship or some alcohol relationship."
J.A. 46. By refusing to count the DUI, the district court lowered Sud-
dreth’s criminal history category from III to II.
                      UNITED STATES v. SUDDRETH                        7
   The district court clearly misapplied the guidelines. It erred by
reducing Suddreth’s criminal history category based on its rule that
DUIs are not counted unless the underlying crime is related to alcohol
or driving. This rule runs contrary to the pertinent application note for
guideline § 4A1.2, n.5 (Definitions and Instructions for Computing
Criminal History), which provides: "Convictions for driving while
intoxicated or under the influence . . . are counted. Such offenses are
not minor traffic infractions within the meaning of § 4A1.2(c)."

   Because there is no articulated alternative basis in the record upon
which we might affirm the downward departure, we must remand. See
Williams v. United States, 503 U.S. 193 (1992). On remand, the dis-
trict court may consider whether another permissible ground exists to
warrant a finding that the "defendant’s criminal history category sig-
nificantly over-represents the seriousness of [his] criminal history or
the likelihood that [he] will commit further crimes." § 4A1.3.

                           B. Offense Level

  The government further contends that the district court improperly
granted Suddreth a downward departure based on his accountant’s
egregious conduct. We agree.

   The offense level for Suddreth’s criminal conduct is based on the
resulting "tax loss" to the government, i.e., how much tax Suddreth
failed to pay as a result of incorrectly reporting his income. At sen-
tencing, Suddreth and the government stipulated that the total tax loss
for 1993 and 1994 was approximately $128,000. The district court
adopted the stipulation as its finding. Based on the applicable tax loss
table (§ 2T4.1(J)), Suddreth’s offense level was 15.

   After stipulating to the tax loss and resulting offense level, Sud-
dreth moved the court to depart downward to level 9. Suddreth argued
that his offense was outside the heartland because he relied so sub-
stantially on Einstein, and because Einstein did such an egregiously
poor job in preparing the returns. The government contended that the
jury had already passed on that question when it rejected Suddreth’s
good faith reliance defense at trial.
8                     UNITED STATES v. SUDDRETH
  The district court granted Suddreth a downward departure.
Addressing Suddreth, the court stated:

    I think there is no question that you knew your taxes weren’t
    being paid in full. I think you were grossly dis-serviced as
    was the government . . . by this so-called accountant who
    made this offense far worse than it would have been. J.A.
    78.

The court reduced Suddreth’s offense level from 15 to 12 and sen-
tenced him to 12 months. By departing downward three levels, the
court effectively reduced the tax loss from the agreed to amount of
approximately $128,000 to less than $23,500.

   A district court "may impose a sentence outside the range estab-
lished by the applicable guideline, if the court finds ‘that there exists
an aggravating or mitigating circumstance of a kind, or to a degree,
not adequately taken into consideration by the Sentencing Commis-
sion in formulating the guidelines . . . .’" § 5K2.0 (citing 18 U.S.C.
§ 3553(b)). The Guidelines specifically outline certain factors that are
either encouraged, forbidden, or discouraged as bases for departures.
See United States v. Rybicki, 96 F.3d 754,757 (4th Cir. 1996). Also,
departures may be granted based on factors that are "unmentioned" in
the Guidelines. See id. at 757. Unmentioned factors may justify a
departure only when:

    the structure and theory of both relevant individual guide-
    lines and the Guidelines as a whole indicate that they take
    a case out of the applicable guideline’s heartland. The inter-
    pretation of whether the Guidelines’ structure and theory
    allow for a departure is . . . a legal question subject to de
    novo review to determine whether the district court abused
    its discretion. Id. (internal citation and quotations omitted).

Departures based on unmentioned factors should be awarded highly
infrequently. Id.

  Reliance on an accountant is an unmentioned factor under the
Guidelines. Suddreth argues that his substantial reliance on his incom-
                      UNITED STATES v. SUDDRETH                         9
petent accountant takes his case outside the heartland of false tax
return filing cases. We disagree.

   First, it is not uncommon for a person, like Suddreth, who intends
to file a false tax return, to rely on or even act in consort with an
accountant. It is not unusual, because a false filer will no doubt appre-
ciate the perceived protection of having the imprimatur of his accoun-
tant on the return. If caught, the false filer, like Suddreth, can always
try to transfer the blame to the tax preparer. Suddreth advanced this
defense before the jury, but it failed.

   In deciding that Suddreth’s case was outside the heartland, the dis-
trict court focused primarily on Einstein’s shoddy work. Although
Einstein’s performance may well have been unprofessional, we
believe that the district court’s focus minimized Suddreth’s culpabil-
ity for his own misdeeds. The evidence demonstrated that Suddreth
preferred cash transactions and purposefully kept very few records
that could be used to verify income. Moreover, the jury necessarily
found and the evidence was overwhelming that Suddreth knew that
he vastly under-reported his income. Even though Einstein had a duty
to prepare Suddreth’s returns accurately,2 Suddreth knew how much
money he was diverting from PEC for his personal use and the extent
of his personal spending. Suddreth was required by law not to file the
return if he believed (which he did) that it understated his income.
Suddreth’s case is not the highly infrequent one that warrants a down-
ward departure.

   Second, granting the downward departure in this case is inconsis-
tent with the structure and theory of the relevant guidelines. The dis-
trict court granted the departure because it believed that Einstein was
also at fault for the tax loss.3 The relevant guidelines do not provide
  2
     The district court seemed most troubled with Einstein’s adding
$80,000 in income on Suddreth’s 1993 return based on Einstein’s esti-
mate of Suddreth’s spending habits. Regardless of whether this approach
was legitimate, the resulting inclusion of the estimated income actually
lessened the tax loss for which Suddreth was held accountable.
   3
     By stating that Einstein "made this offense far worse than it would
have been," the district court ruled, in effect, that Suddreth knew he was
breaking the law but did not know how badly he was breaking the law.
There is no evidence that Suddreth intended some lesser tax loss than he
had stipulated to for purposes of sentencing.
10                    UNITED STATES v. SUDDRETH
for a downward departure for the false tax filer based on the wrongdo-
ing of his tax preparer. To the contrary, in cases in which the tax pre-
parer is found guilty of aiding or assisting the taxpayer in filing a
false return, the guidelines provide for an enhanced sentence for the
tax preparer, not a reduced sentence for the false return filer.
§ 2T1.4(b)(1). In this case, the government chose not to prosecute
Einstein, so the enhancement was not available to the district court.
Even so, it was inconsistent with the structure and theory of the
guidelines to grant Suddreth a downward departure based on the
alleged wrongdoing of Einstein.

                                  III.

   Therefore, we affirm the district court’s denial of Suddreth’s
motion for judgment of acquittal, and we reverse the reduction of
Suddreth’s criminal history category from level III to level II and the
downward departure of Suddreth’s offense level. We remand for
resentencing consistent with this opinion.

     AFFIRMED IN PART, REVERSED IN PART, AND REMANDED